Shopify's revenue growth slows to its lowest level in seven years

Shopify's revenue grew 22%, but growth slowed

On May 5th local time, Shopify released its first quarter financial report ending March 31, 2022.

The financial report shows that in the first quarter of 2022, Shopify's revenue was approximately US$1.2 billion, a year-on-year increase of approximately 22%, and a two-year compound annual growth rate of 60%. Although the revenue hit a new record high, the revenue growth rate hit the lowest record in seven years.

At the same time, Shopify's revenue in the first quarter was also lower than the $1.24 billion previously expected by Wall Street analysts. It was a sharp decline compared with the company's 110% revenue growth rate in the first quarter of 2021. In addition, Shopify's first-quarter gross merchandise volume (GMV) was $43.2 billion, an increase of $5.9 billion from the first quarter of 2021, a growth rate of 16%, which was also lower than the market expectation of $46.5 billion.

Therefore, after Shopify released its financial report, the company's stock price plummeted by more than 15% after opening on May 5. As of the close of the day, Shopify's stock price fell by more than 14%. It is understood that before the release of the financial report, due to supply chain pressure, high inflation and weak consumption, Shopify's stock price had fallen by more than 66% from the beginning of the year.

In terms of specific revenue, Shopify's subscription solution revenue in the first quarter was $344.8 million, an increase of 8% year-on-year. Shopify said that this was mainly due to the increase in revenue generated by the increase in platform merchants. Merchant solution revenue was $858.9 million, a year-on-year increase of 29%, mainly due to the growth of platform GMV and the increased penetration of merchant solutions such as Shopify Payments, Shopify Capital and Shopify Markets.

Shopify Chief Financial Officer Amy Shapero pointed out that Shopify's year-on-year revenue growth rate is expected to be lower in the first half of 2022, while revenue growth will be the highest in the fourth quarter, mainly due to the lack of stimulus spending by consumers and the expected higher inflation rate in the first half of the year.

In the first quarter of 2022 , Shopify's gross profit growth rate was lower than its revenue growth rate, increasing by only 14% to US$637.6 million. Shopify said that this was mainly due to the faster growth rate of revenue from lower-profit merchant solutions, which lowered the overall gross profit margin.

In terms of net profit, Shopify had a net loss of $1.5 billion in the first quarter of 2022, while the company's net income in the same period last year was $1.3 billion. The financial report explained that this was mainly due to Shopify's equity and other investment losses. To date, Shopify has made a series of different strategic investments in other technology companies, some of which have seen their valuations fall due to the sell-off in technology stocks.

For example, on the day of the financial report, Shopify officially announced the acquisition of e-commerce logistics company Deliverr for $2.1 billion in cash and stock. This is Shopify's largest deal ever. It is understood that Deliverr mainly provides delivery services for sellers who sell goods on Amazon, Walmart, eBay and other e-commerce platforms.

Judging from Shopify’s financial reports for the fourth quarter of 2021 and the first quarter of this year, the trend of slowing growth in Shopify’s performance has become very obvious.

The epidemic has promoted the popularity of e-commerce, and e-commerce platforms such as Shopify have become beneficiaries in the process of changing consumer channels. However, as the dividends brought by the epidemic began to fade, many foreign governments announced the cancellation of epidemic restrictions, and the era of rapid growth of cross-border e-commerce has passed.

It is understood that in addition to Shopify, large e-commerce platforms such as Amazon, Wish, eBay, and Wayfair have also recently announced their revenue for the first quarter of 2022. Data shows that the year-on-year revenue growth of most e-commerce platforms in the first quarter of this year was relatively slow. Among them, Amazon set a record for the slowest growth in 20 years, and Wish's revenue fell sharply.

The revenue growth of many platforms has declined, and the cross-border e-commerce industry is facing transformation

On May 5, local time, Wish released its first quarter financial report for 2022, with total revenue of $189 million, a year-on-year decrease of 76%. Among them, core market revenue was $90 million, a year-on-year decrease of 81%; ProductBoost (Wish platform seller tool) revenue was $14 million, a year-on-year decrease of 72%; logistics revenue was $85 million, a year-on-year decrease of 65%; net loss was $60 million, a year-on-year increase of 53%.

Although Wish has frequently introduced policies to promote platform transformation since last year, judging from its revenue and profits in the first quarter of this year, the transformation process has not been so smooth.

Although revenue and profit do not look optimistic, Wish CEO Vijay Talwar said that the platform transformation has made progress. From the data, the platform's NPS (customer net recommendation value) score has increased, and refunds after product delivery have also decreased. At the same time, he also said that Wish will start increasing advertising spending in June this year (previously it started in August) to attract more consumers to return to the Wish platform.

In addition, Wish also plans to introduce new measures in the next few months, including launching a women's fashion category and reshaping the Wish brand, to further advance its transformation.

Why have cross-border e-commerce platforms seen their revenue growth slow down or even decline in recent times?

After comprehensive analysis, the main reasons for this situation are as follows: first, the increase in operating costs, including raw material costs, transportation costs (increase in container prices and fuel prices) and labor costs; second, affected by the supply chain, the global supply chain market will be in a state of instability for a long time before the epidemic is completely over; third, affected by the decline in overseas consumer demand, inflation, Russia-Ukraine conflict, etc., have caused consumer confidence in the United States, Germany, France and other countries to fall to a historical low. In addition, as global epidemic prevention has entered the normalization stage, the gradual recovery of the offline market has squeezed out online sales space to a certain extent.

The development of cross-border e-commerce platforms has slowed down, and domestic sellers have naturally been affected.

From the perspective of domestic macro data, according to the preliminary estimate of the customs, my country's cross-border e-commerce import and export volume in the first quarter of 2022 was 434.5 billion yuan, a year-on-year increase of 0.5%, of which exports were 310.4 billion yuan, an increase of 2.6%. Compared with the first quarter of last year, the import and export volume of cross-border e-commerce increased by 46.5% year-on-year, and exports increased by 69.3% year-on-year, the growth rate has obviously slowed down.

From the perspective of the overall domestic industry environment, cross-border e-commerce sellers are facing constant layoffs and more and more companies are on the road to transformation. All these indicate that the development of the cross-border e-commerce industry has entered a period of transformation. In order to seek better growth and long-term development, some sellers are actively or passively moving towards branding and transforming into value-driven companies.

In the past two years, the development of the cross-border e-commerce industry has experienced ups and downs. At the beginning of the epidemic, the cross-border e-commerce industry developed by leaps and bounds. Entering 2022, the industry development has entered a stage of slow growth. Various signs show that the industry's rapid development period has passed, but the overall development trend is still upward. Sellers need to change their business ideas and methods according to changes in the market environment. After going through the pain period and transformation period, sellers will usher in new growth points.

Cross-border e-commerce platform

Slowing growth

New Stage