Shopify (SHOP +2.65%) stock declined significantly this week. Shares dropped 16% through Thursday trading as compared to a 1.5% rally in the wider market, according to data provided by S&P Global Market Intelligence. That slump added to a tough year so far for owners of the e-commerce infrastructure platform, which is down 20% in 2024, while the S&P 500 has risen 9%.
This week's decline occurred after Shopify failed to meet high expectations around its Q1 earnings release.
Still growing
The business is still doing well, to be sure. Sales volumes jumped 29% after accounting for the recent sale of the logistics business. Shopify remained profitable on an adjusted earnings basis and, in fact, boosted its gross profit margin to 51% of sales from 48% of sales a year ago. Cash flow improved to 12% of sales from 6% a year earlier, which is a strong marker for any software-as-a-service business.
NASDAQ: SHOP
Key Data Points
On the downside, the company issued a somewhat cautious outlook for the Q2 period that just kicked off. These forecasts were the main reason shares fell immediately following the Q1 report.
Looking ahead
Shopify's management team still sees solid earnings and sales growth ahead in 2024, with revenue likely to rise in the low-to-mid 20% range in Q2 after adjusting for the sale of its logistics arm. Cash flow margin will land at around the same 12% rate that investors saw in the most recent quarter. Management is still looking to boost profitability, although gains here should be lumpy.
Those forecasts translate into a solid outlook for this growth stock. However, investors were hoping for a more bullish projection. With shares valued at about 14 times sales, it's no surprise that the stock would drop even following a strong earnings report. Investors can expect more volatility ahead for Shopify stock, although its positive long-term growth outlook remains intact.
