Shopify’s Q4 Net Income Disappoints Despite Double Beat

Shopify Inc. (NYSE, TSX: SHOP) reported its financial performance for the fourth quarter of 2024, demonstrating significant growth across key financial metrics. The company’s revenue surged to $2.812 billion, marking a 31% increase compared to the same quarter in the previous year.

This growth was driven by both subscription solutions and merchant solutions, which saw revenue increases of 27% and 33%, respectively. Moreover, Shopify’s gross profit rose to $1.352 billion, reflecting a 27% year-over-year growth. The company’s operating income for the quarter was $465 million, a substantial increase from $289 million in the fourth quarter of 2023.

Additionally, Shopify achieved a free cash flow of $611 million, with a free cash flow margin of 22%, highlighting the company’s ability to generate cash efficiently. Shopify’s gross merchandise volume (GMV) also exhibited impressive growth, reaching $94.460 billion in the fourth quarter, a 26% increase from the prior year. This marks the highest GMV growth in three years, indicating strong demand for Shopify’s platform among merchants. The company’s monthly recurring revenue (MRR) grew to $178 million, further emphasizing the sustained momentum in its subscription business.

Shopify Beats EPS and Revenue Expectations in Q4

Shopify’s performance in the fourth quarter of 2024 exceeded market expectations. Analysts had projected an earnings per share (EPS) of $0.4274 and revenue of $2.73 billion for the quarter. Shopify outperformed these expectations, reporting an EPS of $458 million when excluding the impact of equity investments and achieving revenue of $2.812 billion.

The company’s strong revenue growth was driven by a combination of factors, including increased international and offline revenue, which both grew by 33%. Additionally, Shopify’s B2B GMV saw a remarkable increase of over 140%, while Shop Pay GMV grew by 50%.

The company’s free cash flow margin expanded by 500 basis points year-over-year, reaching 22% in the fourth quarter. However, the company’s net income of $458 million was short of FactSet expectations ($543 million) significantly.

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Shopify Expects Revenue to Grow at a Mid-Twenties Percentage Rate y/y

Looking ahead to the first quarter of 2025, Shopify provided guidance that reflects continued optimism about its growth prospects. The company expects revenue to grow at a mid-twenties percentage rate on a year-over-year basis.

This guidance suggests that Shopify anticipates sustained demand for its platform and services, despite the seasonal dip in GMV typically observed in the first quarter. Shopify also projects gross profit dollars to grow at a low-twenties percentage rate year-over-year, indicating that the company expects to maintain its focus on profitability.

Operating expenses as a percentage of revenue are anticipated to be between 41% and 42%, reflecting Shopify’s continued investment in growth initiatives. Additionally, stock-based compensation is expected to be $120 million, highlighting the company’s commitment to attracting and retaining top talent. The company forecasts a free cash flow margin in the mid-teens for the first quarter of 2025, which aligns with its strategic focus on generating cash while investing in growth.

Disclaimer: The author does not hold or have a position in any securities discussed in the article. All stock prices were quoted at the time of writing.