2024 has been a tale of two quarters for Shopify (NYSE: SHOP) . The e-commerce company's stock tanked in May after it reported first-quarter results. Analysts were expecting 19.5% growth in the second quarter, and management's "high-teens percentage rate" guidance left investors disappointed.
But this week, shares surged after the Q2 results showed 21% revenue growth, topping management's prior outlook and analysts' estimates too.
If this all seems a little silly to you, you're not alone. However, in the near term, the market is largely about expectations, and the market reaction to Shopify's earnings the past two quarters shows just how much a role expectations play around earnings time.
Pushing all that aside, let's take a closer look at Shopify's latest results before considering the stock as a long-term buy.
Strong results and outlook
In Q2, Shopify grew its revenue 21% year over year to $2.05 billion, or 25% when adjusting for the sale of its logistics business.
Gross merchandise volume (GMV) climbed 22% to $67.25 billion, while gross payment volume surged 30% to $41.10 billion as more merchants used the company's Shopify Payments offering. Overall merchant solutions revenue increased 19% to $1.48 billion.
Subscription revenue, meanwhile, soared 27% to $563 million, driven by price hikes and more merchants using its platform.
Gross margin also jumped from 49.3% to 51.1%, helped by higher subscription plan prices and Shopify's exit from its lower-margin logistics business.
The company generated $333 million in free cash flow in the quarter. It ended the period with net cash and marketable securities of $4.10 billion.
Looking ahead, Shopify is calling for third-quarter revenue growth in the "low-to-mid-twenties percentage" range. Gross margin should also increase 50 basis points over Q2, while its free-cash-flow margin remains unchanged. Analysts were previously expecting 21% revenue growth in Q3.
Image source: Getty Images.
Is it too late to buy the stock?
As I previously mentioned, Shopify's guidance sank its stock when it reported Q1 results. But in reality, its Q2 and Q3 revenue growth guidance are nearly identical when taking into consideration the sale of its logistics business. Even in May, management called for "low-to-mid-twenties" growth in the second quarter when adjusting for the sale. And now that it has lapped its logistics divestment, the sale won't affect Q3 revenue growth.
What this means is Shopify's core revenue growth remains consistent in that low- to mid-20% range. Given the recent concerns about a recession and weak consumer spending, that's a solid rate of growth. Meanwhile, Shopify can still tap into opportunities in physical retail, B2B commerce, international markets, and its Shop app. The company continues to push into the enterprise space as well, signing up a number of well-known brands last quarter.
Shopify also continues to draw merchants to its payments services with GPV as a percentage of GMV in the second quarter climbing 350 basis points year over year to 61%. This should continue to be a growth driver for the company moving forward.
Following the jump in its stock price, Shopify now trades at a forward price-to-sales (P/S) ratio of 8.6 (and 11.7 times trailing revenue). Given its steady top-line expansion, that's still a relatively attractive valuation and well below what the stock traded at a couple of years ago.
Data by YCharts .
It's not too late for investors to buy the stock, assuming they approach it with a long-term mindset. That said, with the amount of volatility Shopify sees on a regular basis, I recommend investors take a starter position and build up their holdings with a dollar-cost averaging strategy.
Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool has a disclosure policy .
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