Shares of e-commerce platform Shopify (NYSE:SHOP), and other growth stocks, might remain under pressure as U.S. inflation data continues to spook investors, adding insult to injury. To note, Shopify shares plunged 7% in the regular trading session on September 13 due to inflation worries. The stock has tanked 76% year-to-date.
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The U.S. Consumer Price Index (CPI) rose 0.1% in August compared to the prior month, as higher food and shelter costs offset a decline in gas prices. August’s CPI was up 8.3% on a year-over-year basis. These high inflation numbers reaffirm the Federal Reserve’s hawkish stance to hike interest rates to tame inflation. Of course, rising interest rates don’t bode well for growth companies, like Shopify, and might pull down its stock further. Also, the Fed’s rate hikes might push the economy into a recession, impacting consumer spending, and consequently constraining e-commerce sales.
Shopify’s Slowing Revenue Growth
Shopify delivered revenue of $1.3 billion in the second quarter, up 16% year-over-year. Q2 top-line growth reflected a continued slowdown as revenue grew 22% in Q1 2022 and 41% in Q4 2021. The reopening of the physical retail stores and macro challenges have been impacting Shopify’s revenue.
Moreover, the company slipped into an adjusted loss of $0.03 in Q2 2022 from a net income of $0.22 in the prior-year quarter. Growth investments weighed on the company’s bottom line.
Despite tough business conditions, Shopify continues to invest in tools to attract more merchants to its platform and drive further engagement with existing merchants. Solutions like Shopify Fulfillment Network and Shopify Markets (which help merchants set up and manage their international markets) are expected to drive future growth.
Shopify expects inflation and softness in consumer spending to persist in the remainder of the year. That said, the company sees 2022 as a transition year and is optimistic about its long-term prospects. Meanwhile, Shopify is cutting down on its workforce and reducing expenses in “lower priority areas and non-core activities” to improve its profitability.
What Is the Prediction for Shopify Stock?
Shopify recently appointed a new CFO and COO in a sudden executive shake-up. The company named Jeff Hoffmeister as the new CFO, succeeding Amy Shapero following the Q3 results. Hoffmeister has spent over two decades in Morgan Stanley’s Technology Investment Banking group.
Reacting to the news, Oppenheimer analyst Kenneth Wong stated that the “unexpected” appointment of Hoffmeister and the exit of the existing CFO could trigger “questions around near-term financials, operational mindset, M&A, and guidance philosophy.”
That said, Wong does not believe that the CFO change reflects the company’s dismal financial performance. The analyst added that his talks with the management reflect an increased focus on investor engagement, “which aligns with the onboarding of a Wall Street executive.”
Wong is “cautiously optimistic that management might again consider providing a formal financial outlook.” Wong reiterated a Buy rating on SHOP stock and a price target of $45.
The Street is cautiously optimistic about Shopify stock, with a Moderate Buy consensus rating based on 12 Buys and 14 Holds. The average SHOP price target of $42.79 implies nearly 31% upside potential from current levels.
Conclusion
Shopify might continue to be under pressure as macro challenges are expected to further impact e-commerce spending and hurt the company’s growth rates. Given an uncertain business environment, it might be prudent for conservative investors to follow a wait-and-watch approach.
As per TipRanks’ Smart Score system, Shopify scores two out of 10, which indicates that the stock might underperform the broader market.
