Shopify Swings to Q4 Loss; Plans $2B Fulfillment Investment
Shopify grew revenue 41% in Q4 to $1.38 billion on a strong holiday sales season, but it swung to a net loss of $371 million vs. profit of $124 million in Q1 2021, said the company Wednesday. Shares plummeted 16% to close at $142.65 after hitting a 52-week low at $120.
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The company’s 2022 outlook calls for lower revenue growth than the 57% year-on-year growth it reported in 2021, said Chief Financial Officer Amy Shapero on the company’s Wednesday earnings call. For Q1, “We don’t expect the COVID-triggered acceleration of e-commerce in the first half of 2021 from lockdowns and government stimulus to repeat in the first half of 2022,” she said. New terms with apps and theme developers will also affect revenue, and the company will bump spending on commercial initiatives and sales and marketing this year, she said.
The 2022 outlook assumes continued momentum for “entrepreneurship and digital commerce transformation against a more measured macro environment” vs. 2021, Shapero said. “While we believe that the COVID-triggered acceleration of ecommerce that spilled into the first half of 2021 in the form of lockdowns and government stimulus will be absent from 2022, and there is caution around inflation and consumer spend near term, for the full year, we see economic growth supporting the continued penetration of retail by ecommerce.” Shapero referenced Shopify’s “multichannel commerce” approach that offers brands of all sizes to build a “low-friction presence across the internet, in apps and in person.”
Shopify President Harley Finkelstein highlighted Shopify Fulfillment Network (SFN) and the company’s effort to enable two-day delivery for merchants on its platform. “We are shifting the network model to larger capacity hubs,” he said. Shopify wants to operate the fulfillment hubs itself for better quality control and to manage costs. It’s unifying the fulfillment network with its warehouse management system to “optimize” operations, with a goal of enabling “two-day delivery coverage to 90% of the U.S. population.” The buildout is expected to cost $2 billion through 2024.
The company’s fulfillment network investment is based on expectations of higher volumes, Finkelstein said. “We need to have enough capacity,” he said, but also the capacity has to be of "very high quality.” Shopify’s larger hubs are the backbone of the network, but it’s also working with partners' facilities that will be "spokes," Shapero said. “It’s not as if this will be entirely Shopify-owned, but we want to match Shopify warehouses with partner warehouses” with the expectation that quality and capacity will increase," Finkelstein said. The company had been in a “prototyping stage” for SFN; now it's going to the "build stage.”
Finkelstein sidestepped an analyst's question on whether the investment includes middle- or last-mile transportation to compete with Amazon and other competitive logistics solutions. He said the goal of SFN is to have a "sufficient amount of insight and information and feedback from merchants" to build "foundational features.” It will test one fee that covers "things like inbounding and pick-and-pack and storage and supplies.” The company’s goal is that “merchants don’t have to think about fulfillment," he said, calling the effort “complicated stuff” that’s “not easy to do.”
A 2022 investment initiative is to raise visibility and commercial efforts globally and help merchants to sell cross-border, Finkelstein said. Shopify hopes to remove barriers to global commerce by handling the challenges of different companies’ laws, regulations and customs, he said. Shopify Markets, which began rolling out in late January, is designed to “optimize international selling” by offering currency conversion, language translation of store content and calculation and collection of duties and taxes, he said.
Finkelstein referenced the channel it launched with Spotify that matches major music artists including Adele, Cardi B, Harry Styles with brands in clothing, champagne, food delivery and other categories. The company will announce more opportunities for brands to sell in “new and creative ways” in 2022, he said. That includes selling nonfungible tokens, a program now in beta testing that he called “a new way for brands, artists and creators to engage with their communities by selling their own NFTs across multiple blockchains.”