Shopify's (NYSE:SHOP) Q1 Earnings Results: Revenue In Line With Expectations But Stock Drops 16.7%

E-commerce software platform Shopify (NYSE:SHOP) reported results in line with analysts' expectations in Q1 CY2024, with revenue up 23.4% year on year to $1.86 billion. It made a non-GAAP profit of $0.20 per share, improving from its profit of $0.01 per share in the same quarter last year.

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Shopify (SHOP) Q1 CY2024 Highlights:

• Revenue: $1.86 billion vs analyst estimates of $1.85 billion (small beat)
• EPS (non-GAAP): $0.20 vs analyst estimates of $0.17 (18.3% beat)
• Gross Margin (GAAP): 51.4%, up from 47.5% in the same quarter last year
• Free Cash Flow of $232 million, down 48% from the previous quarter
• Gross Merchandise Volume: $60.9 billion, up 23% year on year
• Gross Payments Volume: $36.2 billion, up 60% year on year
• Market Capitalization: $99.27 billion

"You're seeing the strongest version of Shopify in our history. Our outstanding Q1 performance is clear proof of our dedication to the new shape of Shopify, our commitment to operating with a consistent team size, and our focus on building for the long-term to deliver both growth and profitability," said Harley Finkelstein, President of Shopify.

Originally created as an internal tool for a snowboarding company, Shopify (NYSE:SHOP) provides a software platform for building and operating e-commerce businesses.

E-commerce SoftwareWhile e-commerce has been around for over two decades and enjoyed meaningful growth, its overall penetration of retail still remains low. Only around $1 in every $5 spent on retail purchases comes from digital orders, leaving over 80% of the retail market still ripe for online disruption. It is these large swathes of the retail where e-commerce has not yet taken hold that drives the demand for various e-commerce software solutions.

Sales GrowthAs you can see below, Shopify's revenue growth has been strong over the last three years, growing from $988.6 million in Q1 2021 to $1.86 billion this quarter.

This quarter, Shopify's quarterly revenue was once again up a very solid 23.4% year on year. However, the company's revenue actually decreased by $283 million in Q1 compared to the $430 million increase in Q4 CY2023. This situation is worth monitoring as Shopify's sales have historically followed a seasonal pattern but management is guiding for a further revenue drop in the next quarter.

Looking ahead, analysts covering the company were expecting sales to grow 21% over the next 12 months before the earnings results announcement.

Cash Is KingIf you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Shopify's free cash flow came in at $232 million in Q1, up 170% year on year.

Shopify has generated $1.05 billion in free cash flow over the last 12 months, a decent 14.2% of revenue. This FCF margin stems from its asset-lite business model and gives it a decent amount of cash to reinvest in its business.

Key Takeaways from Shopify's Q1 Results We enjoyed seeing Shopify materially improve its free cash flow margin this quarter, which doubled from 6% in the same quarter last year to 12%. We were also glad its gross margin improved and its EPS beat analysts' expectations. On the other hand, its revenue guidance for next quarter was softer than expected - Wall Street was projecting 19% year-on-year growth while Shopify forecasted a "high-teens" growth rate. Overall, this quarter's results seemed fairly positive, but the company's quarterly outlook is giving shareholders shaky hands. The stock is down 16.7% after reporting and trades at $64.2 per share.