Shopify’s Good Results Offset by Light Outlook

Narrow-moat Shopify SHOP reported fourth-quarter results that were ahead of our expectations from a revenue and operating margin perspective. On the positive side, the company provided guidance for the first quarter, the first time in some time it has done so. However, the outlook is light relative to our expectations. We continue to believe that the Shopify Fulfillment Network is likely to gain significant traction with customers and along with continued penetration of other merchant solutions, should help drive strong growth over the next decade. Given results and guidance, we are maintaining our U.S. dollar fair value estimate of $45 per share (and lowering our Canadian dollar fair value estimate to CAD 60 from CAD 61 solely due to currency moves). A rebound in software stocks coupled with rumors about activist shareholders stepping in have left the shares fairly valued, in our view.

Fourth-quarter revenue grew 26% year over year to $1.735 billion, ahead of our expectations and FactSet consensus of $1.655 billion. Growth accelerated sequentially for the second straight quarter despite a 200-basis-point currency headwind. Subscription revenue grew 14% year over year, while merchant solutions grew 30% year over year, with subscriptions in line with our model and merchant solutions driving the entirety of revenue upside. Gross merchandise volume grew 13% year over year to $61.0 billion, while gross payment volume processed through Shopify Payments was $34.2 billion, or 56% of GMV. We calculate a take rate of 2.19%, compared with 1.90% a year ago, and believe this should continue to expand as more merchant solutions are adopted. Monthly recurring revenue was $109 million, up only 7% year over year as growth continues to decelerate. We think the slowdown is macroeconomic-driven and Shopify will continue be successful at attracting larger brands to the platform, especially given the rash of new features, including Commerce Components.