Shopify posts 'powerhouse' quarter; stock rises even as latest ...

10 days ago

Yahoo Canada Finance

Shopify posts powerhouse quarter stock rises even as latest

"The revenue growth is exceptional for a company of Shopify’s scale."

FILE PHOTO: The logo of Shopify is seen outside its headquarters in Ottawa, Ontario, Canada, September 28, 2018. REUTERS/Chris Wattie/File Photo · REUTERS / Reuters

Shares of Shopify (SHOP.TO)(SHOP) closed the trading day up three per cent on Tuesday, after the company posted quarterly results that were stronger than anticipated and despite issuing a first-quarter outlook that fell short of expectations.

Shares of the e-commerce software company wobbled throughout the day, falling as much as four per cent early Tuesday morning before rising in the afternoon as investors continued to digest earnings. The stock ended the trading day at $176.57 per share on the Toronto Stock Exchange, an increase of three per cent compared to Monday's close.

Shopify, which reports its financial results in U.S. dollars, says total sales in the fourth quarter of the year hit $2.81 billion, above last year's total of $2.14 billion and surpassing analysts' estimates of $2.73 billion, according to data compiled by LSEG. Net profit in the quarter, which includes the all-important holiday shopping period, reached $1.29 billion, up from $657 million last year.

Shopify president Harley Finkelstein said on a conference call with analysts on Tuesday that while the company's fourth quarter was "a powerhouse" one for the company, the entire year was "exceptionally strong."

"We are really pleased with how things are shaping up. Our market position is strengthening. Our operating model is proving very effective, and our profitability levels are exactly where we want them to be."

The holiday shopping season was particularly strong for Shopify customers. Gross Merchandise Volume (GMV) – the dollar value of orders facilitated by the company – totalled $94.5 billion, an increase of 25.7 per cent compared to last year.

"The revenue growth is exceptional for a company of Shopify’s scale ($9 billion-plus in revenue in 2024), and equally impressive is the fact that this is the fastest rate the company has grown at since the fourth quarter of 2021," William Blair analyst Arjun Bhatia wrote in a research note on Tuesday.

He notes there was momentum in key growth drivers like international and business-to-business GMV, and that Shopify's customer base continues to expand to larger brands, with clients such as Reebok, Aldo, Champion, Crocs, Warner Music Group and Hunter Douglas launching this quarter.

Still, Shopify's outlook for the first quarter appeared to weigh on some investors. The company says it expects total sales to grow at a mid-twenties percentage rate compared to 2024, while gross profit will be in the low twenties percentage rate. It expects operating expense as a percentage of revenue to be between 41 and 42 per cent.

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Shopify's revenue outlook was in line with expectations, although gross margin expectations "slightly disappointed", Citi analyst Tyler Radke wrote in a note to clients. He says pullback on the stock is "a buying opportunity", reiterating a "buy" rating on the company.

"We believe the guide suggests Shopify continues to lean strategically on marketing and/or (go-to-market strategy) to capture growth," Radke wrote.

Bhatia says the first-quarter guidance is "likely conservative." He notes that free cash flow margin expectations were expected to be in the mid-teens, below consensus expectations of 17 per cent, although "we expect margins to ramp up throughout the year as the company manages its expense base and keeps headcount flattish."

CFRA analyst Angelo Zino reiterates a "buy" rating for Shopify shares and raised his 12-month price target for U.S.-listed shares from $135 to $150 per share. The stock was trading at around $122 per share Tuesday afternoon.

"(Shopify) is executing well on operating margin and (free cash flow) margin expansion, but we expect SHOP to sustain rather than expand margins given plans to reinvest into new growth avenues," Zino wrote.

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on X @alicjawithaj.

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