Can Shopify Sustain Its Momentum After a Strong Q4 but Tepid Market Reaction?

Shopify delivered a strong fourth quarter, reporting revenue and earnings above Wall Street expectations, but its stock initially fell before recovering some losses later in the session. The company posted revenue of $2.81 billion, a 31 percent increase year-over-year, which exceeded analyst expectations of $2.73 billion. Adjusted earnings per share came in at 44 cents, slightly ahead of the 43 cents expected, while operating income reached $465 million, surpassing the consensus estimate of $432.9 million.

Key business metrics also came in strong, with gross merchandise volume, or GMV, reaching $94.46 billion, above the expected $93.01 billion. Merchant solutions revenue, which includes payments, shipping, and financing, surged 33 percent year-over-year to $2.15 billion, exceeding estimates of $2.08 billion. Subscription revenue grew 27 percent to $666 million, slightly beating the $652.1 million forecast. Shopify also demonstrated continued cost discipline, with adjusted operating expenses of $768 million, lower than the projected $776 million, while adjusted operating margin expanded to 21 percent, surpassing the estimated 20.3 percent.

Looking ahead, Shopify provided guidance for the first quarter of 2025, expecting revenue growth in the mid-20 percent range year-over-year, roughly in line with analyst expectations. The company anticipates gross profit dollar growth in the low 20 percent range, with operating expenses as a percentage of revenue coming in between 41 and 42 percent. Free cash flow margin is projected to be in the mid-teens, a decline from 22 percent in the fourth quarter. Shopify’s CFO also noted that while cloud and infrastructure hosting costs increased in the fourth quarter, they are not expected to have as much of an impact going forward.

Despite the strong results, Shopify’s stock initially dropped as much as 9 percent before recovering, though it failed to reclaim the $125 level, which has emerged as a notable intraday resistance point. The stock had rallied over 30 percent since the last earnings report, significantly outperforming the broader market, which raised expectations heading into this quarter’s results. Some investors appeared to be taking profits on the stock’s recent strength, while others may have been looking for even more upside surprises.

One potential concern was the guidance, which while solid, did not indicate a meaningful acceleration in growth. Investors had hoped for stronger free cash flow margin expansion or greater profitability improvements to justify the company’s elevated valuation. The company’s move to three-month free trials for new merchants, along with the absence of significant pricing changes in 2025, could also weigh on subscription solutions growth in the near term. Additionally, Shopify continues to invest in its core platform and international expansion, which means spending on marketing and go-to-market initiatives could remain elevated.

While the initial reaction was negative, analysts largely maintained a positive view on Shopify’s long-term trajectory. Citi noted that the company’s operating expense guidance was slightly higher than expected, which may have contributed to the stock’s initial pullback. However, analysts believe Shopify is making strategic investments to sustain its leadership in e-commerce and capture additional market share. JPMorgan analysts, who have an overweight rating on the stock, suggested that while the market may have been looking for an even stronger report, the company remains well-positioned for continued growth.

From a technical perspective, the $125 level has now become a key area to watch, as Shopify struggled to break back above this resistance during the session. If the stock can reclaim this level in the coming days, it could signal renewed upside momentum. However, if it fails to do so, it may indicate that some investors remain hesitant to chase the stock higher at current valuations.

Overall, Shopify’s fourth-quarter results reinforced its strong execution and growth trajectory, but the stock’s reaction suggests that expectations were already elevated heading into the report. While some investors took profits, the long-term outlook remains positive, with Shopify continuing to expand its merchant base, drive higher GMV, and optimize its cost structure. The coming quarters will be key in determining whether the company can maintain its growth momentum while balancing profitability expectations.