Shopify sinks as investors worry over big spending in weak economy

By Nivedita Balu

(Reuters) - Shares of Shopify Inc slid 16% on Thursday after the Canadian tech giant's weak forecast for first-quarter revenue and higher cost projections amplified investor concerns over aggressive investments in an economy facing slowing growth.

Pandemic-related disruptions propelled the company to briefly become Canada's most valuable firm before online demand eased as economies reopened and forced it to launch new products, boost investments and focus on social media integration.

Such investments and Wednesday's warning on macro-challenges have spooked investors concerned about profitability.

Oppenheimer analyst Ken Wong said he was worried about Shopify's "noncommittal spend" and an operating loss projection of about $85 million that could dampen investors' expectations for profitable growth this year.

"Our outlook reflects the prudence that we think is necessary in this macro environment," company president Harley Finkelstein said in an interview on Thursday.

"It is important right now in this particular macro that you grow the business but you also continue to let revenue fall to the bottom line," he said.

Still, a dozen analysts raised their price targets by as much as $20, betting on growth prospects as the company attracts big clients ready to pay premium price for its services, such as providing tools to set up a website, social media integration and fulfillment.

"While Q1 guidance below consensus is negative, Shopify's execution increases our confidence in the company's ability to navigate through most macro scenarios," RBC analyst Paul Treiber said, maintaining an "outperform" rating and raising his price target to $65 from $55.

"The lack of annual guidance suggests limited near-term visibility to the sustainability of consumer spending," he said.

Some analysts also flagged Shopify's significant exposure to categories such as apparel, which could take a hit from softening consumer spending.

(Reporting by Nivedita Balu in Bengaluru; Editing by Sriraj Kalluvila)