Shopify posts US$1.29 billion in Q4 profit as revenue jumps 30 percent, but outlook for margins remains cautious
Shopify Inc. reported fourth-quarter net income of US$1.29bn, up from US$657m a year ago, as revenue rose more than 30 percent, exceeding expectations.
The Ottawa-based e-commerce giant's quarterly revenue totalled US$2.81bn, up from US$2.14bn in the last three months of 2023.
However, the company expects gross profit dollars to grow at a low-twenties percentage rate in the current quarter, which is weaker than expected.
Gil Luria, senior software analyst at D.A. Davidson, told BNN Bloomberg, “The revenue growth is phenomenal. This is one of the very few companies that’s still growing more than 30 percent and just guided for growth at least in the mid to high twenties.”
He added, “There’s a little bit more of an understanding and patience for free cash flow guidance being slightly less than expectations. Having said that, cash flow margins will be up year over year and overall margins this year should be at the least flat.”
Ken Wong, managing director of software research at Oppenheimer & Co., also spoke to BNN Bloomberg, stating that despite the lower cash flow guidance that seemed to disappoint some investors, Shopify’s most recent quarter was “exceptionally strong.”
He explained, “I think the market reaction you’re seeing today is just kind of offsetting KPIs (key performance indicators), you have stronger revenues in Q4, you had deceleration in Q1 and then commentary that margins should be flat-ish going into 2025.”
Wong added, “But you balance that with what we felt was an exceptionally strong Q4, and what is probably conservatism in Q1, so we’re actually willing to give management a pass on what we felt was a slight downtick in what expectations were for the first quarter.”
Luria noted that with Shopify’s high growth rate, the company can afford to reinvest more cash into its business, which will improve profitability down the line, even if it takes a hit in the short term.
He said, A company that’s growing this fast is so rare right now that investors will give it a pass on margins, and these are good margins… if you can keep growing in the mid to high twenties, that is very rare air.”
Wong mentioned speaking with Shopify’s head of investor relations to understand the company’s direction. He noted that momentum was extending through the fourth quarter and emphasized the progress made on profitability.
“As we look to 2025, management has struck the right balance between growth and margins,” he said.
Wong also highlighted the company’s large opportunities in enterprise, international, and offline markets, stating that reinvesting gains could help sustain a growth rate above 20 percent.
Regarding Shopify’s long-term outlook, Luria said its “ramp is long” considering the ongoing shift of both customers and merchants to online platforms.
He stated, “This shift to e-commerce that’s been happening for decades will happen for decades longer. Shopify is a share gainer, and they’ve found additional growth engines.”
Luria highlighted, “They’re growing upmarket, they’re growing B2B (business-to-business), they’re growing offline, they’re using AI (artificial intelligence) to get a premium product out there, so Shopify has plenty of growth engines and this long-term secular trend.”
“2024 was a stand-out year for Shopify. We seized every opportunity to fuel our growth, and it showed in the results quarter after quarter,” said Harley Finkelstein, president of Shopify, in a press release.
