E-commerce company Shopify (shop) topped analyst estimates on revenue and earnings for the March quarter early Thursday. Shop shares rose after the company announced the sale of its delivery and logistics business to Flexport.
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Increasing investments in the fulfillment/logistics business put pressure on Shopify’s stock. Analysts said Shopify may never catch up Amazon.com (AMZN)
“Shopify’s logistics efforts have been a point of contention with investors since the company announced it would enter the market in 2019,” William Blair analyst Matthew Pfau said in a note to clients. “Investors are concerned about the capital requirements of building a logistics network and the potential impact to margins.”
He added: “To add to the problem, Shopify has changed its logistics strategy several times, initially going with an asset-light model, then moving to a mixed first-party and third-party model, and then getting delivered. Accordingly, the sales logistics business is going to be well-received by investors because it Making Shopify’s story easier and more profitable in the short and long term.”
For the first quarter ended March 31, Canada-based Shopify earned one cent per share on an adjusted basis, down one penny from a year ago. Also, Shopify’s earnings per share rose 25% to $1.5 billion, the company said. Announced before the Shopify marketplace opens.
Analysts had expected Shopify to report a loss of 4 cents on revenue of $1.435 billion. A year ago, Shopify earned 2 cents a share on revenue of $1.20 billion.
Meanwhile, the sale price of the Shopify-Flexport deal was not disclosed. Flexport will provide logistics services to Shopify. Shopify owns a minority stake in the logistics business.
SHOP shares rose 21.1% to close at 56 in early trade on the stock market today. This indicates a breakout from the 49.96 cup-with-handle buy point.
Shopify Role: Downsizing Fees
Shopify said total merchandise volume rose 15% to $49.6 billion. Analysts forecast the figure to be $47.746 billion.
For the June 2023 quarter, the company expects “revenue to grow at a rate similar to the first quarter growth rate on a year-over-year basis.”
In addition, Shopify said: “We also estimate that we will take a severance charge of $140 million to $150 million in the second quarter of 2023 in connection with the reduction in personnel and the sale of the logistics business.
After collapsing in 2022, Shopify stock has advanced 34% this year.
Shopify builds e-commerce websites for small businesses, and partners with others to handle digital payments and shipping. Also, the company is building a US distribution network to store and ship products to its business customers.
According to Shopify’s earnings report, the company had a relative strength rating of 87 out of a possible 99. IBD Stock Checkout.
Follow Reinhardt Krause on Twitter @reinhardtk_tech For updates on 5G wireless, artificial intelligence, cyber security and cloud computing.
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