Shopify Retreats, Amazon Attacks
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Amazon's next target is shipping on Motley Fool Hidden Gems Investing. Welcome to Modern Fool Hidden Gems Investing. As we've said before, new name, same great podcast. I'm Tyler Crowe. I'm your host today. I'm joined by longtime Fool contributors, Lou Whiteman and Matt Frankel. As I mentioned in the headline, we're going to talk about this new move that Amazon is doing by going into the shipping and logistics business in ways that they've never done before. Also, we're going to answer some listener mailbag questions. But first, we want to start with the topic that we started to the day. It is earnings season, so we want to get into earnings at Shopify. Shares of Shopify are down about 9% as we are taping this podcast today.
It was down as much as 10% both in pre-market and early market trading this morning after the company released first quarter earnings. Of all the three of us here, I am the non-Shopify follower here, so I'm going to lean on you guys. When I first looked at the press release, I would say in a vacuum, the numbers looked fine. Revenue was up 34% year over year. Gross merchandise volume, which the amount of stuff that was bought on its platform, would pass $100 billion for the first time. Net income, taking out some investment gains and losses that aren't really related to the actual operating business, was $360 million. Though, here's the knock. It did miss expectations for the quarter. And this is the second quarter in a row that it actually missed Wall Street expectations for operating earnings.
So, guys, I want to get your thoughts on this. And was this missing Wall Street earnings for the second time kind of adding to AI jitters? Was it maybe just Wall Street's expectations being a little too high? When you saw these results, how did you see them? Matt, let's start with you.
Well... Like pretty much any other stock in earnings season, it's all about expectations. Shopify grew revenue by 34% in the first quarter, but they're guiding for full-year revenue growth in the high 20s range. If you have 34% in the first quarter, high 20s the rest of the year, the law of averages tells you you're going to have a slowdown as you head into the rest of the year. I'm not as worried about the net income number and the net income miss. I don't think that's what's driving the stock here. If a company's growing sales at 34% year-over-year and is profitable, then that's great in and of itself. Shopify is in a very investment-heavy phase right now. As you mentioned, it's trying to keep up with AI headwinds and things like that.
That can make bottom-line income lumpy.
What were the key highlights of Shopify's latest earnings report?
But we really need to show the revenue growth to justify the spending. It needs to keep revenue growth at an elevated enough level. It doesn't sound like they gave an optimistic enough outlook to satisfy investors with the stock trading at 65X forward earnings, more than 12X sales. Whatever metric you want to use, it's an expensive stock.
And that's the thing. It's funny because we're all guilty of it. We all like scoreboards, right? So we look at what the stock is doing and say, bad quarter, bad company, good quarter, good company. And sometimes, usually, it's not that simple. Tyler, yeah, it looked good in a vacuum. It looked good in a dustbin. It looked good in a Swiffer. It looked good. This was a good quarter. But everything is relative. Valuation is returning to earth, but arguably not yet on earth. And when you trade at a premium, you... are expected to deliver a premium return. Shopify's guidance doesn't clear the bar for me. Apparently, it doesn't clear the bar for the market either. And I think that's basically, you know, not company bad, company good.
I think that's the conclusion. I'd note here, too, is like, oh, if you look at five years, Shopify is basically flat. They're like up, I think, 1%. Now, they've been up 80% and cut in half during that period. So this is a company that tends to swing violently around different moods. I own the stock. To me, it's a definition of a hold. If it comes down, it may begin to look interesting to add to it.
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