Why I'm Not Buying the Dip in Shopify Stock

Core Viewpoint - Shopify's stock experienced a decline following its latest earnings report, despite revenue growth exceeding analysts' expectations, indicating potential overvaluation concerns in the market [1][2]. Financial Performance - Shopify's fourth-quarter revenue grew by 31% year over year, showcasing strong business performance [4]. - Net income, excluding equity investments, increased by approximately 30% year over year during the same period [4]. - Free cash flow rose by 17% year over year to $715 million, resulting in a free cash flow margin of 19% [5]. - For the full year, Shopify's free cash flow increased by 26% year over year, surpassing $2 billion [5]. Share Repurchase Program - Shopify announced a share repurchase program, authorizing up to $2 billion to buy back its own stock, reflecting financial strength [6]. AI Integration - The company reported a 15-fold increase in orders from AI search since January 2025, indicating significant growth in AI-driven commerce [7]. - Shopify is leveraging AI to automate workflows for merchants, promoting a new concept termed "agentic commerce" [7]. Valuation Concerns - Shopify's forward price-to-earnings ratio is currently in the sixties, raising questions about whether such a high valuation is justified [9]. - To support its current valuation, Shopify would need to achieve an average compound annual growth rate in earnings per share of twenty percent or higher over the next decade [10]. - The deceleration in top-line growth from 32% in Q3 to 31% in Q4 raises concerns about the sustainability of growth, particularly in the context of AI's impact on traditional e-commerce [11].