Already down for the year, the budding rebound effort Shopify (SHOP 2.08%) shares have been working on since the latter half of last month was dealt a blow today. As of 12:09 p.m. ET Tuesday, in fact, the e-commerce solution provider's stock is down 12.6% following this morning's release of its first-quarter results and second-quarter guidance.
Today's sell-off, however, may be a mistake as well as a buying opportunity.
A solid quarter dented by disappointing guidance
Shopify turned $3.17 billion worth of revenue into a non-GAAP per-share profit of $0.36 for the three months ending in March, up 34% and 44% from the year-ago comparisons of $2.36 billion and $0.25 per share, respectively, topping analysts' expectations of $3.09 billion and $0.33 per share. Reported operating income also improved year over year, and by more than expected.
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The stumbling block, rather, is guidance. In addition to lacking specificity, the company's expectation for Q2 revenue growth in the "high-twenties" is merely in line with analysts' estimates, while its gross profit growth outlook in the "mid-twenties" suggests Shopify's second-quarter bottom line could come up short of current expectations, slowing down from Q1's growth pace. As of Tuesday morning, analysts are anticipating non-GAAP per-share earnings of $0.39 on revenue of $3.4 billion for the quarter currently underway, versus year-ago comparisons of $0.35 per share and $2.68 billion, respectively.
See the bigger picture
The market's knee-jerk response is understandable. There may have been a time and environment when and where non-descript guidance would have been satisfactory to investors. This is not the time or environment for a lack of clarity though, particularly when even the loose guidance points to a slowdown in sales and earnings growth.
Much of the current quarter's slowdown, however, is arguably already priced in thanks to the stock's pullback during the first quarter.
NASDAQ: SHOP
Key Data Points
It's also worth noting Shopify performed a bit better in Q1 than its guidance offered with its Q4 results suggested it would, particularly in terms of gross profit and operating expenses.
In other words, while it may be difficult to step into this underperforming name right now (particularly in light of current economic uncertainty), today's weakness is arguably a long-term buying opportunity. The e-commerce industry continues to evolve in ways that favor Shopify's ability to serve sellers looking to custom-build an online-shopping experience for consumers that are increasingly craving authenticity.
