What happened
Shares of Shopify (SHOP 1.11%) fell by 28% in February, according to data provided by S&P Global Market Intelligence. This sharp plunge means that the e-commerce platform-provider's shares have lost nearly half their value since the beginning of the year.
So what
Shopify capped fiscal year 2021 (FY2021) with a stellar set of earnings, buoyed by the sharp surge in the number of merchants joining its platform as a result of the pandemic. Total revenue increased by 57% year over year to $4.6 billion, while operating income nearly tripled year over year to $268.6 million.
Gross merchandise value (GMV) climbed by 47% year over year to $175.4 billion. Over at Shopify's payment portal, gross payments volume increased by 45% year over year to $27.7 billion with a 51% GMV penetration, up from 46% a year ago.
Image source: Getty images.
Despite the strong finish to the year, investors were more concerned about Shopify's growth for this year. The company has warned that 2022 will not enjoy the same level of growth as the prior two years as the tailwinds from digitalization and the pandemic's effects wear off. A key reason for this is the high base that the first half of 2021 had set up, and Shopify doesn't expect the surge in e-commerce adoption to be as strong in the first half of 2022.
Shopify also revised its contract terms with its partners, and this change only kicked in during the second half of 2021 and will result in the recognition of lower net revenue. It will also be a headwind for the company's subscription-solutions revenue in the first half of this year. Increased spending on marketing initiatives and business development will also crimp margins this year.
Now what
This forecast is disappointing for investors who expected Shopify's growth momentum to continue this year. However, the muted forecast is in line with what other technology and cloud-computing companies are reporting as pandemic-related restrictions ease around the world. The important thing to note is that Shopify still expects to record year-over-year growth, albeit at a slower pace.
Meanwhile, Shopify is continuing with its plan to invest in its platform to make it easier for merchants to scale their businesses and sell products to other regions. Plans for this year include opening up more channels for merchants to connect with more buyers, allowing them to go global with their businesses, and simplifying the fulfillment process to allow for faster and more efficient deliveries.
