What happened
Shares of Shopify (SHOP 3.24%) are plunging 22.7% this week compared to where they closed last Friday, according to data provided by S&P Global Market Intelligence, after the e-commerce platform reported earnings that indicated its pandemic tailwinds have evaporated.
CFO Amy Shapero told analysts, "We believe that the Covid-triggered acceleration of e-commerce that spilled into the first half of 2021 in the form of lockdowns and government stimulus will be absent from 2022."
Image source: Getty Images.
So what
A combination of slowing revenue growth and the need to spend more on its platform to make Shopify more attractive to businesses that are shifting their focus once again to their brick-and-mortar stores has analysts believing it will be a tough slog going forward.
Shopify said it would begin ramping up capital expenditures (capex) in 2022, and then between 2023 and 2024 it would be spending $1 billion on new fulfillment warehouses the e-commerce platform will now operate itself.
In 2019 it had launched a five-year plan over which it expected to spend over $1 billion in capex, but so far it has only spent $117 million. It will now pour all that money into its operations over basically a two-year period.
Becoming more vertically integrated is a way to lower costs, improve efficiency, and enhance quality control, but it also introduces risk if its merchants don't actually use the warehouses.
NASDAQ: SHOP
Key Data Points
Now what
Yet it's not just fulfillment facilities Shopify is undertaking. It is offering a host of benefits that it believes will make its platform even more enticing to businesses.
Last month it launched Shopify Balance, a money management account that lets merchants forgo opening a business bank account; Shopify Capital, a small business loans operation; and Shopify Plus, a fully hosted enterprise e-commerce platform designed for fast-growing merchants and brands, including celebrities marketing themselves.
Shopify noted it had companies such as dental device maker Invisalign, meal kit company Hello Fresh, and apparel company French Connection, but also rapper Cardi B, singers Adele and Harry Stiles, and football great Tom Brady.
Shopify was also going to start selling non-fungible tokens, or NFTs, on its platform to help businesses and brands offer new ways to connect with their customers, fans, and others.
It's clear Shopify is trying to build on the momentum it developed during the pandemic to become a one-stop shop for businesses, regardless of size or purpose, but the market is more concerned all these new ventures are too much for the e-commerce stock all at once that won't reverse slowing revenue growth fast enough.
