Investors have some big questions heading into the next earnings update from Shopify (SHOP 0.23%). In early May, the e-commerce platform specialist will reveal whether sales volume trends are stabilizing after slowing for several quarters. Shopify might also show progress toward shoring up the company's finances following a tough year of losses in 2022.
Let's take a closer look at Shopify's upcoming results, and what they might mean for investors looking to buy the growth stock today.
The big questions
The main question heading into the Q1 update is whether Shopify's core business has stabilized. Gross merchandise volume grew by just 16% in fiscal 2022 compared to a 47% spike in the prior year. Investors are concerned that the slowdown might continue into 2023 as consumers continue to shift spending back to in-person retailing.
Shopify can offset some of that pressure through growth initiatives like its push into payments processing. Higher fees for merchants will also help, assuming the price increase didn't spur too many cancellations in Q1. Overall, most investors are looking for sales to rise by about 19% this quarter, to $1.43 billion.
Balancing profitability
Investors are hoping for some big improvements on the financial front in 2023. Several major headwinds all hurt earnings last year, after all, including slowing growth, a shift toward lower-margin payments processing sales, and soaring spending. Shopify posted an $822 million net loss last year, equating to 15% of sales, compared to a profit of $269 million, or 6% of sales, in 2021.
SHOP Operating Margin (TTM) data by YCharts
Even on an adjusted basis, operating income was 0% of sales last year compared to 16% a year ago. So Wall Street will be looking for a rebound on this core metric over the next few quarters.
Looking ahead
Shopify's updated 2023 outlook could answer some big questions that investors have about its growth and earnings prospects. Heading into the Q1 report, that forecast calls for sales to rise in the high-teens percentage range while profitability improves slightly.
On the plus side, management sees e-commerce demand trends returning to a more normal level after last year's pandemic-related growth hangover. Shopify should also get a boost from those higher subscription plan fees.
The downside risks include cautious consumer spending due to inflation and slowing economic growth rates. Shopify faces plenty of competition as it seeks to bring more merchants of all sizes onto its platform, too.
Still, management is optimistic about Shopify's ability to improve on its current market share position that in 2023 accounted for about 10% of e-commerce sales. The company can boost that figure over time, with help from an expanding array of merchant services, including a growing fulfillment network. Merchants used "more of our mission-critical tools to run their businesses," Shopify President Harley Finkelstein said in mid-February, and there are many more additions to the platform on the way this year.
Investors willing to take on some risk might be tempted to buy the stock now, before its rebound path becomes clearer. Yet most investors will want to see some progress toward profitability before declaring Shopify an attractive growth stock.
