Shopify’s stock hit its lowest price in six months on Wednesday morning, following the commerce infrastructure company’s Q1 earnings announcement.
The company reported a 23 percent increase in revenue compared to last year. Adjusted for the impact of Shopify’s sale of its logistics business to Flexport in 2023, the company has seen 29 percent year-over-year growth.
Despite those outcomes, investors seem to be disenchanted by Shopify’s outlook for Q2.
The company noted that it projects “Revenue to grow at a high-teens percentage rate on a year-over-year basis, which translates into a year-over-year growth rate in the low-to-mid-twenties when adjusting for the 300 to 400 basis point impact from the sale of [its] logistics business.”
That means that investors who saw a 23 percent increase in Shopify’s revenue this quarter could be looking at the company’s slowest quarterly revenue growth in two years.
“Operating expenses were $871 million for the quarter in line with our expectations and representing 47 percent of revenue,” Jeff Hoffmeister, Shopify’s chief financial officer, said on the call. “Compared to Q1 of 2023, operating expenses [for] Q1 2024 were down 4 percent. The decline year over year was primarily due to the sale of the logistics business and lower headcount partially offset by increases in marketing spend.”
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The company said it expects operating expenses to increase at a “low-to-mid single digit percentage rate compared to Q1 2024.” It also projects gross margins will decrease by 50 basis points in Q2 2024.
Though Harvey Finkelstein, president of Shopify, and Hoffmeister spoke at length on the earnings call about the company’s use of artificial intelligence, the promise of that technology wasn’t enough to keep investors on board.
Rent the Runway’s recent mention of AI in its earnings—paired with the projection of annual revenue growth between 1 percent and 6 percent—was enough to skyrocket the stock’s price on the day of its Q4 2023 earnings call.
Shopify did not reap that same benefit Wednesday.
Nonetheless, Hoffmeister noted that the company leverages AI to help “remain disciplined on headcount,” citing Shopify’s use of AI for merchant support interactions. According to Hoffmeister, over half of those types of interactions were assisted with AI in Q1, often fully resolving customer issues.
“We have significantly enhanced the merchant experience. The average duration of support interactions has decreased, and the introduction of AI has helped reduce the reluctance that some merchants previously had toward asking questions that they might perceive as trivial or naive,” he said. “Additionally, our support staff has experienced a significant reduction in the amount of toil that is part of their jobs. We are improving the merchant support process and achieving much greater efficiency than ever before.”
The company’s proprietary AI solutions for merchants will continue to grow and aid businesses in quarters to come, Hoffmeister said, noting that Shopify is “just scratching the surface of what’s possible” with AI.
The company maintains that it has a strong position in the market.
“You’re seeing the strongest version of Shopify in our history. Our outstanding Q1 performance is clear proof of our dedication to the new shape of Shopify, our commitment to operating with a consistent team size and our focus on building for the long-term to deliver both growth and profitability,” Finkelstein said in a statement.