Shopify got no air from an expectation-exceeding first quarter, as the commerce company’s shares tumbled on a forecast of slowing growth and continued spending to grow its customer base. Here’s what you need to know.

The top: The Ottawa-headquartered firm reported US$1.86 billion in revenue between January and March, an increase of 23.4 per cent year over year and ahead of analysts’ consensus estimate of US$1.84 billion as compiled by FactSet. Merchants used the company’s technology to sell US$60.9 billion worth of product in the first quarter, up from US$49.6 billion in the same period of 2023.

Consumers drove the gains by buying more from Shopify’s clients, with European shoppers proving particularly lucrative. The company also added more major brick-and-mortar retailers. Shopify’s revenue figures also benefited from the effect of a price hike for its regular software subscription, which kicked in last April, and its success signing ever-more clients up to its money-spinning payments processing service. 

The bottom: While Shopify’s books show a US$273-million net loss for the quarter, swings in the value of the firm’s equity in its portfolio of startups accounted for all that red ink. The company reported adjusted earnings per share of US$0.20, beating FactSet’s consensus of US$0.17.

On an earnings call Wednesday morning, executives touted improved margins, boosted by last May’s move to sell off the firm’s logistics network, which had been expensive to build and run. The firm simultaneously laid off about a fifth of its workers, and CFO Jeff Hoffmeister noted that it’s held headcount more or less flat since.

Some of that is down to AI, which helped with or fully handled over half of customer service calls in the first three months of the year, he said. “Our support staff has experienced a significant reduction in the amount of toil that is part of their jobs.” (Workers have expressed some concerns over changes to the support division.)

The future: “We think the consumer remains resilient,” Shopify president Harley Finkelstein said. “We’re seeing consumers buying their favorite brands that they love and feel affinity to, [and] those brands are on Shopify.”  

But markets reacted to the raw numbers. Shopify’s second-quarter outlook forecasts a year-over-year revenue increase in the high teens, below the 25 per cent-plus figures it’s been averaging in recent reporting periods. (The logistics exit will pull down growth by a few percentage points, the firm said.) It also anticipates a bump in operating expenses and a drop in gross margins.

The guidance “hints at growth deceleration, following the strong momentum from 2023,” ATB Capital Markets analyst Martin Toner wrote in an investor note. While Shopify continues to rival its global peers for performance, he attributed the stock sell-off to the lofty expectations implied by its high valuation.

The pitch: “This business can do something very rare and unique relative to almost every single company on the planet,” Finkelstein said. “We can deliver growth and margins, all while creating and leaning into opportunities that enhance our growth in the future.”

The reaction: Shopify’s shares on the New York Stock exchange fell as much as 21.3 per cent in Wednesday trading, even as the wider markets were relatively flat.