Canadian e-commerce services provider Shopify (SHOP.TO) surpassed analysts’ projections for fourth-quarter revenue and profit on Tuesday, buoyed by robust demand from merchants during the crucial holiday shopping season.
However, despite this success, the company witnessed a nearly 10% decline in its U.S.-listed and Toronto shares.
Analysts attribute this dip to the previous surge in stock value and more subdued forecasts for the first quarter, particularly concerning its free cash flow (FCF) margin.
Shopify anticipates that the FCF margin for the first quarter, typically its weakest revenue period, will be in the high single-digit percentage of revenue, contrasting sharply with the 21% seen in the fourth quarter.
Matthew Pfau, an analyst at William Blair, remarked, “Investors were likely not expecting such a significant decrease in FCF margin from the fourth quarter to the first quarter.”
The company disclosed that operating expenses are expected to rise at a “low-teens percentage rate” in the current quarter compared to the previous one, primarily due to increased expenditure on marketing and employee-related costs.
Despite a 10% increase in shares last week, following a near doubling in value throughout 2023, Thomas Hayes, chairman of hedge fund Great Hill Capital, commented, “The stock has doubled off the October lows. May need a rest for now.”
In the last quarter of 2023, total revenue surged by 24% to $2.14 billion, marking the first time it surpassed $2 billion in a single quarter, exceeding analysts’ estimates of $2.08 billion.
Profit per share also outperformed expectations at 34 cents.
Over the Black Friday-Cyber Monday weekend, merchants on the platform achieved a record $9.3 billion in sales, a 24% increase from the previous year.
With heightened competition, Shopify has been incorporating AI-enabled features into various products, leveraging tools like Shopify Magic and its AI assistant “Sidekick.”
Furthermore, the company foresees the impact of a new pricing structure for its enterprise-focused offering, Shopify Plus, becoming evident in the latter half of the year.