Shopify (SHOP) Down 2.5% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Shopify SHOP. Shares have lost about 2.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Shopify due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Shopify Q4 Earnings Beat Estimates, Revenues Rise Y/Y

Shopify reported fourth-quarter 2023 adjusted earnings of 34 cents per share, comfortably beating the Zacks Consensus Estimate by 9.68%. The company reported earnings of 7 cents per share in the year-ago quarter.

Total revenues jumped 23.6% year over year to $2.14 billion, which beat the Zacks Consensus Estimate by 3.66%.

Quarter in Detail

Subscription Solutions revenues increased 31.3% year over year to $525 million primarily due to more merchants joining the platform, as well as pricing changes for existing merchants on its Standard subscription plans.

Merchant Solutions revenues improved 21.3% year over year to $1.62 billion, driven by robust Gross Merchandise Volume (GMV), which improved 23% year over year to $75.1 billion.

As of Dec 31, 2023, Monthly Recurring Revenues (MRR) were $149 million, up 35% from the year-ago quarter. Shopify Plus revenues were $46 million, representing 31% of MRR compared with 33% in the year-ago quarter.

Gross Payments Volume grew to $45.1 billion, constituting 60% of GMV processed in the fourth quarter compared with $34.2 billion (56% of GMV) in the year-ago quarter.

Operating Details

Non-GAAP gross profit increased 30.1% year over year to $1.07 billion. The gross margin expanded 250 basis points (bps) year over year to 49.8%.

Adjusted sales and marketing expenses, as a percentage of revenues, declined 210 bps year over year to 14.1%. Adjusted general and administrative expenses decreased 230 bps to 3.8%.

Moreover, adjusted research and development expenses, as a percentage of revenues, decreased 810 bps year over year to 11.3%.

Non-GAAP operating expenses decreased 11.4% year over year to $671 million. Operating expenses, as a percentage of revenues, were 31.3% compared with the year-ago quarter's 43.6%.

Shopify's adjusted operating income was $396 million compared with the year-ago quarter's $63 million.

Balance Sheet

As of Dec 31, 2023, Shopify had cash, cash equivalents and marketable securities balance of $5 billion compared with $4.92 billion as of Sep 30, 2023.

The free cash flow was $446 million compared with $276 million in the year-ago quarter.

Guidance

For the first quarter of 2024, Shopify expects revenue growth in the low-twenties on a year-over-year basis. Adjusting for a 500-600 bps headwind related to the divestiture of the logistics business, revenues are expected to grow in the mid to high-twenties on a year-over-year basis.

The gross margin is expected to increase 150 bps sequentially.

Operating expenses are expected to increase at the low-teens percentage rate sequentially.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

The consensus estimate has shifted -40.65% due to these changes.

VGM Scores

At this time, Shopify has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Shopify has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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