Shopify's (SHOP 1.11%) fourth-quarter financials came in better than expected. But soft guidance sent shares of the e-commerce platform lower as they're down almost 17% from their 2024 peak.

Investors might be thinking about taking advantage of the recent dip to add Shopify to their portfolio. But before doing so, here are four things you need to know about this top e-commerce stock.

Shopify's offerings

Shopify provides the tools that allow anyone in 175 countries to quickly set up an online storefront and start selling products. Besides payment processing and checkout capabilities, the business also offers inventory management, shipping, marketing, and the ability to sell via different channels. Plus, Shopify has a developer ecosystem and app store that merchants can use to fit their specific needs.

In 2023, Shopify handled $235.9 billion of gross merchandise volume, representing the total amount of transactions that occurred on the platform. This figure was up 20% year over year. And $7.1 billion in revenue was produced last year, driven by merchant and subscription solutions.

Right-sizing operations

Shopify acquired Deliverr in 2022 for $2.1 billion. The strategic rationale was to become more like Amazon, providing a distribution and logistics foundation that its millions of customers could rely on to track everything related to shipping. In essence, Shopify wanted to spend big on huge capital expenditures that it could then monetize with recurring fees over time as its delivery services were used.

But last year, management switched up its strategy, deciding to sell off its entire fulfillment segment. The deal gave Shopify a larger stake in Flexport, which will become its logistics partner. This looks like the right move because it allows Shopify to focus on what it does best, which is introducing innovative software and tech features that its merchants find value in.

Plus, it frees up capital, helping drive the business to profitability. Shopify generated $132 million of net income in 2023. And analyst estimates call for adjusted earnings per share to rise at an annualized clip of 35% over the next three years.

Sensitivity to macro forces

On the one hand, Shopify has registered massive growth because it's riding the secular growth of online shopping. Helping the cause is a software-as-a-service (SaaS) and cloud-based platform that can scale up quickly. In other words, this company resembles a true tech enterprise.

But at the same time, it's hard to ignore the fact that Shopify is showing that it is indeed sensitive to macroeconomic factors. Growth has slowed dramatically in the last couple of years, a period characterized by higher interest rates, inflationary pressures, and worries about a recession.

To its credit, Shopify is focused on attracting larger merchants to its platform. However, the business still caters to small- and medium-sized merchants, which are heavily influenced by the state of the economy. In a potential downturn, the failure rate of these companies is high. And this can have a direct negative impact on Shopify's financial performance.

Lofty expectations

Without a doubt, Shopify has been one of the best performing stocks in recent times, even though it's been an extremely volatile ride. Shares trade 55% below their all-time high right now.

But this remains a very expensive stock. It currently sells for a price-to-sales (P/S) ratio of 13.9. That multiple is significantly higher than other companies' in the e-commerce sector, like Amazon, MercadoLibre, Etsy, and eBay. And while Shopify's P/S ratio is well below its historical average of 22.6, that's still a steep valuation to pay, even when you consider the growth potential of the business.