Shopify beats Q4 estimates with strong holiday season, but stock still drops

Shopify plans to target combo of growth and profitability in 2024.

Canadian e-commerce giant Shopify posted fourth-quarter sales and profit that narrowly surpassed analyst forecasts as the company saw a strong holiday season.

Shopify generated $2.14 billion USD in revenue in Q4, a 25 percent year-over-year increase that translates to 30 percent when accounting for the sale of Shopify’s logistics business, according to the firm’s latest earnings report, which covers Q4 and 2023. Per Yahoo Finance, the average analyst estimate was $2.08 billion.

“We have a new shape at Shopify. It is faster, it is flatter, it is far more agile.”

Harley Finkelstein, Shopify

Meanwhile, Shopify reported Q4 net income of $657 million, with profit per share, excluding one-time items, also coming in slightly above analyst expectations, per Bloomberg. During the company’s earnings call, CFO Jeff Hoffmeister attributed the Q4 outperformance to another record-setting Black Friday, Cyber Monday weekend, a strong holiday season, increased payment penetration, and growth in merchants using Shopify.

Despite beating forecasts, the price of Shopify’s shares has fallen about nine percent on the Toronto and New York stock exchanges at time of publication.

Over the past year, Shopify has taken numerous steps to cut costs and reshape its business. Shopify achieved an operating income margin of 13 percent and a free cash flow margin of 21 percent in Q4 as this work has continued to pay off.

“We have a new shape at Shopify,” Shopify president Harley Finkelstein said during the company’s earnings call. “It is faster, it is flatter, it is far more agile. And we’ve taken a ton of measures to build for this long-term success and manage costs and I think we’ve done so all while investing in very critical areas for growth that we think will arm our merchants at Shopify for very good long-term opportunities.”

Hoffmeister noted that Shopify’s gross merchandise volume growth in both Q4 and last year overall helped fuel its 2023 financial results, which included a particularly strong Q3 that has helped fuel a more than three-month rally for Shopify’s stock price and enabled the company to recoup some of the value it lost since its COVID-19 peak.

RELATED: Lightspeed exceeds fiscal Q3 revenue, profitability targets but company’s shares still slide

Over the past year, Shopify has reduced expenses and returned its focus to its core business after a late pandemic slump. The company culled 20 percent of its workforce and sold its logistics business to Flexport last May, and has kept its headcount flat since then.

In 2023, Shopify also raised the cost of its subscription plans, teamed up with e-commerce rival Amazon on fulfillment and payments, launched Commerce Components to help lure larger brands, rolled out new artificial intelligence (AI) tools, made its checkout solution Shop Pay available beyond Shopify, expanded the availability of its point-of-sale hardware, partnered with Faire, and announced a new TikTok integration.

More recently, Shopify launched new lending products for those merchants, announced more new AI features, invested another $260 million into Flexport, and hiked its prices.

“For 2024, we look to build on the momentum that we achieved in 2023 and continue to deliver a strong combination of both top-line growth and profitability,” said Hoffmeister.

This year, Shopify forecasts continued revenue growth at a low-twenties percentage rate (mid-to-high twenties when factoring in its logistics exit) and anticipates its free cash flow as a percentage of revenue to be in the high-single digits and improve quarterly.


With files from Bianca Bharti.

Feature image courtesy Shopify.

Source link