Shopify Inc. reported an unexpected quarterly loss as the Canadian e-commerce company increased spending to expand its customer network and build out fulfillment centers across the U.S. The shares tumbled in premarket trading.
In the third quarter, the adjusted loss per share was 29 cents, compared with earnings per share of 5 cents a year earlier, the company said in a statement. Analysts’ were expecting a profit of 10 cents, according to data compiled by Bloomberg.
The stock dropped as much as 9.5 per cent in pre-market trading in New York. Shopify’s share price has slumped by about 20 per cent since reaching a peak on Aug. 27 after an eight-month surge, as investors sold out of high growth stocks.
Shopify said in June that it planned to spend US$1 billion to set up a network of fulfillment centers in the U.S. to help merchants using its platform deliver products more quickly and cheaply, much the way Amazon.com Inc. does. The Ottawa-based company, which processes millions of individual sales by hundreds of thousands of merchants every year, could potentially pool shipments from different online stores together, making shipping cheaper and more efficient.
Storing products from different merchants in centralized warehouses would also bring down costs for sellers and buyers alike, and net Shopify another revenue stream.
That could help the company mount a defence against Amazon, which lowers prices and encourages merchants to use its own warehouses and shipping tools. The improvements have also helped attract new users to the platform and Shopify said it now has more than 1 million merchants around the world.
“Our strong results in the quarter were driven in part by the success of our international expansion, which is just one of the many ways we are investing in the platform,” said Chief Financial Officer Amy Shapero.
An increase in the net loss for the quarter, to 64 cents a share from 22 cents a year earlier, includes a tax provision of US$48.3 million, the company said.
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Revenue in the three months ending Sept. 30 grew 45 per cent to US$390.6 million, boosted by recent innovations in its online checkout system and a push to set up a delivery system. That beat analysts’ average estimate of US$383.8 million. Shopify raised its 2019 revenue guidance to US$1.55 billion to US$1.56 billion and boosted its fourth-quarter sales estimate to as much as US$482 million.
Even as the company reports high growth rates in sales, the 45 per cent increase in the third quarter was the slowest in Shopify’s four years as a public company. To combat that slowdown, it announced the purchase of 6 River Systems Inc. last month to ramp up its plan to set up a network of fulfillment centers in the U.S.
And while analysts have been bullish on the company with 16 buy ratings, 11 holds and only three recommendations, most believe the stock is fairly valued despite the recent slump. CIBC analyst Todd Coupland said in an Oct. 8 report that the share price correction was “justified” and its stock “reflects the company’s growth through 2020.”
Still, Shopify is one of Canada’s best-performing stocks, having gained 135 per cent this year as investors rewarded the company’s fast-growing sales and innovations in online checkout products. The tech company helps companies with online sales, and more recently, moved to also offer services for point-of-sale at brick-and-mortar stores, competing with Square Inc.