Shopify: As Trade Tensions Ease, Is the Stock a Buy?

Yahoo

16-05-2025

Shopify shares rallied after the U.S. and China paused most of their tit-for-tat tariffs.
The e-commerce company continues to see solid top-line growth as it expands Shop Pay and adds new customers.
The stock is not cheap.
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Though its stock price dipped following the release of its first-quarter results on May 8, Shopify (NASDAQ: SHOP) shares have rallied sharply since news has come out that points to an easing of the intense trade tensions between the U.S. and China (at least for the short term). The stock is now up modestly on the year and has risen more than 80% over the past year, as of this writing.
While the e-commerce company is not directly impacted by President Donald Trump's tariffs, its core customers -- most of them small and medium-sized merchants -- are. If higher costs across the board for American consumers lead them to tighten their belts, or if tariffs cause some smaller retail merchants to close up shop, that would certainly impact Shopify's business.
As such, it should have come as little surprise that the company issued somewhat cautious guidance when it reported its Q1 earnings results. By contrast, the positive news on the trade front that has come out more recently bodes better for Shopify.
With all that in mind, is this a good time to buy the stock?
In the first quarter, Shopify's revenue jumped by 27% year over year to $2.36 billion. Its high-margin subscription revenue rose 21% to $620 million, while its merchant solution revenue soared by 29% to $1.74 billion.
Gross profit dollars rose 22% to $1.17 billion. Given the gross margin difference between its subscriptions and merchant solutions, this metric is more reflective of the company's growth. Adjusted earnings per share (EPS), meanwhile, climbed 29% to $0.44, coming in just ahead of the $0.43 consensus. Its gross merchandise volume (GMV), which is the total dollar value of the sales transacted through its platform, rose by 23% to $74.8 billion. It was the seventh straight quarter of GMV growth of 20% or more.
Metric
Q1 2025
Growth (YOY)
Gross merchandise volume (GMV)
$74.8 billion
23%
Revenue
$2.36 billion
27%
Subscription revenue
$666 million
21%
Merchant Solutions revenue
$1.74 billion
29%
Gross Profit
$1.17 billion
22%
Adjusted EPS
$0.44
29%
Data Source: Shopify. YOY = Year over year.
Business-to-business GMV was once again strong, soaring by 109% year over year. International GMV growth was 31%, with cross-border growth of 15%. Offline GMV, meanwhile, rose 23%.
Shop Pay, the company's online checkout and payment processing solution, continued to be a growth driver, with GMV up 57%. It expanded the solution to 16 new countries in the quarter, bringing the total to 39 countries. Meanwhile, Shop App, which aggregates products and brands from Shopify-powered stores, saw its GMV soar 94%.
Shopify also continues to do well in its efforts to move upmarket and bring enterprise-level customers to its platform. During the quarter, it added Purple, Lilly Pulitzer, and Birkenstock to its customer list, and this week it expanded with a few new Tapestry brands, adding online shops for Coach, Kate Spade, and Kate Spade Outlet.
Looking ahead, management forecasts that its second-quarter revenue would rise at a mid-20s percentage rate, with gross profits growing at a high-teens percentage rate. The revenue guidance was above the analysts' consensus estimate of 22% growth, but the gross profit outlook was below the 20% growth that analysts had, on average, projected. As noted above, I think gross profit is the more important number to watch with this company.
Management said it can quickly respond to tariffs through new features, such as a duty-inclusive tool that allows merchants to set international prices that include duties in the product price. It has also introduced an artificial intelligence (AI) tariff solution that can provide duty rates based on just a product description and its country of origin.
Shopify continues to put up strong growth. It's adding new customers, which is reflected in its subscription revenue growth. It's also doing a great job of increasing Shop Pay adoption, which allows it to grow with customers. Expanding Shop Pay into more countries will only help power the business's growth. It's also helping its customers drive growth through things like the Shop App.
The company has also done a nice job of moving beyond small online merchants. It's seeing strong growth in business-to-business, offline, and with large enterprise customers.
I would recommend gauging the stock based on the company's gross profit multiple. Based on management's guidance for gross profit growth in the low 20s percentages, we can expect approximately $5.45 billion in gross profits this year. If that proves accurate, Shopify is trading now at about 25.5 times 2025 gross profits. I think that's a bit high given its growth rate. For context, Toast, which employs a somewhat similar model in the restaurant space and is growing at a faster pace, trades at a gross profit multiple of 14.
As such, I would not chase Shopify's stock after its recent rally.
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Geoffrey Seiler has positions in Toast. The Motley Fool has positions in and recommends Shopify and Toast. The Motley Fool recommends Tapestry. The Motley Fool has a disclosure policy.
Shopify: As Trade Tensions Ease, Is the Stock a Buy? was originally published by The Motley Fool