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Cathie Wood, the CEO of ARK Invest, is known for her early insights into pandemic digital trends. She often takes unpopular views on stocks.
Wood has long supported Shopify Inc (NYSE:SHOP), the e-commerce platform operator. However, over the past year, she has reduced her ETF holdings in the company. Recently, Shopify’s stock price experienced a sharp decline, prompting ARK Invest to acquire shares once more. Here’s a closer look at her perspective.
Shopify’s Q1 Results Triggered a Sell-Off
On May 8, Shopify released its first-quarter results. However, these results disappointed investors, causing the stock price to fall by 26%.
The company’s second-quarter revenue forecast aligns with Wall Street’s expectations. Additionally, Shopify reported a 23% increase in revenue compared to the previous year. Shopify reversed a $193 million deficit from the previous year, reporting a positive operating income of $86 million in Q1. Adjusted earnings per share of $0.20 exceeded the consensus forecast of $0.17.
However, the company’s gross margin projections garnered interest. Management projected a slight contraction. The second quarter gross margin is projected to contract by approximately 50 basis points to around 50.9%. In contrast, Shopify’s gross margin increased from 47.5% in Q1 2023 to 51.4% last quarter.
Shopify’s stock traded at a price-to-sales ratio of 16 earlier this year; it stayed above 13 before the Q1 release. These high multiples meant that even minor quarterly report disappointments could shake investor confidence.
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Shopify Falls, But Wood Remains Bullish
Shopify’s sales have been growing by double digits each quarter. Additionally, it boosts profits.
In Q1, free cash flow tripled to $232 million. However, selling its logistics business temporarily lowers profits. Shopify expects this move to bring positive results soon.
Management remains confident in the company’s market potential and anticipates growth and profits. Shopify briefly achieved this during the early pandemic surge. It also has a clear plan with many growth strategies.
Harley Finkelstein, president of Shopify, described it as a “phenomenal year” during a conference call with analysts.
“And as a result, we continue to breakdown barriers, accelerate the power of entrepreneurship, and fuel our merchants’ success,” he said. “No matter which way you look at our business ᅳ whether it’s merchants, products, or channels ᅳ we delivered an incredible fourth quarter to finish an amazing year of growth.”
In Q1, offline gross merchandise volume (GMV) increased 32% year over year, outpacing total increase of 23%. GMV also rose 130% in business-to-business trade during the quarter.
Representing the portion of sales handled by Shopify Payments, Shopify’s gross payments volume climbed to 60% of sales in Q1 from 56% the previous year. Comprising 74% of the company’s overall quarterly income, merchant solutions income was primarily related to gross payment volume.
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This article Cathie Wood’s Latest Bargain Buy – Down Over 20% YTD originally appeared on Benzinga.com
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