Inflation and rising interest rates will reduce consumer spending in 2022, the business said.
Shopify’s results for the second quarter were worse than expected, and the company warned that inflation and rising interest rates would hurt business in the second half of the year.
According to Refinitiv, analysts expected a gain of 2 cents per share, but the company made a loss of 3 cents per share. Analysts expected $1.33 billion in sales, but the company made $1.3 billion instead. As tech stocks went up, the stock went up about 6% by mid-morning.
Covid-19 loved the Canadian company that helps business owners set up an online store. When the pandemic forced stores to close for a while, many businesses turned to Shopify to set up an online presence. That sent Shopify’s stock to new highs, and for most of 2020 and 2021, it had double-digit growth in sales.
Investors are paying close attention to the earnings reports of retailers and e-commerce companies to see how high inflation and the possibility of a recession are changing how people spend their money. This week, Walmart cut its profit forecast, which was the most recent sign. Amazon will report its second-quarter results on Thursday, and Etsy will do the same after the market closes on Wednesday.
Shopify said on Wednesday that it now thinks 2022 “will end up being different, more of a transition year, in which ecommerce has mostly reset to the pre-Covid trend line and is now being pushed by persistently high inflation.”
Given the pressure on consumer spending and currency headwinds from the stronger U.S. dollar, it was thought that the gross merchandise volume would be spread out more evenly over the four quarters. Shopify also said that it expects to have an operating loss for the second half of 2022 when everything is taken into account.
The results come a day after Shopify said it was letting go of about 1,000 workers, or about 10% of its global workforce, because e-commerce growth had slowed down. The news sent Shopify’s stock tumbling, and by the end of Tuesday, shares were down 14 percent.
In a conference call with analysts on Wednesday, Shopify CFO Amy Shapero said the company plans to “slowly hire only the most strategic people” for the rest of 2022. It will also cut spending on “lower priority areas and non-core activities” and focus sales and marketing spending on “activities with shorter payback periods.”
Shopify CEO Tobi Lutke said on the call that the company is committed to being very efficient in how it runs.