Shopify Has Morphed Into a Free Cash Flow Machine

Shares of e-commerce and payments platform (NYSE: SHOP) surged on Thursday, following the company's third-quarter earnings report. Revenue for the quarter beat expectations, rising 25% year over year to more than $1.7 billion. Analysts, on average, were expecting revenue of $1.67 billion. Though this was good news, the great news was the company's improving profitability. Earnings per share swung from a loss of $0.12 in the year-ago period to $0.55. Additionally, the company generated heaps of free cash flow during the quarter, adding to its already large war chest of cash and cash equivalents.

The financial performance was a reminder that not all growth stocks are created equal. Some have the potential to become great cash generators. Even better, Shopify has already become one.

One year ago, Shopify president Harley Finkelstein told investors in its 2022 third-quarter earnings call that Shopify will "get back" to profitability. Today, Shopify has more than delivered. The company generated third-quarter operating income of $122 million, up from an operating loss of $346 million in the year-ago quarter. Further, Shopify's free cash flow (cash flow from operating activities less capital expenditures) came in at 16% of the quarter's $1.7 billion of revenue -- up from a negative free cash flow margin of 11% in the year-ago period.

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Source Fool.com