As more and more consumers turn to online shopping, e-commerce platform Shopify (SHOP -0.64%) continues to boost its revenues. But despite the stay-at-home restrictions and changing consumer habits that have molded our digital economy at unprecedented speeds, Shopify announced yet another quarter of losses. Long-term investors should take heed.

At first glance, the company enjoys steady growth: It grew revenues by 71.94% over the past five fiscal years, and 46.5% year over year the past year alone (TTM). Total revenue in the first quarter was $470 million, with subscription revenue growing 34% year over year. Expectations are heavily in the company's favor, as pandemic restrictions have propelled more and more shops online. Indeed, Shopify reported that new stores created on its platform grew by 62% between March 13 and April 24. Investor confidence is soaring, and as a result, Shopify's stock price has risen more than 30% in the past month. 

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Growth is slowing

However, Shopify's rapid expansion hides a less rosy picture. Revenue growth remains high, but the rate is actually slowing, even as more people turn to online shopping than ever before. Shopify's year-over-year sales growth rate has literally halved since 2016, from 90% then to 46.5% over the trailing 12 months.

Shopify itself has acknowledged its difficulties, stating that, while new types of merchants are migrating to Shopify Plus, March and April also saw more merchants downgrade from Shopify Plus to lower-priced plans than earlier this year. The company also saw an uptick in cancellations. Luckily for Shopify, this change has been offset by strong use of its payment portal Shopify Payments, which contributes heavily to the fastest-growing portion of its revenue. Overall, though, merchants are cutting costs or possibly moving to a different platform -- shifting its revenue mix -- and Shopify is taking the hit with slowing growth.

But 46% is still astonishingly good, right? 

Independent of other factors, such a high growth rate is promising. Yet there is more to the story: Operating expenses for FY20 Q1 increased to 70% of revenue, versus 67% from the same time period a year ago. Not only that, but Shopify's cost of goods sold is growing faster than its revenue, which is doubly concerning given its slowing sales. 

Shopify stretches to remain on top

Of course, these factors might be signaling that Shopify is maturing, so the future health of the company will be highly dependent on its ability to control these growing costs and diversify its revenue streams. In fact, as more competition is entering the e-commerce market, Shopify has begun injecting more money into research and development, which is further increasing its operating costs.

The company recently announced the development of a new consumer app in an attempt to position itself as the go-to consumer platform to shop at all Shopify-powered stores. It also acquired a robotics-driven warehouse system, 6 River Systems, to drive its fulfillment services. All of these moves add clear value for its customers while redirecting resources to its highest-performing segments, but the question remains whether Shopify is able to keep a lid on its balance sheet. The most recent numbers indicate the company is struggling to do so. 

Clearly, Shopify's stock price gains have outstripped its ability to deliver value to investors. It posted growing losses in the middle of a surge in online shopping, and the same week in May, its stock gained 2.8%. However, with a more than 500% increase in stock value over the past two years, Shopify's short-term prospects remain extremely positive.

The company clearly has the vision to continue growing -- as evidenced by its newest expansion efforts -- but its current market capitalization of $160 billion seems far from justified by its fundamentals. Long-term investors should be wary. When the expectation bubble bursts, Shopify may well crumble as quickly as it grew.