What Happened:

Shares of e-commerce software platform Shopify (NYSE:SHOP) fell 19.9% in the morning session after the company reported first-quarter results and provided revenue guidance for Q2, which implied a growth deceleration. In Q2'2024, Shopify expects revenue to grow at high-teens percentage rate on a year-over-year basis. This is a significant decline compared to the low-twenties percentage growth recorded in Q1. On a more positive note, GMV (gross merchandise value) and revenue both came in narrowly ahead of analysts' estimates during the quarter. It's noteworthy that the magnitude of these beats was smaller and less convincing than previous quarters. EPS did beat by a more convincing margin. Gross margin improved while the business continued to generate positive cash flow. Overall , it was a mixed quarter for the company with the market likely worried about the weaker growth forecast for a company trading at a fairly lofty valuation.

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What is the market telling us:

Shopify's shares are very volatile and over the last year have had 16 moves greater than 5%. But moves this big are very rare even for Shopify and that is indicating to us that this news had a significant impact on the market's perception of the business.

The previous big move we wrote about was 15 days ago, when the company gained 5.6% after equities ( Dow +0.8%, S&P 500 +1.2%, Nasdaq +1.6%) surged for the second straight day with the start of earnings season showing that the health of companies that reported Q1 earnings was solid and that the economy seems to be holding up. Only about a fifth of S&P 500 companies have reported, but roughly three-quarters of them have beat expectations. This may be spurring dip buying following elevated volatility in the previous two weeks of trading. Treasury yields pulled back suggesting markets are tempering the growing concerns about the possibility of higher for longer interest rates following recent economic data highlighting sticky inflation, ahead of the Fed's expectations. While earnings thus far have been encouraging, most companies have yet to report. Microsoft, Alphabet and Meta will report this week, and many other bellwethers will announce their results in the coming weeks. As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.

Shopify is down 15% since the beginning of the year, and at $62.76 per share it is trading 30.8% below its 52-week high of $90.72 from February 2024. Investors who bought $1,000 worth of Shopify's shares 5 years ago would now be looking at an investment worth $2,399.

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