Shopify, the popular ecommerce platform, saw its shares tumble on Tuesday following the company’s report of increased costs that could potentially impact profit margins in the first quarter. As of Tuesday morning, shares were down 8.3% in Toronto, trading at 110.05 Canadian dollars ($81.81).
According to Shopify, its operating expenses are expected to rise at a low-teens percentage rate compared to the previous quarter. This projection has led TD Cowen analyst Daniel Chan to estimate that the operating margin could fall to the low double-digits, which is below initial expectations of 14% to 15%.
Chan further explains, “The lower-than-expected operating margin is likely reflected in free cash flow margin guidance for a step down from the strong 21% in the fourth quarter to the high-single digits, but it is expected to improve q/q throughout the year.”
Despite this setback, Shopify’s fourth-quarter results showed promise. The company reported a profit and better-than-expected revenue, attributing the successes to increased product sales on its platform. The profit for the quarter was $657 million, or 51 cents per share, compared to a loss of $623.7 million or 49 cents per share in the same period the previous year. Revenues also exceeded expectations, climbing to $2.14 billion, surpassing analyst forecasts of $2.08 billion.
It remains to be seen how Shopify will address the challenges posed by rising costs and maintain its growth trajectory.