Technology

Shopify stock plunges after announcement of $2.1 billion acquisition of Deliverr

Shopify on Thursday reported a $1.5 billion loss, or $11.70 per share, for the first quarter, as well as $1.2 billion in revenue. (Photo: Canadian Press)

OTTAWA — Shopify is making the biggest acquisition in its history as it tries to offset the shaky confidence of observers in its growth plan, which cost it the title of Canada’s most valuable company.

The e-commerce giant, whose market value has wiped out $100 million (M$) in recent months, announced on Thursday that it is buying U.S. logistics company Deliverr for $2.1 billion ($1 billion), sending its stock plummeting. fall more than 18% in morning trading.

Losses eased slightly, and the Ottawa-based company’s shares fell $88.67, or 14.3%, to $529.63 on the Toronto Stock Exchange, taking them to levels it hasn’t seen since March 2020.

Shopify has high hopes for ditching Deliverr, which it bought to help it expand its warehousing and shipping capabilities, as well as gain access to a new set of warehouses and couriers.

Deliverr, along with other automation and logistics technologies, will be used to create a network of warehouses owned by Shopify and third parties that can deliver packages in two days or less to more than 90% of the US, Shopify’s president assured. Harley Finkelstein.

“It’s complicated and it won’t be easy to do, but that’s where Shopify shines,” Harley Finkelstein said in an interview with analysts.

“The goal is to make order fulfillment something our sellers, especially in the US, don’t have to worry about.”

Shopify spokeswoman Stephanie Ross declined to reveal typical shipping times and volumes for the current Shopify network, but the company said Deliverr ships over 1 million orders per month across the United States.

Under the agreement, Shopify will allocate approximately 80% of the purchase price in cash and 20% in Shopify stock to the San Francisco acquisition.

Shipping and logistics have become increasingly important aspects of Shopify’s business ever since the company announced in 2019 that it was building a network of US fulfillment centers.

The network, which includes a self-managed and rented warehouse in Atlanta, was intended to help merchants of all sizes access new warehousing and shipping options and was seen as a natural progression for a company that was already helping businesses manage sales and payments. .

However, the move put Shopify in more direct competition with American e-commerce giant Amazon.com.

Quarter in red

Shopify has found it difficult to keep up with the times, which has disappointed investors in recent months.

On Thursday, the company announced a loss of $1.5 billion, or $11.70 per share, for the first quarter, along with revenue of $1.2 billion.

This result compared to earnings of $1.3 billion, or $9.94 per share, on revenue of $988.6 million in the same period last year.

On an adjusted basis, Shopify earned a profit of 20 US cents per share in the most recent quarter compared to an adjusted earnings of $2.01 per share in the first quarter of 2021.

Analysts on average had expected adjusted earnings of 68 US cents for the quarter and revenue of $1.25 billion, according to financial data firm Refinitiv.

Shopify is positioning its fulfillment network as the answer to its financial problems, but it will be expensive. The two-day shipping promise means Shopify will need a lot of nearby warehouses when those spaces are in very high demand and often sell at a premium. The company will also face labor shortages and employees demanding higher wages and additional benefits.

“It takes a lot of space and a lot of labor,” said Mike Crozat, founder and CEO of Supply Chain Alliance, a logistics company used by Walmart Canada, Canadian Tire and Lululemon.

“Shopify goes into this knowing that it is not an easy task, but if you have the (necessary) capital, a good management team and good plans, it is possible to do it. It has never been easy, but today it is even more difficult. »

Amazon also complicates things, he noted. Few companies have the precision, discipline, and sophistication of Amazon, which means that any competitor must match its offerings and innovate new ways to build a customer base.

“It’s doable, but they have to be as aggressive as Amazon and have deep pockets to expand you, get control of real estate, and hire people by paying people a little more,” Mr. Crozat explained. .

When Shopify announced its order fulfillment business in mid-2019, it set out to spend around $1 billion over the next five years.

So far, Shopify has spent $117 million of that amount, with a portion of the cash covering operating losses and capital costs, CFO Amy Shapero said on the same conference call as Harley. Finkelstein.

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