By Ketki Saxena
Investing.com -- Beleaguered Canadian E-commerce giant Shopify (TSX:SHOP) is set to report Q2 earnings tomorrow morning before the opening bell.
Earnings per share are expected at C$0.034 on revenue of C$1.332 B, compared to EPS C$0.22 on Revenue of C$1.119 B a year ago as the e-commerce company contends with a sharp decline from its pandemic level growth peak - year to date, Shopify shares have lost nearly three-quarters of their value.
However, earnings are expected to be higher than in the first quarter (EPS C$0.020 on revenue C$1.204 B) with the company expected to have e benefited from its expanding merchant base and accelerated adoption of products including Shop Pay, Shop Pay Installments and Shopify Balance.
The company is also expected to benefit from its tie-ups with social media firms Twitter (NYSE:TWTR) and YouTube to target influencers selling their own brands, and its 10 -for-1 stock split instituted at the end of June in an attempt to attract retail investors.
Shopify Latest News
Shopify’s earnings will come a day after the company announced mass layoffs, cutting over 10% of its workforce as it struggles with sales growth as online shopping trends normalize from the pandemic-driven surge.
Chief Executive Officer Tobi Lütke, in a letter, addressed to employees, noted that online shopping trends have returned to pre-pandemic levels as consumers returned to shopping at brick-and-mortar stores following the repeal of Covid-19 lockdown measures.
During the pandemic, Shopify had surged to become Canada’s most valuable company, with its business essentially doubling, with revenue soaring nearly 60% for the full year 2021. At that time, the company invested heavily during the pandemic on amping up its workforce and technology, betting that “the channel mix — the share of dollars that travel through e-commerce rather than physical retail — would permanently leap ahead by 5 or even 10 years”, as per Lütke in the same internal memo that addressed the layoffs."It's now clear that bet didn't pay off.”
Along with the larger e-commerce and retail sector including behemoths Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT), Shopify also remains under pressure from a cutback in consumer discretionary spending in the context of decades of high inflation and a sharply rising interest rate environment.
Shopify: What to Expect Next for the Stock
As of 2:00 p.m ET, Shopify shares were trading at USD $31.11, down 14.71% in the day’s trading, and 73% lower year to date.
Investing Pro models suggest a 12-month fair price target of USD $39.72, representing a 27.5% financial upside.
Most recent analyst notes on Shopify include downgrades by two of Canada’s big 6 banks.
CIBC’s Capital Markets and D.A. Davidson have lowered their price targets to USD $42.50 and USD $31, respectively, noting that the company’s growth appears to have“plateaued” in the second quarter.
Analysts at the RBC (TSX:RY) capital market meanwhile placed its 12-month price target for Shopify at USD $70. Despite the downgrade, analysts at RBC note that “While macro uncertainty may continue to create volatility in the shares, we believe that Shopify is one of the most compelling growth stories in our coverage universe.”