Shopify (NYSE:SHOP) reported adjusted earnings of 7 cents per share for the fourth quarter of 2022, easily topping the Consensus Estimate of break-even but down by 50% year over year. Despite the earnings beat, Shopify stock fell 16% on Thursday as the outlook for 2023 disappointed investors.

The company’s total revenues came in at $1.74 billion, representing a year-over-year rise of 25.7% and a win above the Consensus Estimate of 5.57%.

Quarter in Detail 

Subscription Solutions revenues increased by 14% year over year, reaching $400.3 million. This increase was primarily attributable to an increase in the number of merchants joining the platform, in addition to an increase in the number of variable platform fees and apps.

The robust Gross Merchandise Volume (GMV), which grew 13% year over year to $61 billion, was the primary driver of the growth in revenue for Merchant Solutions, which increased by 29.7% year over year to reach $1.33 billion.

Monthly Recurring Revenues (MRR) came in at $109.5 million as of December 31, 2022, representing a 7% increase over the same period last year. Both a boost in the number of retail locations that use POS Pro as well as the number of merchants that joined the platform contributed to the expansion’s success.

Shopify Plus brought in $36.6 million in revenue, which was equivalent to 33% of MRR compared to the 29% that was recorded in the same quarter a year before.

Gross Payments Volume increased to $34.2 billion, which represented 56% of GMV processed in the fourth quarter. This is in comparison to the previous year’s fourth quarter when it was $27.7 billion, which represented 51% of GMV.

In the most recent quarter, Shopify Capital provided cash advances and loans totaling $393.2 million to merchants in the United States, Canada, the United Kingdom, and Australia. This represents a year-over-year increase of 21%. From the beginning of Shopify Capital, the total amount of outstanding merchant cash advances has increased to $580.1 million, with a cumulative total of $4.7 billion having been reached since the company’s debut.

Operational Details

Gross profit before accounting for GAAP rose by 16.9% year over year, reaching $818.8 million. Despite this, the gross margin only came in at 47.2%, a decrease of 360 basis points (bps) year over year.

The proportion of revenues consumed by sales and marketing expenses after adjusting for inflation was reduced by 280 basis points, arriving at 16.2%. In addition, the amount spent on adjusted research and development as a proportion of revenues rose by 500 basis points year over year to reach 19.4% of total revenues. The overall general and administrative costs were up 10 basis points, coming in at 6.1% of revenue.

Operating expenses on a non-GAAP basis amounted to $759.9 million, representing a 32.9% year-over-year rise. The proportion of revenues consumed by operating expenses rose 230 basis points, reaching a total of 43.7%.

Shopify’s adjusted operating income reached $61 million, representing a fall of 53.1% year over year.

Balance Sheet

Shopify finished the reporting quarter with a balance of $5.05 billion in cash, cash equivalents, and marketable securities as of the end of December 31, 2022, compared to a balance of $4.9 billion as of the end of September 30, 2022.

Guidance

Shopify anticipates year-over-year revenue growth in the high teens for the first quarter of 2023. This projection is based on year-over-year comparisons.

It is anticipated that the gross margin will be somewhat higher than Shopify’s gross margin for the fourth quarter of 2022.

On a sequential basis, it is anticipated that increases in operating expenses would be in the low-single-digit percentage range.

Shopify stock is currently a Hold.

Shopify shares have decreased by 28.5% over the course of the previous year, underperforming the Computer & Technology sector’s fall of 16.4%.

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