Shopify (NYSE: SHOP) reported its fourth-quarter earnings yesterday (11 February). As is commonly the case, the e-commerce enabler’s numbers had been mightily spectacular, sending the expansion inventory up 3.1%.

This brings Shopify’s five-year return to 133%!

The flywheel retains spinning

Shopify was based to foster entrepreneurship by serving to retailers construct a web-based retailer and succeed. As the corporate does this, it additionally grows, fuelled by the success it permits (the flywheel impact).

Shopify now has over 12% share of the large US e-commerce market — second solely to Amazon! And it continues to increase quickly in Europe and Japan, with worldwide development exceeding 30% for the second consecutive yr in 2024.

In This autumn, income accelerated 31% yr on yr to $2.81bn, marking the seventh consecutive quarter of 25%+ development (when excluding the logistics enterprise it bought in 2023). That beat Wall Avenue’s expectations for $2.73bn.

Full-year income jumped 26% to $8.9bn, with greater than 875m distinctive consumers buying one thing from Shopify retailers (an unimaginable one in each six web customers). In the meantime, the free money circulate (FCF) margin expanded every quarter, ending the yr at 18%, up from 13% in 2023.

A ultimate constructive factor to notice right here was gross merchandise quantity (GMV), which rose 24% final yr to only beneath $300bn. That was 2.4 occasions increased than the pandemic-fuelled on-line procuring growth of 2020.

As a reminder, GMV represents the entire worth of all transactions processed by way of the corporate’s platform. And since being based in 2006, it has now handed the $1trn mark in cumulative GMV!

All this tells us that Shopify’s development engine remains to be purring, not like many different e-commerce companies whose development has slowed markedly after Covid (Etsy, for instance, or eBay).

Harley Finkelstein, president of Shopify, commented: “With our proven track record, the agility of our platform, and our relentless focus on merchant success, we like our odds in this evolving technology landscape, and are excited about the opportunities it brings for Shopify and our merchants.”

Investing in AI

The corporate has been investing closely in synthetic intelligence (AI) merchandise. It has created Shopify Magic, which is a set of generative AI options that assist retailers create product descriptions and rework product picture backgrounds.

Moreover, it has launched Sidekick, an AI assistant that gives tailor-made recommendation and step-by-step steering to assist retailers optimise their companies.

As a shareholder, I’m absolutely supportive of this relentless tech innovation. The AI options are attracting extra retailers, solidifying Shopify’s place because the go-to platform for operating a web-based retailer.

Nevertheless, it appears to be like like these investments will weigh on margins within the close to time period. Steering for the present Q1 is for sturdy income development (round 25%), however for the FCF margin to fall to mid-teens.

No rush

It’s onerous to not be bullish long run, however this rosy outlook is mirrored within the inventory’s valuation.

Based mostly on 2025 forecasts, it’s buying and selling at round 14.6 occasions gross sales. This implies the corporate might want to continue to grow above 20% for a while to justify this premium valuation. If development slows, the inventory might pull again sharply.

Given the excessive valuation then, traders would possibly wish to contemplate constructing out a place on dips over time. There’s no rush to go all-in. In any case, as Shopify says: “We’re building a 100-year company.”