Shopify (SHOP 169.31, -3.86, -2.23%) is down 2% despite the company’s report of
strong fourth quarter results this morning. Adjusted net income grew 90% while
revenue rose 54%; both of those metrics were above guidance.
The leading multi-channel commerce platform has exceeded estimates all fifteen quarter since its IPO in 2015. However, this marks the first time since the company's IPO that the midpoint of revenue guidance was not above consensus.
What's more, adjusted net income guidance for the first quarter and fiscal 2019 was well below consensus. Shopify guided for a modest first quarter adjusted net loss versus estimates for a modest profit while the $15 mln midpoint of FY19 adjusted net income guidance missed estimates by a wide margin, representing a 62% decline from 2018.
When asked about a lack of operating leverage on the call, management said that they see a huge opportunity for growth, so the company is investing in operating expenses that may not see a benefit this year. Management said gross margins could see some pressure due to a higher Merchant Solutions mix, but the company is focused on gross profit dollar growth, not margins.
Higher investments don't come as a big a surprise as the company continues to add products and services while maintaining its position as the leading multi-channel commerce platform. The company did a secondary in December to build for the long-term and fund opportunities internationally and in Shopify Plus.
Still, with a $19 bln valuation and a low-teens sales multiple, investors were hoping for some operating leverage in 2019 after the company reported its first profitable year on an adjusted net income basis in 2018.
That said, the company guided for 37% revenue growth in 2019, which is likely somewhat conservative even though it does arrive on top of 59% growth in 2018.
The growth story appears to be far from over despite inevitable slowdown on the top-line, but a lack of operating leverage has not helped the stock’s elevated valuation this morning.
The stock has pared losses so far this morning after finding support near its 20-day moving averages and in the vicinity of September/December highs from last year.
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