Shopify stock is having one of its worst days yet as Wall Street wonders what’s to come

The global pandemic accelerated Shopify’s business in 2020 and 2021, causing the stock to more than quintuple from its March 2020 lows to its late 2021 peak. Those gains were wiped out in 2022, however, and they’re up more than 50% year-to-date before roughly halving on Thursday, with the stock now up 29.4% year-over-year.

While Shopify slightly met expectations for the holiday quarter in Wednesday’s report, its guidance left a lot to be desired. In particular, analysts were concerned about the lack of a clear guidance on first-quarter operating profit, although information provided by executives suggested an operating loss even on an adjusted basis, despite recently announced price increases.

Full Earnings Coverage: Shopify stock falls nearly 7% as forecast disappoints amid escalating Amazon rivalry, price hikes

The first-quarter guidance “implies that underlying earnings will be negative even as revenue growth slows,” wrote UBS analysts, while questioning whether price increases will help in the second quarter and a “sell” -Retain rating and price target of $32. “2Q could benefit from higher subscriber rotations with very high incremental margins, but at our recall it was clear to management that they weren’t eyeing the impact as traders could move to annual plans or to Plus or to other platforms.”

There was also an issue with what management said it wouldn’t deliver. They declined to provide full-year guidance, saying they would no longer report dealer counts, a key metric showing how many customers the company has.

“Unfortunately, investors shouldn’t expect additional transparency going forward as Shopify will no longer disclose the number of merchants, even as international growth becomes more important,” analysts at MoffetNathanson wrote.

“Many investors were expecting more explicit guidance/comment for fiscal 2023 [operating income] profitability that we have not achieved,” noted Barclays analysts.

Still, the report didn’t seem to change Wall Street analysts’ optimism about Shopify’s long-term prospects. Indeed, three analysts upgraded the stock Thursday morning while only one issued a downgrade, and 21 of the 48 analysts tracked by FactSet raised their price targets in response to the report, while only two gave a lower target.

“With 2023 estimates likely to be down, macro may not be as bad as feared a few months ago, and Shopify showing good traction on key growth initiatives, we like the setup for 2023,” William Blair analysts wrote while they beat a ” rating. “And the stock is likely to pull back significantly on Thursday…should create a good buying opportunity. While we expect the shares to remain volatile in the short-term, we see the potential for a longer-term re-rating of the shares as investors gain greater clarity and certainty about Shopify’s growth and profitability trajectory.”

“As these expectations change over the coming days/weeks, we believe investors could realize there is much to like going forward,” Barclays analysts wrote, while upgrading its price target to $40 from $30 .

But there are still many challenges ahead, including growing competition from Amazon.com Inc. AMZN,
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However, management could be looking for cooperation rather than competition, as several analysts wrote that executives told them Shopify is looking to partner with Amazon and integrate Buy With Prime into its own services.

See Also: Amazon Challenges Shopify, and Shopify’s Stock Is Losing So Far

“Management commented that it is in discussions with Amazon…for the integration of Buy With Prime, although it did not provide many details,” analysts at William Blair wrote, while analysts at Barclays wrote that “Amazon/Buy-With-Prime integration negotiations are still ongoing, which can remain an overhang.”

In the end, analysts seemed satisfied with the long-term performance but concerned about the near-term results.

“In theory, Shopify has the wind in its sails as the democratizing force of internet entrepreneurship in a world that’s increasingly conducting online. In practice, opportunities are being wiped out by near-term questions on margins, Buy With Prime, merchant growth, capital intensity and Shopify Fulfillment Network cost headwinds,” analysts at MoffetNathanson wrote, while raising and maintaining their price target to $32 from $30 a market perform rating.

As of Thursday morning’s notes, 20 analysts had the equivalent of a “buy” rating on Shopify stock, while 25 called it a “hold,” and three gave the stock a “sell” or equivalent rating, according to FactSet. The average target price was $47.65.

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