shares of Shopify (NYSE:Shop) then sank e-commerce The software company reported strong first-quarter results, but issued disappointing guidance.
Let’s take a closer look at the company’s latest performance and guidance to determine whether investors should buy the stock. The stock is currently down about 20% since the beginning of the year.
Good performance, but outlook is dim
Despite the stock price reaction, Shopify had a pretty strong first quarter. The company’s revenue rose 23% to $1.9 billion, or 29% after adjusting for the sale of its logistics business.
Gross merchandise value (GMV) on the company’s platform increased 23% to $60.9 billion, and total payments increased 32% to $36.2 billion. This shows that more merchants are choosing to use the Shopify Payments option. Overall Merchant Solutions revenue increased 20% to $1.4 billion.
Meanwhile, subscription revenue increased 34% to $511 million due to an increase in the number of merchants using the platform and price increases.
Gross profit margin increased from 47.5% to 51.4% due to the disposal of the low-margin logistics business. Shopify generated free cash flow of $232 million in the quarter.
Looking ahead, Shopify expects second-quarter revenue growth to slow to the high teens. Adjusting for the sale of the logistics business, this corresponds to a growth rate in the low to mid 20s. We expect gross margin to decrease 50 basis points compared to the first quarter and operating expenses to increase by a low to mid-single digit percentage compared to the first quarter.
Shopify’s revenue forecast is in line with consensus, with analysts expecting second-quarter revenue growth of 19.5% at the time of the announcement. However, the company has consistently seen revenue growth in the low-to-mid 20% range over the past few quarters. Analysts also expected costs to remain relatively flat and not increase. Higher-than-expected costs mean that earnings per share (EPS) are lower than analysts originally expected.
For high-growth stocks like Shopify, the stock price is often determined by certain expectations for future growth. When these growth expectations are lowered, it can have a multifold effect on stock valuations and cause stock prices to decline. Investors generally seem to be expecting higher revenues and lower expense growth going forward.
Potential purchase opportunity
Overall, Shopify’s guidance wasn’t far off expectations. There is also a good chance that the company is being conservative and will exceed its Q2 expectations when it finally releases its actual results for the second quarter. Meanwhile, Shopify still has many potential growth drivers ahead.
The company has been expanding into the enterprise space, recently adding Coach, which it owns. tapestryAs a customer of outlet business. Shopify believes business customers are choosing to migrate to its platform because of its value, reliable infrastructure, and cutting-edge services, as well as its ease of startup and continuous innovation. He said there was.
The company continues to innovate. The company’s new POS system is growing steadily, helping customers simplify their operations and increase productivity through its suite of AI products, Shopify Magic. Faster checkout is another key innovation. Markets Pro provides a native, all-in-one cross-border merchant of record service to help brands sell products in multiple countries.
Shopify is still in its early stages in business-to-business (B2B) and international markets. The company has seen great early success in his B2B space, with B2B GMV doubling his last year and skyrocketing 130% this quarter. International business is also growing well, with international gross merchandise volume increasing 38% in the quarter, outpacing US growth. International sales account for less than 30% of Shopify’s revenue, indicating the company’s future upside potential in these markets.
As a result of the stock price decline, Shopify’s price-to-forward sales ratio is now around 9.5x. This is a price-to-sales ratio of less than 15 times. (PS) Multiple That’s what I was ordered to do recently. This is a fairly attractive valuation, considering the company’s organic growth (excluding acquisitions and divestitures) is still expected to be in the low-to-mid 20% range.
While Shopify stock hasn’t been thrown into the bargain bin, it still has a lot of upside, and the company’s stock currently trades at a much more attractive valuation than in the past. As such, the recent drop in earnings looks overdone, creating a solid entry point for long-term investors to buy this growth stock.
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Jeffrey Seiler has no position in any of the stocks mentioned. The Motley Fool owns a position in and recommends Shopify. The Motley Fool recommends Tapestry. The Motley Fool has Disclosure policy.
Shopify stock plummets after disappointing guidance. Is this a great buying opportunity? Originally published by The Motley Fool
