Shopify Stock Earnings: SHOP plunges 10% on GAAP earnings miss

Shopify (SHOP) stock took a hit late Wednesday when the company reported fourth quarter GAAP earnings per share (EPS) that missed their mark. The online retail platform reported GAAP EPS of $-0.49, which was 32 cents below Wall Street consensus. Additionally, stock-based compensation (SBC) grew as a percentage of revenue to 9.8% – something that has become more troublesome to tech investors since the equity sell-off in 2022. Adjusted EPS of $0.07 was 9 cents ahead of consensus however.

Shopify stock ended the afterhours session Wednesday down 10.3% at $47.90.

Shopify stock news: Revenues, GMV, SBC continue to grow

Shopify's GAAP earnings miss was triggered by one-time legal, real estate and severance costs. Without these expenses going forward, Shopify would seem to be on a trajectory toward regular GAAP profits, so the SHOP sell-off may be unwarranted. However, at least some investors were triggered by full-year 2022 stock-based compensation that amounted to nearly 10% of revenue. In 2021, SBC amounted to 7.2% of sales. Other shareholders complained about valuation at this unprofitable juncture.

Still the business continues to grow its customer base and revenues. Sales for the fourth quarter came in at $1.73 billion, a healthy length ahead of consensus of $1.65 billion. This figure for the heightened period surrounding the holiday shopping season showed 25% growth compared with the quarter one year ago. Merchant revenue rose 30% YoY to $1.3 billion, while subscription revenue gained 14% YoY to $400 million.

Gross merchandise value of $61 billion showcased a 13% gain on the prior year and arrived nearly $2 billion ahead of consensus. However, guidance for the first quarter of 2023 left much to be desired. CEO Tobias Lütke guided for YoY revenue growth in the high teens, which demonstrates that a clear decline in platform growth seems to be expected. Despite that forward glance, Shopify added a number of significant influencer and established brands in the fourth quarter like Kim Kardashian's SKKN skincare company, Mattel, Glossier, Supreme and YouTube personality Mr. Beast's Feastables.

Source: App Economy Insights

Analysts did remain somewhat inflexible regarding the company's slowmotion pivot toward profitability. "Investors were hoping that the headcount reductions and the price increases would translate to operating leverage and higher profitability, not a return to losses in the first quarter as is implied by guidance," said analyst Gil Luria of D.A. Davidson, according to Reuters.

CEO Toby Lütke rather nonchalantly hit back at comments regarding profitability: "I believe that over time, profitability will take care of itself."

President Harley Finkelstein added some color to that stream of questions from analysts. "If you look at our seven years since IPO, we were profitable five out of the seven. And we like being profitable, and we're going to work toward that. We were cash flow positive in Q4."

Both famed investor Stanley Druckenmiller and hedge fund Coatue Management exited their positions in Shopify stock during the fourth quarter, according to 13Fs filed with the Securities & Exchange Commission.

Shopify stock forecast

Shopify stock was already flirting with reentering the overbought range on the Relative Strength Index (RSI) after rallying on Tuesday and Wednesday as traders had expected an earnings beat. The 10% sell-off in SHOP only pushed shares down to the $48 support level where the stock consolidated recently. This is also in line with the 21-day moving average that could add support value to the price action.

Bulls hoping to reenter the fray should probably wait to see if SHOP stock breaks below $48 in a regular session to consolidate within the $40 to $41 demand zone. This region has seen fairly regular volume since April of 2022. A break below this region would entail Shopify stock retesting support from late December at $32.40. SHOP stock will not achieve any real bullish status until it sees a close above $54.50.

SHOP daily chart