(M*) 06/05/2022
Narrow-moat Shopify reported first quarter results that fell well short of our expectations. Although we remain bullish on e-commerce over the long-term, the near-term outlook for Shopify remains uncertain (as evidenced by our very high fair value uncertainty rating) as we search for a new normal for e-commerce in a post-COVID world. Combined with modest negative revisions to our long-term growth estimates and meaningfully lower profitability assumptions throughout our forecast, we are cutting our fair value estimate to $450 per share from $730 (to CAD 580 from CAD 930 for Canadian shares). Shares appear fairly valued to us.
While Shopify does not provide guidance, it lowered its qualitative outlook for merchant additions for the year. Shopify has also already stepped up its spending levels in all areas, including sales and marketing, product development, and the continued build out of the Shopify Fulfilment Network (SFN). Shopify also formally announced the rumored acquisition of Deliverr for $2.1 billion, which will also be slightly dilutive to earnings. All of these factors drive our fair value estimate lower.
Revenue of $1.203 billion in the quarter decelerated to 22% year over year growth and fell short of FactSet consensus of $1.234 billion. Subscription revenue grew 8% year over year, while merchant solutions grew 29% year over year, with both segments missing our expectations. Over the last several quarters the firm has only been missing on Subscriptions, so this latest development, despite the challenging comparison a year ago, only further increases uncertainty in our view.
Gross merchandise volume, or GMV, on the platform grew 16% year over year to $43.2 billion, while gross payment volume processed through Shopify Payments was $22.0 billion, or 51% of GMV. We are not surprised by slowing GMV but still view these results cautiously.
