Thursday, 9 May 2024

Why Shopify Stock Tumbled Today

by BD Banks

Shares of Shopify (NYSE: SHOP) were getting torched today after the high-priced e-commerce stock posted solid results in the first quarter, beating estimates, but investors balked at its outlook for the second quarter.

As a result, the stock was down 19.8% as of 10:39 a.m. ET on Wednesday.

Why Shopify Stock Tumbled Today

Image source: Getty Images.

Shopify comes up short

The e-commerce company delivered solid results in the first quarter, but the stock’s price tag comes with high expectations from investors.

Revenue in the quarter jumped 23% — or 29% when adjusting for the sale of its Deliverr logistics business — to $1.86 billion, which edged out estimates at $1.84 billion. Growth was balanced as subscription-solutions revenue was up 34% to $511 million, driven by new merchants joining the platform and by increases to its subscription prices. Merchant solutions, which include services like payments, shipping, and financing, rose 20% to $1.4 billion.

Gross merchandise volume (GMV) rose 23% to $60.9 billion, while gross payment volume improved 32% to $36.2 billion, going from 56% to 60% of GMV.

On the bottom line, adjusted earnings per share (EPS) jumped from $0.01 to $0.20, beating estimates at $0.17.

Free-cash-flow margin in the quarter was also solid at 12%, though both that figure and adjusted EPS ignore share-based compensation, which totaled $105 million in the quarter.

The second-quarter outlook disappoints

Shopify expects revenue growth to slow in the current quarter, forecasting an increase in the high teens or low-to-mid 20% range, excluding the impact of the sale of Deliverr. It also called for its gross margin to fall 50 basis points sequentially.

That revenue forecast was slightly worse than the analyst consensus, spooking investors because Shopify remains an expensive stock, with high expectations baked into the price.

The slowdown doesn’t seem to be cause for alarm given the top-line growth, but a pullback on the stock seems warranted as Shopify still trades at a lofty price-to-sales ratio of 14.

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Jeremy Bowman has positions in Shopify. The Motley Fool has positions in and recommends Shopify. The Motley Fool has a disclosure policy.