What happened
Shares of Shopify (SHOP 4.90%) climbed 18% in May, according to data from S&P Global Market Intelligence..
This rise brings the total year to date gain for Shopify's shares to 60.3%.
Image source: Getty images.
So what
Shopify released a commendable set of earnings for its fiscal 2023 first quarter that not only demonstrated top-line growth but also revealed a surprising net profit. Revenue for both subscription and merchant solutions divisions rose year on year, resulting in total revenue that climbed 25.2% year over year to $1.5 billion. Gross profit improved by 12.4% year over year to $717 million, and the e-commerce outfit posted a small net profit of $68 million, reversing the net loss of $1.5 billion in the prior year.
Shopify also generated a positive free cash flow of $86 million for the quarter, compared with a free cash outflow of $41 million a year ago. Operating metrics also recorded continued growth, with gross merchandise value increasing 15% year over year to $49.6 billion and gross payments volume jumping 25% year over year to $27.5 billion. These numbers show that merchants and customers continue to hop on to Shopify's platform despite fears that high inflation may dampen consumer spending.
Shopify has also decided to lay off another 20% of its workforce to further slash its fixed cost base. A one-off severance charge of around $140 million to $150 million will be booked in the second quarter. This reduction in staff strength is the second round of layoffs after the company cut 10% of its workforce in July last year. Management expects the business to generate free cash flow for the remaining quarters of 2023.
Now what
Shopify also announced that it plans to sell the majority of its logistics business to Flexport, a global logistics platform. This move seems like an about-face for the e-commerce company, as it had paid $2.1 billion to acquire last-mile delivery provider Deliverr just last May. The rationale for the divestment is that Flexport will become the official logistics partner for Shopify, enabling the latter to go asset-light. In turn, Shopify will receive a 13% equity stake in Flexport and can appoint a director to Flexport's board. It remains to be seen if this move will eventually benefit Shopify, as this decision runs counter to what the company was aiming to achieve late last year.
