Key Points
Shopify reported results that easily topped expectations.
The company also provided upbeat Q4 guidance.
The stock's premium valuation provides less wiggle room.
Shares of Shopify (NASDAQ: SHOP) were sharply lower on Tuesday, falling as much as 13.2%. As of 12:41 p.m. ET, the stock was still down 5.4%.
The catalyst that sent the e-commerce platform and tools provider lower was its financial results, which failed to instill investors with confidence.
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Robust results
Before the market open, Shopify reported its third-quarter results, but shareholders simply weren't inspired. The company reported revenue of $3.74 billion, up 32% year over year, which resulted in adjusted earnings per share (EPS) of $0.49, up 44%.
To give the results context, analysts' consensus estimates called for revenue of $3.73 billion and adjusted EPS of $0.46 -- so Shopify cleared both hurdles with room to spare.
The strong top-line growth was fueled by a 29% increase in gross merchandise volume (GMV), or the total value of products sold on its platform. At the same time, monthly recurring revenue (MRR) of $230 million climbed 19%.
President Harley Finkelstein highlighted the company's strengths, saying, "Shopify is uncommonly good at operating in two realities at the same time: the world our merchants exist in today, and the one they are moving toward. Q3 is the perfect example. We powered $119 billion in GMV, while continuing to build commerce into every surface, every agent, and increasingly, everywhere."
For the upcoming fourth quarter, Shopify is guiding for revenue growth in the low-thirties percentage rate year over year, accompanied by gross profit in the high twenties and free cash flow margin similar to last year's rate of about 19%.
That all seems like positive news, so why is Shopify stock falling? Investors found nits to pick with some of the company's operating metrics. GMV of $119.2 billion fell short of the $120.1 billion analysts had predicted, while subscription revenue of $836 million was below the $850 million some expected.
At 99 times earnings, Shopify stock isn't cheap, so investors are more likely to nitpick its results. That said, the stock is valued at a significant discount to its three-year average multiple of 169.
Danny Vena, CPA has positions in Shopify. The Motley Fool has positions in and recommends Shopify. The Motley Fool has a disclosure policy.