Shopify’s shares tumble on weak outlook after a very strong start to 2024

Shares of Shopify plunged Wednesday after the Canadian company that helps retailers with online sales warned of easing revenue growth and thinner margins in the current quarter.

That caught a lot of investors off guard after the company rebounded strongly from the pandemic and started 2024 with a bang.

Shopify Inc. predicts that revenue will climb by a high-teens percentage rate for the second quarter, well below the 23% jump in the first quarter.

The e-commerce company anticipates quarterly gross margin will decrease by about 50 basis points compared with the first quarter, when that measured 51.4%.

Shares slid 19.5% in afternoon trading, a bit of a recovery after having been down more than 21% earlier.

For the first quarter, Shopify reported an adjusted profit of 20 cents per share on revenue of $1.86 billion. Analysts polled by Zacks Investment Research expected a profit of 16 cents per share on revenue of $1.84 billion.

During a conference call Wednesday, Chief Financial Officer Jeff Hoffmeister said that while consumer spending in North America remains resilient, some softness in Europe and a strong U.S. dollar are factored into its outlook.

Europe’s economy perked up slightly at the start of the year, recording 0.3% growth in the January-March quarter compared to the last three months of 2023. But the economy has been held back by high inflation that has sapped consumer purchasing power, and by an energy price spike related to Russia’s invasion of Ukraine.

Meanwhile, in the U.S. consumers remain largely resilient, but some other companies have noticed a pullback in spending from customers.

Starbucks lowered expectations for its full-year sales and profit in late April after a disastrous quarter that saw a slowdown in store visits worldwide. In the U.S., Starbucks saw a sharper and faster decline in consumer confidence and spending than it had anticipated.

The Conference Board, a business research group, said late last month that U.S. consumer confidence fell for the third straight month in April as consumers continue to confront elevated prices and high interest rates.

McDonald’s said late last month that it plans to increase deals and value messaging to combat slowing sales.

The Chicago fast food giant said inflation-weary customers are eating out less often in many big markets. In the first quarter, fast food traffic was unchanged or down in the U.S., Australia, Canada, Japan, the United Kingdom and Germany.

The government is slated to report retail sales for the month of April next week, which should offer some more insight into shopping behavior.

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AP Retail Writer Anne D’Innocenzio in New York contributed to this report.