Shopify Slumps on Downbeat Q2 Outlook: ETFs in Focus

The multi-tenant, cloud-based, multi-channel commerce platform Shopify SHOP slumped about 18.6% on May 8 after the company issued a downbeat revenue forecast for the fiscal Q2 2024. On May 8, 2024, the company reported first-quarter 2024 earnings before the market opened.

Shopify came up with adjusted quarterly earnings of $0.20 per share, beating the Zacks Consensus Estimate of $0.16 per share. This compared to earnings of $0.01 per share a year ago. This quarterly report represents an earnings surprise of 25%.

Shopify, which belongs to the Zacks Internet - Services industry, posted revenues of $1.86 billion for the quarter ended March 2024, surpassing the Zacks Consensus Estimate by 1.36%. This compares to year-ago revenues of $1.51 billion.

Shopify said gross merchandise volume, or the total volume of merchandise sold on the platform, increased 23% to $60.9 billion. That surpassed consensus expectations of $59.5 billion, according to StreetAccount, as quoted on CNBC.

Shopify's AI Initiatives

Shopify has lately boosted its AI features for businesses, including "Shopify Magic" which can automatically generate listings and edit images, among other things. However, its rivals including Amazon, Etsy and eBay all are binging on AI features, which means such an initiative is less likely to be a game-changer for Shopify in the near term. 

Disappointing Guidance

For the second quarter of 2024, Shopify anticipates revenue growth in the high teens year-over-year, translating to a growth rate in the low-to-mid-twenties after adjusting for the 300 to 400 basis point impact from the sale of its logistics businesses. This is a slowdown from the previous period.

Gross margin for Q2 is expected to decrease by approximately 50 basis points compared to Q1 of 2024. Meanwhile, Shopify said it expects operating expenses to increase in the low-to-mid single digits quarter-over-quarter, while Wall Street had projected flat growth, per CNBC. This very outlook marred an otherwise upbeat Q1.

On a conference call with analysts, Shopify executives said consumer spending in the U.S. remains strong, but the management is worried about headwinds related to foreign exchange from the strong U.S. dollar and some softness in European consumer spending.

ETFs in Focus

Against the above-mentioned backdrop, one may opt for a cautious stance regarding investing directly in Shopify. However, for those inclined toward a long-term investment strategy, leveraging the ETF route to purchase the stock during dips could be a prudent approach.

By doing so, investors can mitigate specific risks associated with individual companies. Notably, Shopify holds significant weight in various technology-focused ETFs. In the event of a potential Federal Reserve rate cut toward the end of 2024 and likely positive outcomes from Shopify's strategic initiatives, these ETFs could see favorable impacts.

First Trust Dow Jones International Internet ETF FDNI – Shopify's weight 8.87%

Bitwise Web3 ETF BWEB – Shopify's weight 8.66%

ARK Fintech Innovation ETF ARKF – Shopify's weight 7.51%

Franklin Disruptive Commerce ETF BUYZ – Shopify's weight 6.69%

To read this article on Zacks.com click here.