Shopify Earnings: Weaker Near-Term Outlook Overshadows Good Results

We are maintaining our fair value estimate of $68 per share for narrow-moat Shopify after the company reported generally good first quarter results but offered guidance that was below our expectations. Given currency fluctuations, our fair value for Canadian shares rises to CAD 93 from CAD 91. We surmise that the sharp selloff in Shopify’s shares stem from the weak guidance, although our prior estimates were more conservative than FactSet consensus, so it is less of a miss, in our view. Like last quarter, we are surprised by expense growth, particularly in sales and marketing, especially during a time when software companies have tightened up spending and have been overdelivering on margin performance. After thinking the shares were overvalued in recent months, we now see modest upside to the stock after today’s selloff.