Why Shopify Stock Dropped 12.6% Despite Beating Earnings Estimates

Shopify stock (TSX:SHOP) dropped by over 12% on the TSX today after reporting earnings that beat estimates. So what happened?

| More on:
Happy shoppers look at a cellphone.

Source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shopify (TSX:SHOP) investors likely woke up to a surprise this morning. And it wasn’t a good one. Despite beating out earnings estimates, shares of the company dropped as much as 12.6% after earnings came out. So what exactly happened to the tech stock?

Created with Highcharts 11.4.3Shopify PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

What happened

Shopify stock came in hot with strong profit and earnings that beat out estimates of analysts over and over again. The tech stock reported fourth quarter profit of US$657 million for the quarter, compared to a loss of US$623 million the year before.

Revenue was also up by 24%, to US$2.1 billion. This was almost double the year before at US$1.7 billion. The e-commerce company said on a per share basis this amounted to a profit of US$0.51 per share, compared to a loss of US$0.49 per share last year.

The revenue increase came as the company also saw its merchant solutions revenue rise to US$1.6 billion. This again was higher than last year, when Shopify generated US$1.3 billion. So thanks to the increased sales from merchants, the stock was able to bring in even more revenue. This also translated to higher subscription revenue as well, up to US$525 million from US$400 million.

So why the drop?

All these reports came in far above analyst estimates. Analysts expected the stock to report unadjusted earnings at US$0.22 per share, and US$0.30 adjusted earnings per share. Revenue was also higher than the forecasted US$2.1 billion, with gross merchandise volume up 23% to US$75.1 billion, higher than the anticipated US$72.5 billion.

The drop seems to come down to Shopify stock posting perhaps the highest future outlook for the company. For the first quarter, Shopify stock believes it will see overall revenue growth in the low-twenties percentage rate year over year.

The thing is, this falls within, and even slightly above, what analysts estimate for the company. Gross margins should increase about 1.5% quarter over quarter, with free cash flow in the single digits. But it seems investors are hoping for more.

Is that warranted?

In this case, you reap what you sow. Investors have been greedy when it comes to Shopify stock over the last few months. In fact, shares are up 12% year to date, and still up 79% in the last year alone. That’s a lot of share growth in a short period of time, so it’s no wonder investors were hoping for more from the company.

However, it might be a good thing that Shopify stock is being a bit more cautious in its future predictions. The sale of its logistics business still provides the company with strong cash on hand. And the stock continues to support investment into the platform and making it the easiest place for merchants to make money.

And that’s clearly working! Merchant sales are up, subscriptions are up, and this is all adding to the company’s bottom line. So while top line growth may be a bit slower, that bottom line growth remains strong. And that’s what I like to see as an investor.

Bottom line

The bottom line here is that Shopify stock is doing exactly what it should be doing. And this conservative forward guidance could easily be beaten. Especially if we see inflation and interest rates come down, leading to more shopping. And over time, the company is sure to bounce back. In fact, keep a watch on this tech stock. There are bound to be quite a few investors taking advantage of the dip on the TSX today.

Should you invest $1,000 in Shopify right now?

Before you buy stock in Shopify, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Shopify wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,058.57!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 38 percentage points since 2013*.

See the Top Stocks * Returns as of 2/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has positions in Shopify. The Motley Fool has positions in and recommends Shopify. The Motley Fool has a disclosure policy.

If You Thought Apple and Microsoft Were Big, You Need to Read This.

The steel industry produced the world's first $1 billion company in 1901, and it wasn't until 117 years later that technology giant Apple became the first-ever company to reach a $1 trillion valuation.

But what if I told you artificial intelligence (AI) is about to accelerate the pace of value creation? AI has the potential to produce several trillion-dollar companies in the future, and The Motley Fool is watching one very closely right now.

Don't fumble this potential wealth-building opportunity by navigating it alone. The Motley Fool has a proven track record of picking revolutionary growth stocks early, from Netflix to Amazon, so become a premium member today.

See the 'AI Supercycle' Stock

More on Tech Stocks

An investor uses a tablet
Tech Stocks

Got $1,500? 1 Tech Stock to Buy and Hold Forever

Meta Platforms (NASDAQ:META) has been a winning bet that could continue to perform in 2025.

Read more »

money cash dividends
Tech Stocks

2 Canadian Stocks to Capitalize on Income Through 2025

Don't miss out in the resurgence of these two great stocks, with both already showing a comeback.

Read more »

Group of people network together with connected devices
Tech Stocks

The Smartest Growth Stock to Buy With $1,000 Right Now

Here's why Shopify (TSX:SHOP) remains a top growth stock long-term investors may want to consider right now.

Read more »

cloud computing
Tech Stocks

Alert: 2 High-Tech TFSA Growth Stars You Won’t Want to Miss

Shopify (TSX:SHOP) and a magnificent tech stock are worth buying for one's TFSA for the next few years.

Read more »

Data center woman holding laptop
Tech Stocks

Why CGI Stock Could Be the Best Stock to Buy Right Now

CGI has a strong long-term history of shareholder value generation, operational performance, and stock price gains.

Read more »

Digital background depicting innovative technologies in (AI) artificial systems, neural interfaces and internet machine learning technologies
Tech Stocks

The Savviest U.S. Stock to Buy With $5,000 Right Now  

The AI rally is not dead, and this AI-savvy U.S. stock could prove this in 2025 with its upcoming product…

Read more »

A patient takes medicine out of a daily pill box.
Tech Stocks

The Best AI Stock to Invest $1,000 in Right Now

It's had its ups and downs, but WELL Health stock is making a comeback in a big way among AI…

Read more »

grow money, wealth build
Tech Stocks

Canadian Stocks That Could Create Lasting Generational Wealth

Build a rich retirement portfolio and create a wealth legacy with Shopify and another esteemed growth stock

Read more »