E-Commerce software platform Shopify (NYSE:SHOP) beat analyst expectations in Q4 FY2022 quarter, with revenue up 25.7% year on year to $1.73 billion. Shopify made a GAAP loss of $623.7 million, down on its loss of $371.3 million, in the same quarter last year.
Is now the time to buy Shopify? Access our full analysis of the earnings results here, it's free.
Shopify (SHOP) Q4 FY2022 Highlights:
- Revenue: $1.73 billion vs analyst estimates of $1.65 billion (5.11% beat)
- EPS (non-GAAP): $0.07 vs analyst estimates of -$0.02 ($0.09 beat)
- Free cash flow of $247.8 million, up from negative free cash flow of $228 million in previous quarter
- Gross Margin (GAAP): 46%, down from 50.1% same quarter last year
"Since the very beginning, Shopify's mission has been to level the playing field for our merchants by lowering barriers, simplifying operations, and leveraging our scale to give them the superpowers they need to compete globally. The strength of our Q4 and full year performance in 2022 is a testament to the resilience of our merchants. Despite persistent macroeconomic challenges, they continued to succeed on Shopify, growing sales and using more of our mission-critical tools to run their businesses," said Harley Finkelstein, Shopify President.
Originally created as an internal tool for a snowboarding company, Shopify (NYSE:SHOP) provides a software platform for building and operating e-commerce businesses.
While 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.
As you can see below, Shopify's revenue growth has been very strong over the last two years, growing from quarterly revenue of $977.7 million in Q4 FY2020, to $1.73 billion.
This quarter, Shopify's quarterly revenue was once again up a very solid 25.7% year on year. On top of that, revenue increased $368.8 million quarter on quarter, a very strong improvement on the $71.1 million increase in Q3 2022, which shows acceleration of growth, and is great to see.
In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.
What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Shopify's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 46% in Q4.
That means that for every $1 in revenue the company had $0.46 left to spend on developing new products, marketing & sales and the general administrative overhead. This would be considered a low gross margin for a SaaS company and it has dropped significantly from the previous quarter, which is probably the opposite of what shareholders would like it to do.
Key Takeaways from Shopify's Q4 Results
With a market capitalization of $63.7 billion, more than $5.05 billion in cash and the fact it is operating close to free cash flow break-even, we're confident that Shopify has the resources it needs to pursue a high growth business strategy.
We liked to see that Shopify beat analysts’ revenue expectations pretty strongly this quarter. And we were also glad to see good revenue growth. However, gross margins have been trending down. Overall, we think this was a solid quarter. But the market was likely expecting more and the company is down 0.71% on the results and currently trades at $53 per share.
Should you invest in Shopify right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.
One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.
The author has no position in any of the stocks mentioned.