Shopify shares hit their lowest price in six months on Wednesday morning after the commerce infrastructure company reported its first-quarter results.
The company reported a 23 percent increase in sales compared to the previous year. Adjusted for the impact of Shopify’s sale of its logistics business to Flexport in 2023, the company reported 29 percent year-over-year growth.
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Despite these results, investors appear disillusioned with Shopify’s second-quarter outlook.
The company noted that it expects “sales to grow at a high percentage rate in the teens year-over-year, which translates into a year-over-year growth rate in the low to mid-twenties on an adjusted basis,” with a 300 to 400 basis point impact from the sale from [its] Logistics business.”
That means investors who saw Shopify’s revenue rise 23 percent this quarter may be looking at the company’s slowest quarterly revenue growth in two years.
“Operating expenses were $871 million in the quarter, which was in line with our expectations and represented 47 percent of revenue,” Shopify CFO Jeff Hoffmeister said on the conference call. “Compared to the first quarter of 2023 operating costs [for] In the first quarter of 2024 it fell by 4 percent. The year-over-year decline was primarily due to the sale of the logistics business and lower headcount, partially offset by higher marketing expenses.”
The company said it expects operating expenses to increase in the “low to mid-single-digit percentage range compared to the first quarter of 2024.” It also expects gross margins to decline by 50 basis points in the second quarter of 2024.
Although Shopify President Harvey Finkelstein and Hoffmeister spoke extensively about the company’s use of artificial intelligence during the earnings call, the promise of this technology wasn’t enough to keep investors on board.
The recent mention of AI in Rent the Runway’s earnings — coupled with its forecast of annual revenue growth of between 1 percent and 6 percent — was enough to send its stock price higher on the day of its fourth-quarter 2023 earnings release.
Shopify didn’t benefit from that advantage on Wednesday.
Still, Hoffmeister noted that the company is using AI to “stay disciplined with headcount,” pointing to Shopify’s use of AI for merchant support interactions. According to Hoffmeister, in the first quarter, over half of these types of interactions were powered by AI, often completely resolving customer issues.
“We have significantly improved the dealer experience. The average length of support interactions has decreased, and the introduction of AI has helped reduce the reluctance some merchants previously had to ask questions they might find trivial or naive,” he said. “In addition, the workload of our support staff has been significantly reduced. We are improving the dealer support process and achieving significantly greater efficiency than ever before.”
The company’s proprietary AI solutions for merchants will continue to grow and help businesses in the coming quarters, Hoffmeister said, noting that Shopify is “just scratching the surface of what’s possible” with AI.
The company claims to have a strong market position.
“You’re looking at the strongest version of Shopify in our history. “Our outstanding first quarter performance is a clear demonstration of our commitment to the new shape of Shopify, our commitment to working with a consistent team size, and our focus on building for the long term to achieve both growth and profitability,” Finkelstein said in a statement.