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Warren Buffett: Shopify Stock Fell Today! Buy on Dips and Hold Forever

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On Wednesday, the Canadian e-commerce giant Shopify Inc. (TSX:SHOP)(NYSE:SHOP) announced its fourth-quarter results. However, its stock fell by over 5% this morning despite its far better-than-expected results. Investors’ too high expectations from the company’s latest quarterly results could be one reason for today’s declines in its share prices.

Let’s take a closer look at some other key highlights from Shopify’s latest earnings event and find out why I think it’s an opportunity to buy this great stock cheaper.

Shopify’s Q4 earnings highlights

In Q4 2020, Shopify’s revenue jumped up by 94% YoY (year-over-year) as its gross merchandise volume nearly doubled with a 99% increase. Its latest quarterly revenue of US$978 billion was also significantly better than analysts’ estimate of US$915 million and its sales of US$767 billion in the previous quarter.

For the last couple of quarters, the company has been cautioning investors that the demand for its products and services could slow down a bit going forward as the COVID-19 subsides. During the global pandemic phase, shutdowns and restrictions forced many small and medium businesses to improve their online presence. This trend sharply boosted the demand for Shopify’s merchant as well as subscription solutions last year.

Nonetheless, its subscription solutions sales growth accelerated further in the latest quarter to 53% YoY compared to 48% in the previous quarter. The company’s merchant solutions sales growth rate slightly slowed to 117% YoY in Q4 compared to 132% in Q3. This could be one of the key reasons why Shopify stock fell today despite its Q4 earnings beat.

Rising monthly recurring revenue and profits

At the end of the December quarter, Shopify’s monthly recurring revenue (MMR) stood at US$82.6 million. It was much better than its MMR of US$74.4 million three months ago. As a result, the company’s MMR growth rate also jumped higher to 53% YoY in the last quarter compared to 47% in the September quarter.

In Q4 2020, Shopify’s operating profit more than tripled from a year go to US$113 million. Similarly, its operating margin significantly expanded to12% in the fourth quarter from only 6% in the same quarter of the previous year.

Warren Buffett: Buy Shopify stock on dips in 2021

If you look at the extraordinary growth Shopify continues to deliver, you might find many reasons to buy its stock today. To be honest, you shouldn’t make investing too complicated. Instead, you should simply look at the ongoing growth numbers and a company’s future growth potential. This is the simple — albeit seemingly difficult to follow — approach of the world’s greatest investor Warren Buffett.

The legendary billionaire’s investment firm Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) yesterday revealed its latest investment moves. The company’s latest SEC filings clearly reflect that Buffett doesn’t hesitate to adjust his holdings according to market conditions actively. Last year, he cut his risk exposure by all of Berkshire’s airline industry shares. In Q4 2020, Buffett also cut his exposure to the banking sector.

Apple still continues to be Buffett-led investment firm’s top holding as he recently invested in the US telecom giant Verizon. Berkshire Hathaway also added more shares of another American telecom company T-Mobile to its portfolio in the last quarter.

Overall, Buffett looks at the future growth potential of a business before making his investment decisions. Moreover, he considers a temporary drop in a great company’s stock prices an opportunity to buys more of its shares.

Final thought

If you don’t know it already, Shopify stock has yielded astonishing over 6,400% returns in the last five years. Today’s decline in its stock price ignores its remarkable recent financial growth and its immense future growth potential. That’s why I see it as an opportunity for investors to buy its stock cheaper and hold it forever.

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Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares), Shopify, and Shopify. The Motley Fool recommends T-Mobile US and Verizon Communications and recommends the following options: short January 2023 $200 puts on Berkshire Hathaway (B shares), short March 2021 $225 calls on Berkshire Hathaway (B shares), and long January 2023 $200 calls on Berkshire Hathaway (B shares). Fool contributor Jitendra Parashar has no position in any of the stocks mentioned.

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