Motley Fool Money - Shopify’s Whiplash Day

Starting point is 00:00:00 Spotify's earnings and conference call had two very different reactions. This is Motley Fool Money. Welcome to Molly Full Money. I'm Tyler Crow. And today, I'm joined by longtime Fool contributors, Matt Frankel and John Quest. We got a pretty good show today. We're going to talk about Moderna's recent challenges with the FDA approval on some of its flu vaccines. We'll do our normal Thursday thing where we do stocks on our radar. But we wanted to open today's show with Shopify's up and down day.

Starting point is 00:00:42 yesterday with its fourth-corner earnings report. I think Shopify investors probably have their next treated for whiplash yesterday. Before the market opened and the company reported fourth-corner earnings, it was poised for a great day. The stock was up 13% in pre-market trading. Then as management basically started to discuss results and get questions in the conference call, the stock started plummeting. And actually, by the end of the day, it was down 6% from the prior day close. So I have hosting duties here. I will admit, I'm not the most ardent follower of Shopify, so I'm going to lean on you guys a little bit more here. But at the first glance of the results that I looked at, I was like, they're pretty good, right? Like, Matt, what did they say?

Starting point is 00:01:24 Well, first of all, Tyler, in the past couple weeks, we've seen a few earnings reports where it's up in pre-market trading or after hours the night before. Then management opens their mouth, and it changes. This is definitely not the only case we've seen this quarter. But, yeah, the numbers looked extremely strong, at least on the surface to me. 31% year-over-year revenue growth, which is exactly the same as a year ago, so it was not even decelerating as the business scales. Solid growth in free cash flow, operating profit, pretty much every other metric. Merchandise volume through the platform grew by 29% year-over-year for the full year of 2025.

Starting point is 00:02:01 There's now three times as much merchandise flowing through Shopify's platform than just five years ago. International growth was a really strong point. The shop pay checkout platform, volume through that group 62% year every year. It's looking really good. The company authorized a new $2 billion buyback. Even the first quarter guidance was well ahead of what analysts were looking for, which has not been the case with a lot of other software companies. It wasn't a perfect report. The big headline is they missed earnings. They missed EPS estimates by a few cents. Free cash flow margin contracted a bit. As I just mentioned, net income declined year every year. year, but there really wasn't much to dislike in the report other than that EPS miss, which the

Starting point is 00:02:43 market will usually forgive for a company that is growing at a faster than expected pace. So it looked really solid on the surface. The one thing I did notice on that EPS miss was it looked like it retired. I can't remember if it was preferred shares or convertible debt, which on a gap basis doesn't look good. But overall, like when you're doing those sort of things, it's a good idea. And again, I'm not 100% plugged into the expectation game. for Shopify. But I thought the numbers look fine. So, John, what was said on the conference call

Starting point is 00:03:14 that made like the market go, hey, wait a minute. What's this? Yeah, I'm going to share a little trick with investors. If you ever see a stock drop after the conference call and you wonder what was said, tune into the first question asked from analysts, and that'll probably be what the culprit is. In this case, the first three questions from analysts to Shopify was tackling the same issue. And that's the thing that was on everyone's mind. And it's a thing, a trend that they're calling agentic commerce. So Tyler, investing is all about the future, right? So the numbers were fine looking back, but investors have questions about what agentic commerce means for Shopify going forward. You look, it appears that there is a big change coming, an important restructuring,

Starting point is 00:04:01 if you will, coming to e-commerce. So just to take a step back, how is AI used in commerce right now? Well, generally speaking, consumers are using AI to research what to buy. But it's quickly moving towards a world where an AI agent is going to be told what to do, what to look for in a product, and buy it with your financial information on your behalf. It's going to be able to handle the transaction from start to finish. Shopify is building open source infrastructure called Universal Commerce Protocol. It's building a universal commerce protocol. It's this with Google. So this is open source, so this isn't necessarily a competitive advantage for Shopify. It is something that Shopify will use, though. And listen, I don't really know what this all means,

Starting point is 00:04:50 to be perfectly honest, but let's consider a couple changes that agentic commerce could bring. First, why do you buy what you buy and click what you click? Human decision making is one thing, but how a machine is going to make decisions is another thing. And so that's something that could really change e-commerce and digital advertising for that matter. But you also look at, like, take a business like Pinterest. Pinterest can understand trends and user intent because the searches are happening on its own platform. With agentic commerce, this could be disintermediated from the platforms as people interact with portals like Claude or ChatGPT. So what we're saying here is the Shopify numbers look great, but this is kind of related to that whole SaaS

Starting point is 00:05:38 apocalypse. AI is changing everything. Ecommerce is about to change, and the question is, does it hurt or help Shopify? To follow up, I want to toss this to both of you. Number one, are you shopping, Shopify investors? If so, was any of this like thesis that, you know, between the numbers and between what they said in the conference call, was, is this thesis altering stuff or just market jitters? And, or maybe if you're not a Shopify investor, does this make you more or less likely to buy? Full disclosure, I have owned Shopify stock in the past. I don't currently own a position. I would say that this is more market jitters than the breaking of the investment thesis. There could be some execution risk here for sure. Agentic Commerce is a new animal, and I don't know exactly how it's

Starting point is 00:06:25 going to shake out. It does have some valuation risk as well, in my opinion. Shopify stock, always kind of pricey. So when you stack the execution risk with the valuation risk, it's It's not a stock that's high up on my watch list right now. I do own it. I opened a position in 2022, I believe, right after the stock plunge. Last time they were calling for the death of SaaS companies. It's right at the end of the pandemic when e-commerce was drying up and things like that. It's been a very solid investment for me so far.

Starting point is 00:06:55 One thing I would say is that while the threats of agentic AI shopping are certainly to be taken seriously, but on the other hand, Shopify has been challenged. before with new technologies and has historically done a great job of adapting. So I have no reason to believe that it won't happen. Now, they're so ingrained in their customers' business. They do a whole lot of different things for each of their customers. It's not just, you know, as a shopping platform. So I think it's an opportunity here in my opinion. As the host, who doesn't spend as much time with Shopify, I'm going to default to you guys on this one. After the break, we're going to take a look at Moderna's bridge over troubled water here.

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Starting point is 00:08:33 And you will. Now available in Canada, too. Don't keep settling for clothes that don't last. Go to QINCE.com slash Motley for free shipping and 365-day returns. Quince.com slash motley. Earlier this week, we learned that the FDA refused to consider Moderna's recent flu vaccination for approval. Based on some of the reporting from the Wall Street Journal, the decision wasn't without controversy. And this is the second time in a year that the current administration has kind of come down.

Starting point is 00:09:01 against Moderna. Back in May, the Department of Health and Human Services, canceled a $590 million contract to develop an MRNA vaccine against avian flu after issuing the contract five months prior. Now, I bring this up, both the flu vaccination refusal to consider and the avian flu grant cancellation, because these vaccines were what management considered their bridge treatments, that it would use to fund its earlier stage vaccinations for things like cancer and rare diseases, where it really wants to go with its mRNA technology. And without it, it will have to rely on the revenue. It gets from its current commercial products, which are its COVID vaccines,

Starting point is 00:09:44 and it has, I think, one flu vaccine right now. The thing is, it's burning through a rather large amount of cash to do all of that development and the COVID vaccinations aren't quite filling the gaps. Now, I don't know about YouTube, but I'm having a hard time making a sense of all this. And if these recent decisions from the FDA drastically alter Moderna's strategy over the next several years? I mean, I'm not going to sit here and try to make sense of the FDA's decision here. I don't think any of us are, you know, it's kind of a head scratcher to the three of us

Starting point is 00:10:15 and to Moderna in general. I follow the company pretty closely. It's definitely a setback, but it's not what I would consider a game changer. And I'll tell you why. So, on one hand, the flu vaccine is by far the furthest along of the 50-plus candidates Moderna has in its pipeline. But on the other hand, it is still one of more than 50, and it's important to put this into perspective.

Starting point is 00:10:37 So essentially, the FDA took issue with the methods of Moderna's late-stage clinical trials with this flu vaccine, not saying that they don't want an MRNA flu vaccine, just they have issues with the methods. It's kind of curious that they approved the method earlier and then went back on it. it's really worth noting that the U.S. is just one market. This is the U.S. not starting a clinical review process. They've already had these applications approved in the EU, in Canada, in Australia. There's others expected soon. So it's not like this is a death knell for the project, even if the FDA doesn't consider it, ultimately. In the clinical trials, the MRNA flu vaccine did show

Starting point is 00:11:19 greater efficacy by a significant amount compared with the traditional flu. vaccines that we get now. Moderna has other candidates in late stage, which are like phase three trials, including several of its cancer treatments. The company recently said that it's hoping to secure 10 different product approvals by the end of next year, 2027. So this is just one piece of the puzzle. So not saying that this isn't a big deal, but it is important to keep this in perspective. Yeah, I mean, and one sense, this is kind of why I don't invest typically in biotech companies. The reward is, could be astronomical, but the outcomes tend to be binary, right? Either you get your drug to market or you don't. And I think there's

Starting point is 00:12:01 definitely room in a balanced portfolio for stocks like these, so long as you have other things that are a little bit more certain. And maybe you're in the medical field and have a better understanding of what's going on, therefore you can make more educated decisions. I will say, though, listening to Matt Talk, I mean, one of the things that I do like, and I think that investors could be encouraged by Moderna is the fact that it's not just a one-drug pipeline. that the pipeline is so robust. And so there is risk that comes with this sector, but the fact that it has a large potential pool of drugs

Starting point is 00:12:35 that could come to market, I think that that is something that investors can stay encouraged with. Yeah, I mean, shots on goal is really a thing here. I read a study, I think, from over like 2011 through 2021, it was like 7% of all drugs that started a phase one clinical trial actually got to commercial viability. So, you know, the more on the pipelines, more, you actually have a chance of something getting through.

Starting point is 00:12:56 Now, I don't think I'm being too political here when I say that the current administration has very different views on vaccines writ large and specifically MRNA vaccinines compared to previous administrations, which does make me kind of wonder because we were talking about this large portfolio of upcoming mRNA vaccines. If we're seeing resistance from the FDA on these influenza-type vaccines, like why should the attitude on these for, you know, towards oncology? and rare disease treatments using mRNA vaccines be any different. And again, we go back to this fact that the company is burning through a rather large

Starting point is 00:13:33 cash pile to fund all the research and development for this stuff happening right now and testing novel treatments. Like, if we're being real here, and this is kind of the attitude that they're getting, should the company seriously consider slowing its testing and development to a slower pace in hopes that maybe a change in FDA leadership is more receptive to MRNA vaccines and kind of preserve that cash that's coming in the door? I think it's a valid question. Do we kind of cut back and start preserving cash at least until there is more clarity as to

Starting point is 00:14:07 what is expected and what the rules are? This whole subject is a little bit complicated, unfortunately, because it tends, in my view, it tends to be whichever side you fall on this debate, tends to have a high chance that it aligns with your political affiliation as well. I think it's a shame because I think we all want to live in a world where we have better medicines that can treat terrible diseases. And at the same time, I think that we all agree that the testing should be robust. It should be the drugs that we approve should be incredibly safe. I think we all want the same things. And sometimes I think that political polarization kind of clouds our objective decision-making processes. I think that the biggest

Starting point is 00:14:51 issue I see here is that of regulatory clarity. Even if you agree with the FDA's decision to not review the application, it seems that from Modernist perspective, it felt like it, in good faith, went with current FDA guidelines and then didn't have its application even reviewed. I see at the very least a communication issue here. You have a company that's investing money, trying to go through these processes to get a drug to market and now saying, hey, we're not even going to review the application because you didn't. It seems like the issue is what it compared its drug to. And it thinks that it should have been compared to something else. If that's all it is, I feel like that could have been communicated more upfront and clearer. I think we see communication

Starting point is 00:15:36 issues and lack of clarity in many regards in crypto, regarding tariffs, all these things. companies are having a hard time knowing how to plan because of the lack of regulatory clarity. Yeah, and Tyler, I don't think you're being too political at all by asking that. I think the administration's attitude toward vaccines has become generally more cautious. That's not a political statement. It's a pretty indisputable fact. I mean, even compared to the original Trump administration, whose operation warp speed is the reason that Moderna's COVID vaccine was so successful in the first place. So, you know, the landscape has shifted. The way I interpret the FDA's ruling, which John kind of just summarized really well, is as a worst-case

Starting point is 00:16:17 scenario, Moderna would have to retool in its late-stage trial of the flu vaccine to show its efficacy, which would set it back probably a year or so. And my belief, and I could be wrong, is that the FDA would look differently on treatments that are intended for rare diseases than it would on a product that conceivably could be used by a high percentage of the population if it's successful. I mean, general skepticism about the need and efficacy of flu vaccines is nothing new. It's worth pointing out. Flu vaccines in general are, if I had to name one vaccine that people were most skeptical about in general, it would probably be the flu vaccine. So I'm monitoring this situation. I don't really know what to make of it, but it's a setback. It's not a death blow, is kind of

Starting point is 00:17:04 my big point here. Two, I would say not the cheeryous topics that we've discussed here with Shopify and Moderna. So we're going to move on to a little bit more positive news, and after the break, we'll do stocks on our radar. The old adage goes, it isn't what you say, it's how you say it, because to truly make an impact, you need to set an example and take the lead.

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Starting point is 00:18:33 So instead of giving away what's roughly approximately like $425, they accidentally gave away $40,000. Unfortunately, I wasn't one of those lucky recipients of the Korean crypto exchange giveaway. So, I guess me, you guys will have to keep on picking stocks. Matt, you get to go first this week. What's on your radar? It's really tough to pick and choose, given all of the earnings and the AI-fueled price drops, it's definitely a good time to selectively start looking for opportunities. So some of my usual suspects are starting to look interesting, including Shopify,

Starting point is 00:19:06 which I mentioned earlier, Upstart, PayPal, those are some that are looking interesting. but I'm not going to stick with one of my usuals. For my radar stock this week, I'm going to go with a company called Trex. T-R-E-X. If you have a composite deck, they probably built it. The stock has been absolutely hammered in recent years. Tons of demand was pulled forward during the pandemic when everybody was renovating their houses. Oversupply headwinds hit the stocks after that as warehouses stocked up on all their products.

Starting point is 00:19:34 And the way most people pay for new decks by borrowing against the value of their house has been stagnant, because of high interest rates. But I think that this could be a really sneaky way to play falling interest rates, especially if mortgage rates fall into the mid-5% range, which I think they will by the end of this year, just my prediction. Americans right now have more home equity than ever before. They're about $35 trillion. And as it becomes a little more economical for them to tap into it, I think Trex could be a big winner from here. For my radar stock today, I'm going with Crox, ticker symbol CROX. My teenagers and their friends, Don't call these shoes, by the way.

Starting point is 00:20:11 They were playing a game recently, and everyone who was wearing shoes had to change chairs, and a couple of the kids didn't get up. And I said, why didn't you get up? And they said, we're not wearing shoes. We're wearing crocs. Okay, listen, there are cheap stocks where the business is dying. I would say stay away from those. There are also cheap stocks where the business is fine,

Starting point is 00:20:32 and that's what I see Crox in that category. Crocs is up about 20% today after reporting. its financial results for 2025. Its sales are basically flat. So I would love to see growth here, but at least we're not seeing big losses. Sales are basically flat. It generated over 700 million in operating cash flow, and that allowed it to repay about 100 million in debt for the year, and it reduced its share count by about 10% by buying back shares. In 2026, it expects basically flat sales again, roughly the same profitability. So again, I would love to see growth, but it's holding steady here, and it only has a market cap of about $5 billion. So it's going to earn a lot of

Starting point is 00:21:14 profit in comparison to its market cap. At this price, it can reduce its share count substantially. It can keep paying down debt. I think it's going to be hard for shareholders to lose money, in my opinion. So Crocs is on my radar. All right. So I went with saffron, or saffron, depending on how you want to pronounce it. The ticker is S-A-F-R-Y. It's actually an over-the-counter in the U.S., but it's actually a French company, so S-A-F on the Paris Exchange. It is a French aerospace and defense company, and a big one, too. It's mostly engines, is kind of their big driver, but it's also the number one worldwide

Starting point is 00:21:50 manufacturing aircraft components like landing gear, wheels and brakes, electrical equipment, in planes, cabin interiors. It's big in European defense as well, and it's also the 50-50 joint owner. of Arian Group, which is the Europe's largest space launch specialist. This company has massive cash generation from, well, it is the joint developer of the Leap Engine, if you've ever heard of that before with GE Aerospace. It's basically on all new airplanes from in the, they're called the narrow bodies, those single aisle planes that you get from Airbus and Boeing. And also the CFM 56, which is their older engine that was also on narrow bodies and wide bodies, actually, for the,

Starting point is 00:22:29 for the big planes that you see, the 747s, things like that. These engines are like the workhorse of the aviation industry, and they generate decades of aftermarket parts and service revenues, just the engines alone, but same thing with the wheels, brakes, anything that you've got to repair on an engine. So much so that 52% of the revenue for the total company is actually an aftermarket parks and service, and that's replicable and high margin business. So very attractive on that end. Obviously, there's some stragglers in the portfolio, like Ariane Group's been spending a lot of money trying to get a new rocket up and running. But it too appears to be getting its house in order. It has a new heavy payload rocket coming online. It's almost as big as the

Starting point is 00:23:09 Falcon Heavy. And it's also built a smaller reusable one for low Earth orbit launches, very similar to what we see. We like Rocket Lab and things like that. It's not dirt cheap. It's like 29 times earnings. But I think with several catalysts looking ahead, I think it's actually pretty good investment right now. We have plastic decking, plastic shoes, and plastic interiors for airplanes. So I think that we're really into that classic line from the movie The Graduate, where it's like one word, plastics. So good ideas for stocks on our radar this week, anything plastic. As always, people on the program may have interests in the stocks they talk about, and the Motley Fool may have formal recommendations for or against, so don't buy yourself stocks based solely on what you hear. All personal

Starting point is 00:23:52 finance content follows Motley Full editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. See our full advertising disclosure. Please check out our show notes. Thanks to our producer Dan Boyd and the rest of the Motleyfield team. For Matt, John and myself, thanks for listening and we'll chat again soon.

Motley Fool Money - Shopify’s Whiplash Day

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