Shopify’s strong third quarter sent the e-commerce giant’s stock up 25 percent on Tuesday, but its quarterly earnings report also appeared to see Flexport’s losses narrow as a positive sign for the digital freight forwarder.
According to a filing with the Securities and Exchange Commission (SEC), Shopify took a $28 million net loss on its Flexport investment in the recent quarter. The losses, identified in the filing as a “net loss on equity method investment,” totaled $44 million in each of the two prior quarters, illustrating the improvement.
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These results are always reported on a one-quarter delay due to the timing of financial information availability from Flexport, according to Shopify, which means the $28 million loss came in the April-through-June period, rather than from July through September. When accounting for the delay, Shopify’s investment incurred $72 million in losses.
While the losses narrow for Flexport, the company still has to slow down a declining valuation. Shopify’s total investment is $664 million as of Sept. 30, down from the $691 million it had in the company three months earlier and far from the $838 million total as of June 30, 2023.
As of Sept. 30, 2023, Shopify owned a 17 percent equity stake in Flexport. The e-commerce company received most of that stake upon selling its Deliverr logistics and fulfillment business to Flexport earlier that year.
Based on the 17 percent stake, Flexport would be worth an estimated $3.9 billion, less than half of the $8 billion valuation disclosed in February 2022 after securing a $935 million funding round. Much of that decline coincided with the company’s navigation through lower volumes as freight demand tanked from Covid-level highs, with the company seeing freight rates fall off in kind.
A report from supply chain publication The Loadstar estimates that Flexport’s losses in the first half amount to $423.5 million based on the $72 million in Shopify’s investment losses across the two periods.
The publication also expects a break-even third quarter for the digital freight forwarder based on the strong periods for the forwarding divisions at logistics giants like C.H. Robinson and Expeditors International.
Shopify still has not revealed an update of its current stake in Flexport.
Sourcing Journal reached out to Flexport and Shopify.
From the numbers that are public, the thinning losses in Flexport’s most recent quarter could be a byproduct of the company’s long-sought out curbing of spending.
Last October, Flexport CEO and founder Ryan Petersen told the Wall Street Journal that he expected the company to return to profitability by the end of 2024 or early 2025. The calls for a return to profitability have been a major hallmark of Petersen’s return as CEO.
When the company acquired defunct digital trucking marketplace Convoy, Petersen said that the deal, and integration of Convoy’s technology into Flexport, would help the firm lower its carrier costs.
Flexport recently reorganized its omnichannel division, cutting headcount across the company by 2 percent as the firm integrated its freight forwarding and fulfillment teams. Prior to that, the company had much wider layoffs across separate rounds, laying off at least 20 percent of staff on three separate occasions from December 2022 to January 2024.
The company has reportedly sought to drive down operating costs and facilitate more profitable growth by subleasing excess warehouse space, according to The Information.
Flexport never confirmed the report, but the company is currently consolidating its fulfillment network—including more than third-party owned 50 warehouse locations acquired in the Shopify fulfillment deal—into five U.S. facilities.
Shopify provided the Shein partner with its most recent funding round to kick off the year, investing $260 million in Flexport, which boosted total funding at the company to an estimated $2.7 billion.
Both companies also entered a separate partnership in 2024’s first quarter to provide co-marketing of fulfillment-related services both to existing and prospective merchants. As one of the perks, Shopify merchants who use Flexport’s fulfillment services for the first time can save 15 percent through December.
As for Shopify, which offers software for businesses to run online storefronts, the company generated a net income of $344 million in the quarter on soaring revenue of 26 percent to $2.2 billion.
