Shopify’s losses in 2022 are not what they seem

2022 has been a tough year for the e-commerce software giant Shopify (STORE -7.22%), and the second-quarter earnings update brought little relief. Slowing revenue growth (up 16% year over year) was a problem. But the spotlight was on the bottom line in particular. Net losses reached $2.68 billion in the first half of the year, compared to net profit of $2.14 billion in the same period a year ago. Ouch!

But not so fast. These net losses (and last year’s net gains, for that matter) aren’t exactly what they seem. Shopify is indeed losing money this year, but not at the rate indicated by the “net loss” line. Here’s what happens.

Net loss is not the same as cash outflow

Have your tech stocks been blown up by the bear market this year? If so, you’re in the same boat as Shopify. Similar to last quarter, the majority of Shopify’s net losses in the second quarter were attributable to its equity investments.

That’s right – on an income statement, quarterly changes in equity investments are listed as “other income or loss”. So what was a massive gain in stock value last year is now headed back as the market brings high-flying tech stocks back to earth. Here’s a comparison of Shopify’s results so far this year with the first half of 2021.


Shopify first half of 2022

Shopify first half of 2021

Operating income (loss)

($288 million)

$258 million

Other income (expenses), net

($2.56 billion)

$2.03 billion

(Provision for) recovery of income taxes

$173 million

($151 million)

Net profit (loss)

($2.68 billion)

$2.14 billion

Data source: Shopify.

Do not mistake yourself; Shopify’s e-commerce business went into an operating loss. However, the losses are not as extreme as they appear. Based on free cash flow (operating profit or loss, less property, plant and equipment), Shopify only lost $206 million, not $2.68 billion as shown in the table below. above.

The takeaway here is that almost all of Shopify’s reported net losses so far in 2022 are due to stock market declines. Conversely, almost all of its net income in the same period in 2021 came from earnings in stock exchange. Just as individual investors have had to deal with the bear market, so has Shopify. And according to the company’s regulatory filing, it has yet to lock in a lot of material losses (by selling shares) in its equity investments.

Where Shopify has parked its investments

So which stocks specifically explain Shopify’s recent investment declines? Specialist Buy now, pay later Affirm Assets and cross-border sales software provider Global-E Online. Shopify’s investments in these two companies were the result of business partnerships entered into with each of them to help strengthen software offerings for Shopify merchants. As of June 30, the value of these investments was $801 million (just over half of which was attributable to Global-E), up from $3.21 billion at the start of the year.

Given how both stocks have performed lately, it’s no surprise that Shopify reported big losses last quarter.

Data by Y-Charts.

For what it’s worth, both stocks have rallied from recent lows since late June, so Shopify’s net losses could ease in the third quarter if this rally continues. However, just as investing is a long game for you and me, so is Shopify. If Affirm and Global-E continue to grow, their stock prices will (eventually) follow suit. Patience is required.

The good news is that after the Q2 update, Shopify’s balance sheet remains in good shape. He said $6.96 billion in cash and current assets, plus another $2 billion in long-term investments (stocks like Affirm and Global-E, plus long-term bonds), offset by debt. of just $912 million. Shopify’s bottom line may look ugly right now, but it’s in much better shape than it first appears.

Nicholas Rossolillo and its customers have positions in Shopify. The Motley Fool holds positions and recommends Affirm Holdings, Inc., Global-e Online Ltd. and Shopify. The Motley Fool recommends the following options: $1140 January 2023 Long Calls on Shopify and $1160 January 2023 Short Calls on Shopify. The Motley Fool has a disclosure policy.

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