Shopify Shows Strong Global Momentum, But Guidance Raises Questions On Profitability Path

Benzinga · 5d ago

Shopify Inc (NASDAQ:SHOP) reported fiscal first-quarter results on Thursday. The company’s quarterly revenue growth of 26.8% to $2.36 billion beat the analyst consensus estimate of $2.33 billion. 

The e-commerce platform company reported adjusted EPS of $0.25, up 25% but missed the analyst consensus estimate of $0.26.

Also Read: Shopify Q1 Likely Solid, But Analyst Says Tariff Commentary And Q2 Outlook Will Steer Investor Focus

Gross merchandise volume increased 22.8% to $74.75 billion. Merchant solutions revenue increased 28.9% to $1.74 billion. 

Wall Street analysts rerated the stock after the report.

  • Piper Sandler analyst Clarke Jeffries had a Neutral rating on Shopify with a price target of $104.
  • Goldman Sachs analyst Gabriela Borges maintained a Buy rating on Shopify with a price target of $120, down from $130.

Piper Sandler: GMV grew 23%, driven by same-store sales growth for existing customers and growth in merchants globally. Management noted that only 1% of overall GMV is related to imports from China, subject to the de minimis exemption, Jeffries said.

The second-quarter guidance factors in continued strength in GMV data through April and May, translating to mid-20s revenue growth and high-teens gross profit growth. Guiding to mid-20s revenue growth but expecting to see high-teens gross profit growth will likely be the primary nitpick for investors, the analyst stated.

Free cash flow margins will likely be again in the mid-teens range. Jeffries will closely monitor this into next quarter, as he noted a decline in free cash flow margins would be a negative event for the stock.

Shopify is successfully benefiting from the globalization of commerce through digital technology, and the scale advantages built in the North American market translate to substantial market share gains abroad. International is the linchpin to believing Shopify can continue to grow at ~20% over the medium term and is crucial for the bull story.

Jeffries projected second-quarter revenue of $2.56 billion and EPS of $0.30.

Goldman Sachs: Shopify’s GMV multiplier as a percentage of U.S. eCommerce growth remains strong, indicating continued market share gains that will likely expand further in periods of volatility even as U.S. eCommerce growth slows. Shopify continues progressing in the enterprise, which Borges expects to be a key growth driver in 2025.

Shopify’s data has shown little evidence of a slowdown, with strength in April and early May. When asked about Flexport’s view of disruption, Shopify noted that it has not seen similar trends and that its merchant bases have different characteristics.

While management acknowledged continued uncertainty and noted that the full impact of the current trade environment remains to be seen, they shared some metrics to help investors understand Shopify’s exposures.

Cross-border continues to make up 15% of GMV, with half of this number representing U.S. trade, which is split between inbound and outbound. 1% of the overall GMV is from China and is subject to the de minimis exemption.

While Shopify has seen some merchants raise prices, they have not seen broad pricing increases and noted that their typical consumer is more resilient to pricing increases, the analyst said.

Shopify believes its merchant base is exposed to verticals that are more able to adapt, with limited exposure to verticals like electronics and higher exposure to verticals like fashion, apparel, and beauty. Management is skeptical that tariffs have pulled forward demand, noting that China’s production capacity limits the degree to which it can flex upwards, Borges noted.

Pressure on gross margins in 2025 is due to the PayPal partnership, payments increasing as a % of the business, noncash revenue rolling off, enterprise traction, and the impact from longer paid trial lengths causing pressure on subscription revenue growth. While Merchant Solutions’ gross margin will continue to be pressured by payments, Payment adoption can help increase the adoption of many of Shopify’s newer margin-accretive products, which should help margins stabilize over time.

While free cash flow margins will likely trend sideways in 2025, the analyst noted the potential for structurally higher terminal margins due to Shopify’s vertical software competitive moat.

SHOP Price Action: Shopify stock is down 2.93% at $91.25 at the last check on Friday.

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