Shopify Confirms Stock Uptrend, New Highs in Sight

Key Points

• Shopify posted a solid quarter, showed strong momentum, and guided the trends to continue in Q1. 
• An early response created a buy-the-dip opportunity with this market on track to set new highs this year.
• Cash flow is critical in allowing the company to pay off its debt and set itself up to build value for shareholders. 

Shopify’s NYSE: SHOP stock price fell following its Q4 2024 release and 2025 guidance because the guidance, robust as it is, is nothing more than the market expected. It provided no catalyst for an immediate rally and a good time to take profits, given the stock was up 140% from its lows set last July. However, the results for this eCommerce leader are robust, including accelerating top-line growth, widening cash flow margins, and guidance for sustained momentum, indicating the dip wouldn’t last long, and it didn’t.

Shopify Has Solid Quarter, Guides for Sustained Momentum in Q1

Shopify had a solid quarter, with revenue growing more than 31% to $2.81 billion, the seventh consecutive quarter with above-25% growth. Q4 revenue was also better than expected, driven by a 26% increase in gross merchandise volume, outpacing the consensus by 300 basis points. Strength in both categories drove the gains, led by a 33% increase in Merchant Solutions and a 27% gain in Subscriptions. Monthly recurring revenue, the more visible revenue stream, grew by 24%. 

The margin news is also impressive. The company sustained its gross margin and improved operational quality to drive a 61% increase in operating income. The cash flow and free cash flow are also noteworthy, with the FCF margin expanding throughout the year and topping out at a record 22% in Q4. The guidance for Q1 assumes that the FCF margin will contract, but it is seasonally affected and expected to improve sequentially throughout the year. The critical takeaway is that the company’s free cash flow allowed it to pay down its debt to zero and will grow in 2025. 

Guidance is strong. The company is forecasting a mid-20% growth pace in Q1 compared to the 24.5% predicted by analysts and may be cautious in its forecast.  

Shopify’s High Valuation Is Worth the Price 

Shopify stock is highly valued and trades at a significant premium to the broad market. However, the 90x multiple relative to 2024 results falls to the low 20% range within the next eight years, and the forecasts for future earnings are likely too low. The company’s momentum is building operational leverage that will be seen in upcoming quarters. In the meantime, the company’s CapEx plans include building on 2024’s value gains. 

The 2024 highlights include increased cash and assets, debt reduction, and improving equity. Equity increased by more than 27% and will likely grow robustly in 2025. Regarding leverage, the company has no long-term debt and a total liability of less than 0.25x equity, leaving it in a position to invest or acquire businesses as needed. 

Analysts' trends suggest this market will hit new highs soon, including increasing coverage, firming sentiment, and upward price target revisions. The 39 analysts tracked by MarketBeat show a high conviction in their Moderate Buy rating, with 64% of them rating at Buy or better, and price target trends driving the market action over the long term. The consensus lags the market in mid-February but is up nearly 40% in twelve months, with recent targets leading to the $150 to $175 range. That is a 25% to 45% share price increase from the pre-release close and an all-time high at the high end. 

Shopify’s Stock Price Plunge Didn’t Last Long

Shopify’s stock price plunged in premarket trading following the release, but the dip didn’t last long. What almost became a sell-the-news event was recognized for what it was: an attractive buying opportunity.  Early morning traders took advantage of the dip and pushed the price higher before the open. Indicated to open with a 3% gain, the market confirmed support at the 30-day moving average, traded at a long-term high, and was set up to move above a critical resistance target. That target aligns with price action in 2022 and opens the door to a more significant movement if crossed. In that scenario, this market could rise to the $260 level or higher, potentially setting a new high by mid-year.