What happened
Shares of Shopify (SHOP +1.29%) got crushed on Wednesday, tumbling as much as 18.4%. As of 10:45 a.m., the stock was still down 18.2%.
The catalyst that sent the provider of e-commerce tools plunging was a financial report that generally exceeded expectations, but broad guidance that left investors wanting more.
So what
For the fourth quarter, Shopify generated revenue of $1.38 billion, up 41% year over year. This resulted in adjusted net income of $172.8 million, and adjusted earnings per share (EPS) of $1.36.
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To put those numbers in context, analysts' consensus estimates were calling for revenue of $1.3 billion and EPS of $1.21.
The solid results were fueled by merchant-solutions revenue of $1.03 billion, up 47% -- the first time this metric has crossed the $1 billion threshold in a single quarter. At the same time, subscription revenue of $351.2 million climbed 26%.
Gross merchandise volume (GMV), or the value of the products sold on its platform, climbed to $54.1 billion, an increase of 31% year over year. Gross payments volume (GPV) was also robust, representing 51% of GMV, up from 46% in the prior-year quarter.
Now what
While Shopify's results were laudable, Wall Street found the company's broad guidance lacking. Management doesn't expect the accelerated adoption of e-commerce to continue at the brisk pace experienced last year. As a result, year-over-year revenue growth would be lowest in the first quarter and highest in the fourth quarter.
Additionally, a revision to the contract terms will change how the company recognizes certain sales, shifting from gross revenue to net revenue, which will present the appearance of lower top-line results, without actually changing anything. This goes into effect in the second half, representing a temporary headwind in the early part of the year. On a positive note, Shopify expects certain investments to "gain momentum" over the course of the year.
It's important to remember that the adoption of e-commerce and online retail is a story that will play out over decades, not quarters. For patient investors with a sufficient investing time horizon, Shopify's stock price decline today likely represents a buying opportunity.
