Shopify beats Q4 estimates with strong holiday season, but stock still drops

Shopify aims to deliver “compelling mix of growth and profitability” in 2024.

Canadian e-commerce giant Shopify posted fourth-quarter sales and profit that narrowly surpassed analyst forecasts as the company saw a strong holiday season.

Shopify generated $2.14 billion USD in revenue in Q4 2023, a 25 percent year-over-year increase that translates to 30 percent when accounting for the sale of Shopify’s logistics business, according to the firm’s latest earnings report. Per Yahoo Finance, the average analyst estimate was $2.08 billion.

“We have a new shape at Shopify. It is faster, it is flatter, it is far more agile.”

Harley Finkelstein, Shopify

Meanwhile, Shopify reported Q4 net income of $657 million, with profit per share, excluding one-time items, also coming in slightly above analyst expectations, per Bloomberg. During the company’s earnings call, CFO Jeff Hoffmeister attributed the Q4 outperformance to another record-setting Black Friday, Cyber Monday weekend, a strong holiday season, increased payment penetration, and growth in merchants using Shopify.

But despite beating forecasts, the price of Shopify’s shares has fallen by around 12 percent on the Toronto and New York Stock Exchanges at time of publication on lighter-than-expected guidance for Q1, which is consistently Shopify’s lowest revenue quarter seasonally.

Over the past year, Shopify has taken numerous steps to cut costs and reshape its business. Shopify achieved an operating income margin of 13 percent and a free cash flow margin of 21 percent in Q4 as this work has continued to pay off. The fourth quarter marked Shopify’s largest in terms of both revenue and gross profit ($2.1 billion and $1.1 billion, respectively) in the company’s history.

“We have a new shape at Shopify,” Shopify president Harley Finkelstein said during the company’s earnings call. “It is faster, it is flatter, it is far more agile. And we’ve taken a ton of measures to build for this long-term success and manage costs and I think we’ve done so all while investing in very critical areas for growth that we think will arm our merchants at Shopify for very good long-term opportunities.”

Hoffmeister credited some of Shopify’s performance to gross merchandise volume growth (GMV), or more products being sold on its platform. In the fourth quarter of 2023, Shopify’s GMV hit $75.1 billion, a 23 percent jump compared to the same period last year.

RELATED: Lightspeed exceeds fiscal Q3 revenue, profitability targets but company’s shares still slide

Changes Shopify made in 2023 plus a particularly strong Q3 have helped fuel a more than three-month rally for Shopify’s shares and enabled the company to recoup some of the value it lost since its COVID-19 peak. Despite today’s fall, Shopify’s stock remains up more than 40 percent in the past six months.

Over the past year, Shopify has reduced expenses and returned its focus to its core business after a late pandemic slump. The company culled 20 percent of its workforce and sold its logistics business to Flexport last May, and has kept its headcount flat since then.

In 2023, Shopify also raised the cost of its subscription plans, teamed up with e-commerce rival Amazon on fulfillment and payments, launched Commerce Components to help lure larger brands, rolled out new artificial intelligence (AI) tools, made its checkout solution Shop Pay available beyond Shopify, expanded the availability of its point-of-sale (POS) hardware, partnered with Faire, and announced a new TikTok integration.

More recently, Shopify launched new lending products for those merchants, announced more new AI features, invested another $260 million into Flexport, and hiked its prices.

RELATED: Shopify shares jump after company’s Q3 revenue, profit beat analyst expectations

Hoffmeister said Shopify plans to “remain disciplined” on the hiring front and continue exploring ways to use AI and automation to improve its operational efficiency in 2024, as it looks to achieve the right balance of growth and profitability to satisfy investors.

“We will lean into growth opportunities and provide the essential go-to-market support while continuing to execute with the operational discipline that we demonstrated this past year in order to deliver a compelling mix of growth and profitability,” said Hoffmeister.

This year, Shopify forecasts continued revenue growth at a low-twenties percentage rate (mid-to-high twenties when factoring in its logistics exit) and anticipates its free cash flow as a percentage of revenue to be in the high-single digits and improve quarterly.

Hoffmeister expects Shopify’s marketing and employee-related expenses (including payroll taxes and compensation) to increase its operating costs in Q1, as Shopify leans into performance marketing and its POS business. Offline growth continues to outpace e-commerce growth for Shopify, which sees more room to expand in physical, in-person retail.

With files from Bianca Bharti.

Feature image courtesy Shopify.

Josh Scott

Josh Scott

Josh Scott is a BetaKit reporter focused on telling in-depth Canadian tech stories and breaking news. His coverage is more complete than his moustache.

0 replies on “Shopify beats Q4 estimates with strong holiday season, but stock still drops”