Light First Quarter Guidance Dimmed Shopify's Q4 Beat And Massive Potential

Shopify Inc SHOP posted its fourth quarter results on Tuesday. Although its performance during the last quarter of 2023 surpassed estimates, its outlook for the undergoing quarter was mixed. Shopify entered 2024 with a clear goal of expanding its addressable market, going against its main rival, the e-commerce titan, Amazon.com Inc AMZN. However, Shopify turned its most dangerous revenue threat into an opportunity by striking a deal last year to offer Buy With Prime to its merchants. With massive AI opportunities that Shopify already started introducing, Shopify’s evolution seems promising. However, Shopify cannot afford to underestimate its competitors as competition will only intensify and the light guidance it offered dimmed its strong fourth quarter figures.

Fourth Quarter Highlights

Revenue of $2.14 billion surpassed LSEG’s estimate of $2.08 billion. Shopify earned a net income of $657 million, or 51 cents a share, improving from 2022's comparable quarter when it reported a net loss of $623 million, or 49 cents a share. Adjusted earnings amounted to 34 cents per share, also topping LSEG’s estimate of 31 cents. 

First Quarter Guidance

Shopify guided for free cash flow margin in the high single digits which came short of 13.6% that Wall Street projected. Its revenue outlook is in the low-twenties percentage category, which translates to a YoY growth rate from mid to high 20s, when adjusted for the sale of its logistics business.

Shopify Is Going For The Big Retailers

The Otawa-based company became known for helping entrepreneurs create their e-commerce shops. But throughout 2023, Shopify ramped up its offerings and is now focused on solving issues that are keeping big retailers away. 

Back in the days when COVID-19 started its relentless march across the globe, Shopify became Canada’s most valuable company. But, its stock plummeted in 2022 when consumers got back to brick and mortar store. However, throughout last year, Shopify did the work to regain momentum. It got rid of its logistics division and laid off another 20% of its staff, after already trimming its workforce by 10% in 2022. It got rewarded for its efforts as its stock rose about 100% during 2023 but its market cap is still less than half its 2021’s value. This is why Shopify is focused on expanding its total addressable market. When it made truce with Amazon by allowing merchants to integrate Buy with Prime into their Shopify sites, the two biggest players in e-commerce surprised the industry by making a compromise that benefits both sides. Through this win-win deal, Amazon also won as Amazon Pay became a payment option inside Shopify payments. It also increased the value of its offering to its Prime members as the whole concept of Buy with Prime is about expanding the company’s membership program beyond Amazon.com to third party e-commerce sites.

But, going after a piece of big retail and global commerce comes with its risks. By going after enterprise clients, Shopify is going against Salesforce Inc CRM, Adobe Inc ADBE and Oracle Corporation ORCL as well. However, Chief Revenue Officer, Bobby Morrison, stated back in December that Shopify is already threatening its rivals. Shopify already added big brands to its portfolio, including Nike NKE Nike Strength and Oscar de la Renta. 

Shopify Is Also Focused On Expanding Its International Presence

Upon the latest quarterly report, Shopify President Harley Finkelstein also spoke of international expansion being a massive growth area. Therefore, Shopify is aiming for both businesses of all sizes and for doing business across the globe. 

With cheaper and faster to deploy products that also have a greater degree of flexibility. Shopify certainly has a good value proposition. But such ambitious goals are much easier said than done as otherwise, there wouldn’t be only one “Amazon”.

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