What happened

Shares of Shopify (NYSE:SHOP) slumped on Tuesday after the e-commerce company reported its first-quarter results. The company beat analyst estimates for both revenue and earnings, but slowing growth and persistent losses may have overshadowed the headline numbers. Shopify stock was down about 8% at 11:50 a.m. EDT after being down as much as 11.1% earlier in the day.

So what

Shopify reported first-quarter revenue of $214.3 million, up 68% year over year and about $12 million above the average analyst estimate. Monthly recurring revenue reached $32.5 million, up 57%, while gross merchandise volume rose 64% to $8.0 billion.

The Shopify logo.

Image source: Shopify.

All of those growth rates are down compared to the first quarter of 2017, when Shopify reported revenue growth of 75%, MRR growth of 62%, and gross merchandise volume growth of 81%.

Non-GAAP earnings per share came in at $0.04, up from a loss of $0.04 during the prior-year period and $0.09 higher than analysts were expecting. But GAAP numbers paint a different picture. Shopify posted a GAAP net loss of $15.9 million, or $0.16 per share, down from a loss of $13.6 million, or $0.15 per share, during the prior-year period.

Looking forward, Shopify expects second-quarter revenue between $230 million and $235 million, along with a GAAP operating loss between $32 million and $34 million, and an adjusted operating loss between $5 million and $7 million.

Now what

Shopify is still growing at an impressive pace, but the stock's nosebleed valuation bakes in extreme expectations. Prior to the first-quarter report, Shopify traded at nearly 20 times 2017 sales. GAAP net income and free cash flow were negative last year, while non-GAAP net income puts the P/E ratio in the neighborhood of 1,000.

While Shopify's first-quarter growth was impressive on an absolute basis, it wasn't as impressive in the context of the stock's valuation. Based on the market's reaction, investors were likely expecting more.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Shopify. The Motley Fool has a disclosure policy.