Shopify's downbeat revenue growth forecast sends shares to six-month low

By Harshita Mary Varghese

(Reuters) - Canadian e-commerce platform Shopify forecast its slowest quarterly revenue growth in two years against the backdrop of an uncertain economy and tepid consumer spending, sending its shares slumping about 20% on Wednesday.

The Toronto-listed shares hit their lowest in six months and the company was on track to lose C$25 billion ($18.21 billion) in market value as the dour outlook overshadowed a first-quarter beat.

Rebounding e-commerce growth from a post-pandemic slump has collided with cautious consumers cutting down on discretionary spending, denting Shopify's efforts to integrate AI-based tools into its products and price hikes.

Adding to the pressure, the company's core clientele is made up of small and medium-sized businesses that have been more susceptible to the hit from sticky inflation.

Price increases will provide a smaller benefit in the current quarter compared to the prior period, finance chief Jeff Hoffmeister said on a post-earnings call.

"In the second quarter, we begin to lap the initial pricing changes on our standard plans that went into effect in April of 2023, resulting in a headwind to our revenue growth quarter-over-quarter."

Shopify said on Wednesday it expected second-quarter revenue to grow at a high-teens percentage, disappointing investors who had seen average growth of about 26% over the past few quarters.

Analysts estimated current-quarter revenue to grow 19.35%, according to LSEG data.

Shopify also expects operating expenses to increase by a low-to-mid-single digit percentage rate in the second quarter, compared with a 4% fall in the first three months of the year.

The results included the impact of the sale of its logistics arm to freight forwarder Flexport.

"Despite a strong Q1 report, the forecast for margin contraction and lighter-than-expected Q2 revenue is sounding the alarm bell for investors," said Charlie Miner, analyst at Third Bridge.

Shopify reported first-quarter revenue of $1.86 billion, compared with analysts' average estimate of $1.85 billion.

Excluding items, earnings of 20 cents per share also topped expectations of 17 cents.

Subscription Solutions revenue was $511 million, a 34% jump from a year earlier, helped by the price increases and more merchants using its services.

($1 = 1.3732 Canadian dollars)

(Reporting by Harshita Mary Varghese in Bengaluru; Editing by Sriraj Kalluvila)