Shopify Stock News: SHOP attempts clawback after getting slammed on Tuesday

• Shopify managed to beat earnings expectations for Q4 on Tuesday.
• SHOP stock lost more than 13% by Tuesday's close however.
• Stubborn inflation in January's US CPI is the primary culprit for poor performance among growth stocks.
• GMV in Q4 beat consensus by $3.5 billion, and free cash flow has surged at Shopify.

Shopify (SHOP) chose to release earnings on a day that did not suit the market. Despite the fact that the ecommerce engine beat the Wall Street consensus for the fourth quarter, a report of higher inflation than expected sent Shopify reeling to close down 13.4% on Tuesday.

Shopify stock is attempting a rebound on Wednesday though as dip buyers have pushed up shares by more than 1.5% in the morning session.

Tuesday’s sell-off reached a double-digit drawdown largely because the broad market was in risk-off mode. The US Consumer Price Index (CPI) data on Tuesday morning showed that inflation remained stubborn in January, and this led traders to discount an interest rate cut from the Federal Reserve (Fed) in May. A longer term of high interest rates means that growth stocks like Shopify are less attractive in the short term.

Shopify stock earnings

It is hard to believe that the market was turned off by Shopify’s fourth-quarter results. Revenue grew 24% YoY, and gross merchandise sales topped 23% in that time period.

The cause for concern, if you can call it that, was that Shopify’s consensus beat was slimmer than many wanted. The Canadian company led by Tobias Lutke earned $0.34 in adjusted earnings per share on $2.14 billion in revenue. This amounted to a 4-cent beat on earnings and a $70 million beat on revenue.

The Merchant Solutions segment saw revenue increase 21% YoY to $1.6 billion, while the Subscription Solutions segment counted revenue growth of 31% to $525 million. Gross Merchandise Volume in the quarter arrived at $75.1 billion, about $3.5 billion ahead of the average forecast.

Free cash flow rose from $90 million one year back to $446 million in the quarter ending in December. During December monthly recurring revenue increased 35% YoY to $149 million.

“In Q4 we delivered YoY revenue growth of 24% [...] and achieved an operating income margin of 13% and a free cash flow margin of 21%," said Jeff Hoffmeister, Chief Financial Officer of Shopify, in a statement.

Shopify stock forecast

Shopify stock has fallen from its intraday high on Wednesday morning, but remains up compared with Tuesday’s close. Traders are trying to see if Tuesday’s significant sell-off can easily be turned around.

The Relative Strength Index (RSI) is now understandably below the 50 midline, and momentum has dropped. Importantly though, Shopify stock is simply trading near pullbacks from February 1 and January 18. If this band of support in the high $70s can hold, then shareholders have little to fear. 

A break below $71, however, would mean that a longer-term pullback is in motion. In that case, expect SHOP stock to drift to the mid-to-low $60s. A move above $85 will signal that the bearish narrative is unfounded.

SHOP daily stock chart