Shopify Inc. SHOP-T reported double-digit revenue growth and solid profit for the fourth quarter, topping analyst expectations after a strong holiday season and a year of streamlining its work force.
The Ottawa-based company, which provides tools for businesses to run their stores online, said its revenue was US$2.1-billion for the quarter ended Dec. 31, 2023, up 24 per cent from the same period last year.
Shopify reported net income of US$657-million for the quarter, compared with a net loss of US$623-million a year earlier. “Other income,” including the fluctuating value of its stakes in other companies, made up about 60 per cent of income for the quarter.
Gross merchandise value – the total sales through its platform – increased 23 per cent to $75.1-billion over the quarter, representing the fifth consecutive quarter of accelerating growth, according to ATB Capital Markets analyst Martin Toner.
Jeff Hoffmeister, Shopify’s chief financial officer, told analysts Tuesday morning the revenue was driven by a strong Black Friday, Cyber Monday and holiday season.
Shopify said it expects revenue to grow “at a low-20s percentage rate,” or “in the mid-to-high-20s” when adjusting for the sale of the logistics business last June. In a Tuesday morning note to investors, Mr. Toner said the quarter underlined Shopify’s ability to “simultaneously grow and expand its bottom line.”
Last week, Shopify increased the price of its Plus subscription plan by 25 per cent, the first time it had done so since 2017. This was after it raised its Basic plan prices the year before for the first time in more than a decade. Despite that price hike, the company experienced little turnover.
But the company’s forecast for sales growth in the first quarter fell short of some expectations. Shares of Shopify closed down more than 12 per cent on the Toronto Stock Exchange on Tuesday.
“For a stock that’s had material appreciation over the past year, expectations were high going into the quarter and [fiscal year 2024], which meant there could be no disruption in trajectory – which is what we got with the company’s outlook,” National Bank of Canada analyst Richard Tse said in a note to investors.
Mr. Tse said the company’s guidance caused some hesitation for analysts related to its rising marketing spending, and concerns about operating leverage.
The company’s fourth-quarter operating expenses were down by 22 per cent compared with last year, owing to the sale of the company’s logistics business and a lower headcount, Mr. Hoffmeister said. The company also faced a real estate impairment charge last year.
However, operating costs are ticking back up quarter-over-quarter.
Last year, the company boosted its marketing spend to reach new customers. On Tuesday, management said it expects operating costs to increase by a “low teens” percentage rate next quarter, attributing roughly half of that expected increase to marketing costs.
This could dull the company’s operating leverage – the relationship between its fixed and variable costs – making it more difficult for Shopify to earn more profit by simply increasing its sales volume.
Shopify president Harvey Finkelstein defended the higher marketing costs, saying the company would continue to take opportunities that offered a good return.
The company has considerable room to grow. Shopify says it only has about 10 per cent of U.S. e-commerce market share right now, and a lower portion of the market in other countries.
The company’s share price has recuperated since last year, up 85 per cent since last February, but is still down about 50 per cent from all-time highs. In contrast, other tech companies such as Microsoft Corp., Meta Platforms Inc. and Nvidia Corp. were galloping to new highs in 2023.
Since last year, the company has attempted to regain the momentum it had early in the pandemic, cutting 20 per cent of its employees last summer as part of efforts to streamline. Although it had spent billions building a logistics business in order to compete with Amazon.com Inc., last year it reversed course, selling its warehousing operations to Silicon Valley-based Flexport Inc. and taking a 19-per-cent equity stake in the company, according to estimates from Canadian Imperial Bank of Commerce analyst Todd Coupland.
Irene Galea