Financial Report Preview | "Small and Medium-sized Enterprise Hub" Shopify's Performance Expected to Improve, Will the Stock Price See a Rebound?

According to the financial news app Zhitong Finance, the Canadian e-commerce giant Shopify Inc. (SHOP.US) will announce its second-quarter 2024 performance before the US stock market opens on August 7th. Wall Street analysts generally expect a significant year-on-year improvement in Shopify's Q2 performance. The expected data shows that Shopify's Q2 total revenue is expected to grow by 17% to $2.01 billion. Under the NON-GAAP criteria, the earnings per share are expected to be around $0.20, indicating a potential 42% year-on-year increase in earnings per share.

Although the growth pace of the global e-commerce business has become normalized, consumers with low to medium incomes are tightening their consumption expenditures due to high interest rate pressures. Additionally, under the trend of weak labor markets in the United States and the Eurozone, consumers are finding it increasingly difficult to find jobs. As a result, they have been seeking to reduce their cost of living, which has been continuously exerting negative effects on the sales of Shopify merchants. This has been a core factor contributing to Shopify's recent poor performance and stock price decline.

Shopify's stock price has fallen by over 30% this year, significantly underperforming the US stock market benchmark S&P 500 index and lagging behind the entire e-commerce sector. In contrast, the leader in digital payments, PayPal (PYPL.US), has seen a nearly 1% increase in its stock price so far this year. In the second quarter, PayPal's total payment volume (TPV) across all platforms grew by 11% to reach $416.81 billion. Last week, PayPal raised its full-year adjusted profit expectations for the second time, betting on strong consumer spending during the back-to-school season and upcoming holiday shopping season. The company's comprehensive cost-cutting measures have also significantly improved its profit margins.

Furthermore, despite price increases and the launch of Shopify's new AI-based tools, the company remains at a disadvantage. The main factor behind this may lie in the fact that Shopify's core customer base consists of small and medium-sized businesses (SMBs), earning it the title of the global "hub for small and medium-sized enterprises." SMBs are more susceptible to the impact of long-term sticky inflation rates and high interest rates, which increases their sales and cost pressures, thereby dragging down Shopify's performance.

Since 2022, major economies worldwide, including the United States, have adopted aggressive interest rate hike policies to curb inflation. The continuous rise in interest rates and the long-term high-interest rate monetary policy maintained by central banks such as the Federal Reserve since 2023 have put significant financing pressure on SMBs. SMBs typically rely heavily on borrowing, so the increase in interest rates directly raises their financing costs, leading to increased operational pressures for businesses. This, in turn, severely impacts their investments and returns on platforms like Shopify, causing some SMBs to gradually exit Shopify and other SaaS platforms that empower merchants. SMBs are a crucial component of Shopify.

Small and medium-sized enterprises are often much more sensitive to changes in the macroeconomic environment compared to large enterprises. Their free cash flow reserves are far less than those of large enterprises, making them severely lacking in resilience against macro risks Against the backdrop of high inflation and high interest rates, small and medium-sized enterprises face even more severe challenges, especially with the increasing number of bankruptcies in the context of global economic slowdown.

This vulnerability is particularly evident in Shopify's long-standing weak performance data, leading to insufficient market confidence in its future performance growth, ultimately affecting its stock price performance. However, with Shopify's Q2 performance expected to improve significantly year-on-year, the stock price may also see a major rebound.

Furthermore, the competition in the global e-commerce sector is extremely fierce, especially with significant pressure from large e-commerce platforms such as Amazon. Although Shopify has introduced new AI-based IT service tools, in the large-scale AI technology innovation, including using AI for product promotion and AI automation of e-commerce workflows to improve enterprise e-commerce efficiency, Shopify still lags significantly behind its larger competitors like Amazon. These competitors not only have advantages in resources but also can provide more comprehensive services and lower costs, making it difficult for Shopify to rapidly expand its market share