Shopify's stock tanks after earnings. Here's what's spooking Wall Street.

By Emily Bary

Shopify's projection for higher operating expenses in the first quarter seems to be worrying investors, analyst says

Shopify Inc. beat profit expectations for the latest quarter and projected margin improvement for the current one, but the company's disclosures on expenses seemed to be worrying Wall Street.

Shares of Shopify (SHOP) (CA:SHOP) were off more than 10% in Tuesday morning action after the company, which enables businesses to run online shops, said that it expects operating expenses to grow relative to what was seen in the fourth quarter. That rise is expected to be, on a percentage basis, somewhere in the low teens.

"Contrasting to some of management's commentary from the recent analyst day regarding expense discipline (including the benefits to op leverage from AI), the [first-quarter operating-margin] guide is a little surprising," Baird analyst Colin Sebastian said in a note to clients.

He thought the company's projection for what he dubbed "meaningfully higher" operating expenses in the first quarter was a factor pressuring the stock, "with buy-side expectations having ramped up" ahead of Shopify's report.

The stock has gained 31% over the past three months, as the S&P 500 SPX has increased 12%.

"Overall, [fourth-quarter results] delivered versus high expectations, but the valuation and lack of margin upside may keep [the stock] from pushing higher today," Jefferies analyst Samad Samana said in a note to clients.

The company posted fourth-quarter net income of $657 million, or 51 cents a share, whereas Shopify logged a net loss of $623 million, or 49 cents a share, in the year-before quarter.

On an adjusted basis, Shopify posted 34 cents in earnings per share, up from 7 cents a year prior and ahead of the FactSet consensus, which was 30 cents.

Shopify's revenue rose to $2.1 billion from $1.7 billion and matched the FactSet consensus.

Gross merchandise volume rose 23% to $75.1 billion, while analysts had been looking for $72.2 billion. That marked a growth acceleration, the company said in its release.

"For 2024, we look to build on the momentum that we achieved in 2023 and continue to deliver a strong combination of both top-line growth and profitability," Chief Financial Officer Jeff Hoffmeister said in a release.

Shopify expects 2024 revenue to grow at a "low-twenties" percentage rate from a year earlier, or a "mid-to-high twenties" rate when factoring in the impact of Shopify's sale of its logistics business.

The FactSet consensus of $8.39 billion implied expectations for roughly 19% growth.

The company also models a 150 basis-point sequential improvement in gross margin during the first quarter.

-Emily Bary

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02-13-24 1038ET

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