Shopify Inc. said sales and profit in the first quarter fell far short of analyst expectations. The Canadian ecommerce company also lowered guidance for the rest of the year, as the platform provider struggles to add new merchants.

Shopify is contending with consumers returning to physical stores and rising inflation, as well as labor shortages, Chief Financial Officer Amy Shapero said in a call with analysts.

“We saw lower merchant adds than last year and we largely attribute that to a very tight and transitional labor market,” Shapero told analysts. “We expect that the labor market will start to ease.”

At least seven analysts ratcheted down their share price targets on Shopify yesterday, adding to a series of cuts in the weeks before the earnings release. Shares in the company have fallen roughly 70% in the past year. They’re now 2% below where it closed the day the World Health Organization called COVID-19 a global pandemic in March 2020.

Ecommerce stocks have been pummeled this earnings season on concerns that online shopping is slowing as the COVID-19 pandemic fades. Amazon.com Inc. suffered its biggest one-day drop since July 2006 after it reported a weaker-than-expected revenue forecast.

Shopify sales

Shopify’s sales in Q1 rose 22% to $1.2 billion from a year earlier. But they couldn’t match analyst expectations of $1.25 billion, according to data Bloomberg compiled.

Gross merchandise volume (GMV) grew 16% in the first quarter from a year earlier to $43.2 billion. GMV is the value of merchant sales flowing through the platform. Analysts, on average, expected $46.5 billion in GMV.

Ottawa-based Shopify earned $25.1 million on an adjusted basis in the first quarter, or 20 cents a share. That’s far short of the 64 cents a share analyst expected. It’s also well below the $254.1 million in earnings in Q1 last year. The company gave a weaker outlook for adding new business customers in 2022. It said growth in merchants on its platform would be “comparable” to 2021.

Deliverr deal confirmed

Shopify also announced the largest acquisition in its history, a $2.1 billion deal for delivery startup Deliverr Inc., confirming an April 20 report. But it gave few financial specifics about the year ahead.

It purchased Deliverr — which provides two-day delivery services — more than doubling the size of Shopify’s fulfillment team. The transaction will be financed using 80% cash and 20% Shopify Class A shares.

The deal marks the beginning of one of Shopify’s most important long-term initiatives, according to KeyBanc Capital Markets analyst Josh Beck. To build its own fulfillment network, Shopify needs an experienced team with established technology, which it gains with Deliverr. But the process is expensive and takes up time and resources, he added.

In January, Shopify canceled several fulfillment and warehouse contracts intended to create its own distribution network.

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