Shopify’s Q4 Growth: Impressive but Concerns Linger
Shopify reported strong financial growth in Q4 2023, with GMV and revenue increasing by 23% and 24%, respectively. Subscription Solutions revenue also showed strong growth, rising by 31% annually. However, these positive financial results are tempered by concerns about the company’s decelerating revenue growth.
Valuation and Growth Trajectory
Despite its impressive financial performance, Shopify’s current valuation may not fully reflect the company’s growth trajectory. The stock’s premium valuation, trading at 5 times revenue by 2028 despite anticipated growth rate decrease, raises concerns about its overvaluation.
EPS Growth and Peer Comparison
While Shopify’s EPS is expected to grow at a CAGR of 20.6%, its direct peer BigCommerce Holdings (BIGC) is projected to grow at a 3-year CAGR of 32.6%. Moreover, BIGC is currently trading at a lower valuation, highlighting Shopify’s premium valuation.
Recommendation: Hold with Caution
Given the concerns about valuation and decelerating revenue growth, a ‘Hold’ rating is recommended for Shopify. While the company’s long-term growth prospects remain attractive, investors may want to wait for a lower price to enter a long position. A 20-25% correction could provide a more favorable entry point.
Cautious Optimism
It’s important to note that Shopify’s recent cost-cutting measures and improving margins are positive signs. However, the company’s overvaluation and decelerating growth remain concerns that investors should consider. By waiting for a more favorable entry point, investors can mitigate the risks associated with Shopify’s current valuation.
