SHOP Stock Surges As Shopify Sells Logistics Business To Flexport, Q1 Earnings Surprise

E-commerce firm Shopify (SHOP) early Thursday reported earnings and revenue for the March quarter that topped analyst estimates. SHOP stock surged as the company also announced the sale of its delivery and logistics business to Flexport.

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Rising investments in the fulfillment/logistics business had pressured Shopify stock. Analysts said Shopify could never catch up to Amazon.com (AMZN).

“Shopify’s logistics efforts have been a point of contention with investors since the company announced its intention to enter the market in 2019,” William Blair analyst Matthew Pfau said in a note to clients. “Investors have been concerned about the capital requirements of building a logistics network as well as the potential impact to margins.”

He added: “Compounding the issue, Shopify has shifted its logistics strategy multiple times, initially going with an asset-light model, then shifting to a mixed first-party and third-party model, then acquiring Deliverr. Accordingly, the sale of the logistics business is going to be well-received by investors as it simplifies Shopify’s story and bodes well for higher margins both in the short and long term.”

For the first quarter ended March 31, Canada-based Shopify said it earned one cent per share on an adjusted basis, down a penny from a year earlier. Also, revenue for Shopify stock rose 25% to $1.5 billion, the company said. Shopify reported before the market open.

Analysts expected the Shopify earnings report to post a loss of 4 cents on revenue of $1.435 billion. A year earlier, Shopify earned 2 cents per share on revenue of $1.20 billion.

Meanwhile, the sales price of the Shopify-Flexport deal was not disclosed. Flexport will provide logistics services to Shopify. Shopify retains a minority stake in the logistics business.

SHOP stock spiked 21.1% to near 56 in early trading on the stock market today. That signals a breakout from a 49.96 cup-with-handle buy point.

Shopify Stock: Workforce Reduction Charges

Shopify said gross merchandise volume rose 15% to $49.6 billion. Analysts had predicted that number would come in at $47.746 billion.

For the June 2023 quarter, the company said it expects “revenue to grow at a similar rate to the first quarter growth rate on a year-over-year basis.”

In addition, Shopify said: “We also estimate that we will incur a severance charge in the range of $140 to $150 million in the second quarter of 2023 related to the workforce reduction” and sale of the logistics business.

After plunging in 2022, Shopify stock has advanced 34% this year.

Shopify sets up e-commerce websites for small businesses, and partners with others to handle digital payments and shipping. Further, the company is building a U.S. distribution network to store and ship products for its merchant customers.

Heading into the Shopify earnings report, the company owned a Relative Strength Rating of 87 out of a best-possible 99, according to IBD Stock Check-up.

Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.

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