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Despite Shopify's surging top line and soaring gross profit, the e-commerce platform failed to impress the Street. But can it impress you?
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Shopify (SHOP +0.01%) stock took a hit on Tuesday, falling about 7% at the time of this writing. The sell-off in the e-commerce company's shares comes even though both Shopify's revenue and adjusted earnings per share (EPS) were higher than expected. Even more, Shopify raised its guidance for its full-year revenue. So, what's not to like about the first quarter?
To better understand Shopify's latest results, here's an overview of some of the key metrics from the quarterly update.
Image source: Shopify.
Revenue soared 68% year over year to $214.3 million. Going into the quarter, management had guided for first-quarter revenue to be between $198 million and $202 million. On average, analysts were expecting revenue of $202 million, representing 59% year-over-year revenue growth.
Notably, though revenue growth was above management's guidance and analysts' estimates, it was a deceleration from the company's 71% year-over-year increase in revenue in its fourth quarter of 2017.
Shopify's adjusted net income for its first quarter was $4.2 million, translating to $0.04 per share. This is up from an adjusted loss per share of $0.04 in the first quarter of 2017, and it's better than a consensus analyst estimate for an adjusted first-quarter loss per share of $0.05.
Though Shopify's adjusted EPS improved on a year-over-year basis, the e-commerce company's GAAP EPS worsened. Shopify reported a net loss per share of $0.16 on a GAAP basis, wider than its $0.15 loss per share in the first quarter of 2017.
Shopify's subscription solutions revenue, which accounts for about 47% of total revenue, increased 61% year over year. This growth was lower than the 67% growth Shopify saw in subscription solutions revenue in Q4.
Merchant solutions revenue, which accounts for over half of Shopify's revenue, rose 75% year over year -- an acceleration from the 74% year-over-year growth the segment saw in Q4.
Shopify's first-quarter gross profit soared to $123.9 million, up 71% year over year from $72.2 million in the year-ago quarter. This was a deceleration compared to Shopify's 78% year-over-year increase in gross profit dollars in its fourth quarter of 2017.
Shopify forecast full-year 2018 revenue to be between $1 billion and $1.01 billion. This outlook is higher than Shopify's previous forecast for 2018 revenue of $970 million to $990 million.
This revised guidance range for revenue represents year-over-year growth of about 49%, marking a meaningful deceleration from the 73% increase in revenue Shopify achieved in 2017.
Here's one item that may have been behind Shopify stock's sell-off on Tuesday. The company said it now expects its GAAP operating loss in 2018 to be between $105 and $110 million -- wider than the company's previous guidance for a GAAP operating loss of $95 million to $105 million.
While Shopify's decelerating growth, slightly wider loss per share on a GAAP basis, and worsened outlook for its GAAP operating loss in 2018 are certainly items to keep an eye on, the company's strong top-line growth highlights significant strength in its core business. With growth like this, investors should want the e-commerce company to be investing heavily in its future -- something that could weigh on near-term profitability metrics.