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.