Week to date, shares of Shopify (SHOP -3.23%) were down 9.6% as of 10:20 a.m. ET on Friday, according to data provided by S&P Global Market Intelligence.
The stock fell following the e-commerce company’s fourth-quarter business update. Revenue grew 24% year over year in the quarter, but Wall Street investors didn’t like the company’s outlook for higher operating expenses, which implies lower margins than expected.
Is Shopify stock a buy?
The post-earnings dip could be a good buying opportunity, as the company’s quarter was solid all around. If Shopify can continue to sustain a 20% or more top-line growth rate, shareholders should see a nice return on their investment in the years to come.
Management expects revenue to grow in the low-20% range in the first quarter of 2024, which is good news.
However, TD Securities analyst Daniel Chan noted that the company’s guidance for an increase in operating expense may signal lower-than-expected margins in the coming quarters. That might explain the stock’s stumble this week.
It’s also worth noting that Shopify stock climbed 54% over the last year, so a good earnings report was likely expected by market participants. Sometimes if growth companies don’t offer a much better outlook than expected, it can lead to a mild sell-off.
The expense guidance shouldn’t be that concerning since Shopify also expects free-cash-flow margin to sequentially improve in each quarter through 2024. This is while the company is releasing innovative new artificial intelligence (AI)-powered tools for merchants and shoppers.
It’s a testament to the value of its e-commerce solutions that it added 35% more merchants to its platform from outside North America in 2023. Shopify clearly still has a lot of room for growth.
