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Cathie Wood, the CEO of ARK Invest, is known for her early insights into pandemic digital trends. She often has 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 took a sharp decline, prompting ARK Invest to acquire shares again. Here’s a closer look at her perspective.
Shopify’s first quarter results caused a sell-off
On May 8, Shopify announced its first quarter results. However, these results disappointed investors, causing the stock price to fall by 26%.
The company’s second-quarter revenue forecast is in line with Wall Street expectations. Additionally, Shopify reported a 23% increase in revenue compared to the previous year. Shopify reversed a $193 million year-over-year deficit and reported positive operating income of $86 million in the first quarter. Adjusted earnings per share of $0.20 beat the consensus forecast of $0.17.
However, the company’s gross margin projections sparked interest. Management predicted a slight contraction. Second quarter gross margin is expected to contract by approximately 50 basis points to approximately 50.9%. In contrast, Shopify’s gross margin rose from 47.5% in the first quarter of 2023 to 51.4% last quarter.
Shopify’s stock traded at a price-to-sales ratio of 16 earlier this year; before the first quarter release, it remained above 13. These high multiples meant that even minor disappointments in quarterly reports could shake investor confidence.
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Shopify falls, but Wood remains bullish
Shopify’s revenue is growing by double digits every quarter. Moreover, it increases profits.
In the first quarter, free cash flow tripled to $232 million. However, the sale of the logistics activities temporarily reduces profits. Shopify expects this move to yield positive results soon.
Management remains confident in the company’s market potential and anticipates growth and profits. Shopify briefly achieved this during the early wave of the pandemic. 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 break down barriers, expand the power of entrepreneurship and fuel the success of our merchants,” he said. “No matter how you look at our business – whether it’s vendors, products or channels – we delivered an incredible fourth quarter, capping off a great year of growth.”
In the first quarter, offline gross merchandise volume (GMV) increased 32% year-on-year, exceeding the overall increase of 23%. GMV also rose 130% in business-to-business trading during the quarter.
Shopify’s gross payments volume represents the portion of revenue handled by Shopify Payments and rose to 60% of revenue in the first quarter, up from 56% the year before. Merchant Solutions revenues, which represent 74% of the company’s total quarterly revenues, were primarily related to gross payment volume.
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This article Cathie Wood’s Latest Buy – Down More Than 20% YTD originally appeared on Benzinga.com
