Why Shopify Stocks Have Fallen Hard This Week

Wall Street did not like the company’s Q1 earnings update.

Shopify (STORE -6.05%) the company’s stock dropped significantly this week. Shares fell 16% through Thursday, compared with a 1.5% gain in the broader market, according to data provided by S&P Global Market Intelligence. This crisis has worsened the year so far for e-commerce infrastructure platform owners, which will decline by 20% in 2024, while S&P500 increased by 9%.

This week’s decline came after Shopify failed to meet high expectations following its first-quarter earnings release.

Still growing

Business is still doing well, that’s for sure. Sales volumes increased 29% after including the recent sale of the logistics business. Shopify remained profitable on an adjusted earnings basis and actually increased its gross profit margin to 51% of sales from 48% of sales a year ago. Cash flow improved to 12% of sales from 6% a year earlier, which is a strong signal for any software-as-a-service company.

The downside is that the company presented quite cautious prospects for the second quarter that has just started. These forecasts were the main reason for the decline in shares immediately after the publication of the report for the first quarter.

Looking to the future

Shopify’s management team continues to project solid earnings and sales growth in 2024, with revenue likely to grow in the low to mid-20% range in the second quarter after accounting for the sale of its logistics division. Cash flow margin will be around the 12% level that investors saw in the last quarter. Management continues to strive to increase profitability, although returns are expected to be uneven.

These forecasts translate into solid prospects for this growth. However, investors were counting on a more bullish projection. Given that the stock is valued at around 14 times sales, it’s no surprise that the company’s stock is falling even after strong earnings reports. Investors can expect more volatility for Shopify stock, although its positive long-term growth prospects remain unchanged.