Shopify’s Revenue Rises 31% in Q4 but It Expects a Slowdown in Q1

Shopify (TSX:SHOP)(NYSE:SHOP) is a leading e-commerce company with a massive global presence around the world. It’s been doing well in recent months and on Tuesday, the Canadian-based company released its latest earnings numbers. It closed 2024 strongly, reporting 31% revenue growth for the final quarter of the year, exceeding Wall Street expectations. The company generated $2.81 billion in sales, beating analyst estimates of $2.73 billion. However, earnings came in lower than projected, with adjusted earnings per share (EPS) at $0.39, below the expected $0.43.

Gross Merchandise Volume (GMV), a key metric representing total transactions on Shopify’s platform, reached $94.5 billion, surpassing the forecast of $93 billion. This marks Shopify’s strongest GMV growth in three years, reflecting increased merchant activity. It’s a great sign of the company’s diversification as despite challenging economic conditions, buyers are still frequenting Shopify’s platform.

The Stock Is at Multi-Year Highs but Slower Growth Is Ahead

Shopify’s stock has surged 86% in the past six months, bringing it to its highest levels since 2021. Investors remain bullish on the company’s ability to scale its business while improving profitability.

Looking ahead, however, Shopify forecasts mid-20% revenue growth in Q1 2025, which is notably lower than analysts’ estimates of more than 24% growth, and it’s a steep drop from the 31% growth it achieved this past quarter. Factors such as foreign exchange headwinds and the absence of a leap year may weigh on the company’s growth in the near term. And there is, of course, the impact that tariffs may have on the company’s merchants and what it may mean for GMV. That isn’t factored in the guidance but the company appears to be a bit conservative, as tariffs may be the biggest wildcard for the company moving forward. Shopify’s merchants may feel the brunt of that, and if that happens, transaction levels could fall, and that will trickle down and impact Shopify’s results. A lot depends on what tariffs the U.S. president decides to impose, and how significant they may be. Unfortunately, that’s difficult to predict and it presents a significant near-term risk for the stock.

The company needs revenue to be strong because it is expecting operating expenses to rise, as a percentage of revenue, anyway. Shopify projects that opex will be around 41% to 42% of the top line, versus the 32% it came in at this past quarter. But of course, if revenue is softer than expected, then that percentage may climb even higher in Q1 — and that won’t be good for the bottom line.

Despite these uncertainties, Shopify remains well-positioned for long-term growth, however, having expanded beyond small businesses. It’s attracting larger clients such as Reebok, Mattel, Barnes & Noble, and many others.

Is Shopify a Buy?

It was a positive quarter for Shopify overall, and the stock was up around 3% on Tuesday. The company continues to deliver strong revenue growth, expand its free cash flow, and increase merchant adoption. While Q1 growth is expected to slow down, the company remains a leader in e-commerce technology with significant long-term potential.

For growth investors, Shopify can be a good buy for the long haul, as it offers exposure to the digital commerce boom with improving profitability and a history of exceeding revenue expectations. The danger, however, is that in the short term, there could be a lot of volatility ahead for the business as potential headwinds due to tariffs and trade wars may weigh on its merchants, and thus, impact the number of transactions on its platform. Throw into the mix the stock’s elevated valuation, and it sets up a scenario where Shopify may be vulnerable to a sell-off, especially if its future quarters prove to be underwhelming.

However, with the stock continuing to pick up steam, a slowdown may not happen just yet — Shopify’s 20-day moving average recently crossed above its 50-day moving average, which is a bullish signal which may help lead to more of a rally. But if the company falters in one of its upcoming quarters, the stock could be due for a big drop.

Investors who buy the stock should be mindful of its high valuation and the risks that come with it. While Shopify is a good long-term buy, I’d wait for a dip in value before buying it.