Shopify (SHOP: $63, down $15 yesterday) reported mixed results for Q1 2024 Tuesday evening. Revenue grew 23% year-over-year, exceeding analyst expectations. However, the company posted a net loss due to increased expenses, a shift from the previous year's profit.
Highlights:
- Revenue: $1.86 billion (up from $1.51 billion)
- Gross merchandise volume (GMV): $61 billion (up 23%)
- Monthly recurring revenue: $151 million (up 32%)
- Gross margin: 51.4% (up from 47.5%)
- Strong cash flow position: $5.2 billion cash, $1.1 billion debt
Concerns:
- Net loss: $270 million (vs. $60 million profit in Q1 2023)
- Management transparency: We have concerns about the company's communication during the earnings call.
- Increased competition: The e-commerce landscape is competitive, and Shopify faces pressure to maintain its market share.
BMR Take:
Shopify's core business remains healthy, with strong growth in revenue, GMV, and recurring revenue. The company's focus on AI solutions holds promise for the future. However, the net loss and questions about management transparency are causes for concern. We are removing Shopify from our portfolio, but the long-term potential remains. We are generally displeased with the company. We loved this company and they have let us down. The comments from management are in many cases hyperbole and we don’t believe many of them. Once you start to disbelieve a company’s management, you lose trust in the company. It is hard to get trust back.
We thought we had a company for the ages, like Microsoft or Google. But they have let us down. We added the stock at $73 in 2017 and it rose to $1,763 in 2021, a 24-bagger, but the stock has faded to its current level of $620. Of course, after the 10-1 split in 2022, you can divide all these numbers by 10. We still have an 8-bagger, which is not bad in the whole scheme of things. But the company has let us down, so we are removing the stock today.
Where will the stock be in a year or two? Perhaps right where it is now; perhaps higher, as the platform they have built is second to none. But competition is heating up and if management can screw up like they have in the past year, then the whole franchise could be in trouble. We’d rather have our money in Amazon.
