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Online Retail ETFs Plunge After Shopify Profits
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E-commerce exchange-traded funds fell Wednesday as Shopify shares plunged nearly 20%.
The developer of software for running online stores said its expenses would increase in the second quarter, while revenue growth would slow.
Ottawa-based Shopify has a market capitalization of $80 billion, making it one of the largest e-commerce companies in the world.
The stock has significant weightings in funds like Dow Jones First Trust International Internet ETF (FDNI)THE ARK Fintech Innovation ETF (ARKF)THE Global X Cloud Computing ETF (CLOU), and the Global X E-Commerce ETF (EBIZ).
Shopify reported healthy first-quarter profits. Merchants using the company’s platform sold $60.9 billion worth of goods and services, generating $1.9 billion in revenue for Shopify. Both numbers were up 23% from a year ago.
However, Shopify said its second-quarter revenue growth rate would slow to “a high percentage rate,” disappointing investors.
The company also forecast that operating expenses in the second quarter would increase by a “low to mid-single digit percentage rate compared to the first quarter of 2024.”
Baird analysts said Shopify’s higher operating expense forecast overshadowed “an otherwise strong report.”
They said the company “likely relies on investments in marketing and R&D (AI/GenAI)”, but “without clear positive impact on [gross merchandise value] and recent investment income, investors will question the trajectory of margins.
E-commerce is taking off
Shopify’s decline on Wednesday was a black eye for the e-commerce sector, but it didn’t impact the strong performance of e-commerce stocks as a whole this year.
EBIZ is still up 13.1% since the start of the year, while the ProShares Online Retail ETF (ONLN) is up 12.3%.
U.S. e-commerce sales in 2023 grew 7.6%, outpacing the 2.1% gain in overall retail sales, according to the Census Bureau.
Globally, e-commerce sales grew at a faster 10% and are expected to grow another 9% this year.
According to Shopify’s Global Ecommerce Sales Growth Report, online sales are expected to “continue to grow and take a larger share of the retail pie.”
“In 2025, global e-commerce sales are expected to reach $6.86 trillion, before adding another $550 billion in 2026, reaching $7.41 trillion. By 2027, global retail e-commerce sales are estimated to reach $7.96 trillion,” according to the report.
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