Shopify Had a Remarkable Full-Year 2021, but Remains Pricey

Shopify Inc. (NYSE:SHOP), a cloud-based e-commerce platform, provided a mixed fourth-quarter (Q4) 2021 earnings report. The guidance for Fiscal Year (FY) 2022 shows revenue growth as less than FY 2021 growth. This was not what investors expected to hear, sending the stock price lower by nearly 26% in just three trading sessions. The year-to-date return of approximately -51% is also not optimistic for SHOP stock.

If You're Not in It for the Long Haul, Take Profits on Shopify Stock Now
If You're Not in It for the Long Haul, Take Profits on Shopify Stock Now

Source: Jirapong Manustrong /

SHOP stock went through a radical transformation of being a stay-at-home stock amid the coronavirus lockdowns to a high-growth stock that has its price becoming more logical. However, logical does not yet mean cheap.


What is the big news for Shopify after the full-year 2021 financial results were released? I would argue it is a big transformation into a more mature commerce company.

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Big Steps to Profitability, not Just Growth

Shopify President Harley Finkelstein stated:

“‘The last two years have been extraordinary […] We nearly tripled revenue, more than doubled GMV and the Shopify team, and the number of merchants using Shopify is nearly twice as big as 2019 levels. We are emerging from the sprint of these last two years even stronger and more ambitious since the accelerated leap into digital commerce means we can go farther faster for merchants and buyers alike.'”

This is, indeed, very positive for the management of Shopify. Kudos should be given for this remarkable growth.

In 2019, reported revenue was $1.58 billion, growing to $4.61 billion in 2021. A net loss of $124.84 million in 2019 turned to a net income of $2.91 billion in 2021. At the same time, it had a free cash flow of $13.86 million in 2019, which surged to $453.64 million in 2021.

Is everything now positive for SHOP stock? There is good news and bad news. I assume people love to hear the good news first, so let’s get right to it.

Shopify Fourth-Quarter Financial Highlights

Investors were pleased to read that in Q4 2021, Shopify reported normalized earning per share (EPS) of $1.36, a beat by $0.05. Revenue is $1.38 billion, a beat by $38.40 million. The EPS GAAP of -$2.95 was a miss by -$3.26.

Year-over-year revenue increased 41%. Subscription solutions revenue rose 26% to $351.2 million. Additionally, monthly recurring revenue surpassed $100 million for the first time. Gross merchandise volume (GMV) rose 31% and gross payments volume increased 46%.

What made the SHOP stock decline after an earnings report that showed positive full-year financial highlights and a lot of momentum in growth? The guidance for revenue in 2022.

The valuation got better, but is still very far from being cheap. You have two strong reasons to be highly skeptical that a nearly 50% loss in 2022 does not make Shopify a bargain share.

To name a few positive factors of this report: there was a net increase of 57%; GMV increased 47%; gross profit grew to $2,481.1 million — an increase of 61% — and net income skyrocketed to $2,914.7 million. This comes to $22.90 per diluted share, compared with net income of $319.5 million, or $2.59 per diluted share for 2020.

To be fair, it was tough to find a negative factor, but Asset Turnover declined to 0.44 in 2021, compared to 0.52 in 2020.

Revenue Slowdown and Valuation for SHOP Stock

The management of Shopify stated that in 2022, it expects revenue growth to be lower than in 2021. This has alarmed investors, as revenue growth decline is considered a phrase that simply means you should adjust your expectations quickly. Still, it is normal. Not all companies can grow fast forever.

On Dec. 31, 2021, Shopify reported that it had $7.77 billion in cash, cash equivalents, and marketable securities. What it will do with all this cash is trivial now.

The firm reported increased capital expenditures of about 4 times to $200 million in 2022 to support its Shopify Fulfillment Network (SFN) and will invest to strengthen buyer relationships and go global. These are important strategic decisions. Sadly, they do not solve the major problem of an elevated valuation.

Shopify is trading at nearly 18.3 times its trailing 12 months revenue, which is too high. The price-to-book ratio of 15.59 and price-to-cash flow ratio of 348.15 reflect a very rich valuation.

Repurchase of common stock would be beneficial for valuation purposes, as the balance sheet is very strong. As mentioned, cash is more than plenty.

Shopify has big plans to pursue in 2022, but it should give its shareholders a reason to stick with the company. A gradual share buyback program would be a fine start as the stock price remains too expensive.

On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

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