- Shopify managed to beat fourth-quarter earnings expectations on Tuesday.
- However, SHOP shares lost more than 13% at the close on Tuesday.
- Persistent US CPI inflation in January is primarily responsible for the poor performance of growth stocks.
- Fourth-quarter revenue exceeded consensus by $3.5 billion, and free cash flow has skyrocketed at Shopify.
Shopify (SHOP) chose to release its earnings report on a day that did not suit the market. Even though the e-commerce powerhouse beat Wall Street's consensus for the fourth quarter, a higher-than-expected inflation report in the US sent Shopify reeling, which closed down 13.4% on Tuesday.
However, Shopify stock attempted a rebound on Wednesday, as dip buyers have sent the stock up more than 4.5% in the regular session.
Tuesday's sell-off reached a double-digit decline, largely because the broader market was in risk-off mode. US Consumer Price Index (CPI) data released on Tuesday morning showed that inflation remained firm in January, leading investors to price in an interest rate cut by the the Federal Reserve (Fed) in May. A longer term of high interest rates means growth stocks like Shopify are less attractive in the short term.
Shopify Earnings
It's hard to believe that Shopify's fourth-quarter results have disheartened the market. Profits grew 24% year over year, and gross merchandise sales exceeded 23% in that time period.
The cause for concern, if you can call it that, was that Shopify consensus underperformed results than many wanted. The Canadian company led by Tobias Lutke earned $0.34 in adjusted earnings per share on revenue of $2.14 billion. This was an improvement of 4 cents in profits and $70 million in revenue.
The Business Solutions segment posted revenue growth of 21% year-over-year to $1.6 billion, while the Subscription Solutions segment posted revenue growth of 31% to $525 million. Gross Merchandise Volume for the quarter reached $75.1 billion, about $3.5 billion above the average forecast.
Free cash flow went from $90 million a year ago to $446 million in the quarter ended in December. In December, monthly recurring revenue increased 35% year-over-year to $149 million.
“In the fourth quarter we recorded year-on-year revenue growth of 24% […] and achieved a 13% operating income margin and a 21% free cash flow margin,” Jeff Hoffmeister, Shopify's chief financial officer, said in a statement.
Shopify Forecast
Shopify stock closed higher on Wednesday compared to Tuesday's close. Traders are trying to see if Tuesday's significant sell-off can be easily reversed.
The Relative Strength Index (RSI) is now understandably below the midline of 50, and momentum has fallen. More importantly, though, Shopify stock is trading close to the Feb. 1 and Jan. 18 pullbacks. If this support band at $70 holds, shareholders don't have much to fear.
However, a break below $71 would mean a longer-term pullback is underway. In that case, SHOP stock can be expected to move to $60. A move above $85 would signal that the bearish narrative is unfounded.
SHOP Daily Chart
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
