Shopify profit outlook underwhelms even as holiday sales top estimates

Shopify’s downbeat first-quarter profit outlook spooked investors on Tuesday, even as the e-commerce company posted better-than-expected holiday-quarter sales on the back of healthy consumer spending and its rollout of AI features.

U.S.-listed shares of the company, having jumped 13% so far this year driven by investors’ optimism around the company’s revenue growth rate, fell 9% in premarket trading.

Shopify has been investing heavily in building out artificial intelligence-based tools and features across its services that help sellers on its platform with tasks ranging from image generation and inventory management to gathering customer and sales data.

Called ‘Shopify Magic’, the suite of AI features it launched in early 2023 and available across all of its subscription tiers at no additional cost, has driven more small- and medium-sized business owners to Shopify. The company also rolled out its AI assistant Sidekick to more merchants last year.

Although the AI features helped Shopify post a 31% increase from a year earlier in fourth-quarter revenue to $2.81 billion, its fastest growth in at least six quarters, they have translated to higher costs for the company.

Shopify expects gross profit dollars to grow at a low-twenties percentage rate in the current quarter, weaker than the 24.2% growth expected by analysts according to Visible Alpha. It expects operating expense as a percentage of revenue to be 41% to 42%, compared with 31.5% in the holiday quarter.

The company’s revenue forecast for mid-twenties percentage growth was also roughly in line with estimates for a 24.4% increase according to data compiled by LSEG.

Gross merchandise volume, a key metric representing the total value of orders facilitated through Shopify, jumped about 26% to $94.46 billion in the quarter ended December 31.