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Shopify (TSX:SHOP) stock dropped after earnings projected further low results in 2024, but this could be your opportunity to jump in.
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Amy Legate-Wolfe
Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances.
Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities.
Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. Amy’s work can be found regularly on the Financial Post and MoneyWise Canada.
When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog Finley, and travel.
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After surging to all-time highs yet again, Shopify (TSX:SHOP) has come back down to earth. Shares of the tech stock have fallen by about 18% as of writing since hitting those highs. And it’s potentially an excellent opportunity for investors to grab Shopify stock before it climbs higher once more.
Here’s why.
What happened?
First, let’s look at what happened to cause the share price of Shopify stock to drop. This happened after the company produced its fourth-quarter earnings report as well as its full-year report. During the fourth quarter, earnings per share (EPS) climbed to US$0.34, beating estimates of US$0.31. Revenue hit US$5.3 billion, a year-over-year increase of 25%. Subscription solutions and merchant solutions climbed 21% and 32% year over year, respectively as well.
As for the year, there was even more positive growth, though perhaps not at the rate investors have become used to. Revenue hit US$7.06 billion for the year, a 26% increase from the year before. This fell short of some analyst estimates. Its gross merchandise volume (GMV) reached US$235.9 billion, a 20% increase, which investors showed would be more. Even still, its profit margin hit 1.9%, a huge improvement from the net loss of 2022.
So, what was the problem? Investors didn’t like that revenue growth was slowing. Further, that there was reliance on a non-recurring tax benefit for its positive EPS performance. What’s more, guidance for the first half of 2024 looks like there will be a further deceleration.
What about the long term?
Alright, so there’s going to be slower revenue growth for the first half. Does that mean we’re going to continue seeing this over time? This is where it gets tricky. Shopify stock has made huge headway since producing a net loss, refocusing back on its e-commerce platform and strengthening its bottom line.
What’s more, global e-commerce growth is huge, with even more coming in the years ahead. This would likely be of major benefit to Shopify stock as well. And with this focus on profitability, this could be attractive to long-term investors.
Chief Executive Officer (CEO) Tobias Lütke has been through all the ups and downs. After founding the company with others, he’s been a huge success in the growth of Shopify stock. He’s known for a long-term vision and strategy, with a focus on data when it comes to decision-making. And this has proven to work for the company. What’s more, he actually tells you when he’s done something wrong! And makes the effort to fix it. We simply don’t see that among most CEOs.
Overall, what do we think?
Honestly, if you’re a long-term investor, I would say that Shopify stock is back on the way up overall. While the next half-year looks like there could be some issues, overall, the market for global e-commerce is strong. What’s more, Shopify stock is likely to take advantage of that growth. With Tobias Lütke at the helm, he’s proven that the company can match competition as long as they don’t stretch themselves too thin.
Further, now that the stock has hit profitability, this could be a major turning point for investors to show that the stock has what it takes for long-term growth. So, with shares down 18%, now could be the time to jump back in on this stock.
