Shopify Stock Passed Its Own Test and Failed Wall Street’s
The release beat the forecast Shopify gave in August. The estimates it missed were written by someone else.
Shopify stock closed on Monday at $156.22. Before the opening bell on Tuesday, premarket quotes had taken roughly a fifth off that price, with Barron’s reporting a 19% fall to $127 and other snapshots putting the drop between 15% and 19%. The stock had closed at a record $179.22 on 12 October, and it trades at more than 100 times trailing earnings. The release Shopify published before the bell contained the numbers for two different verdicts.
Gross merchandise volume, the value of orders through Shopify’s platform, reached $119.1 billion in the three months to 30 September, up 29% on a year earlier and 30% in constant currency. Revenue rose 32% to $3.74 billion, gross profit rose 28% to $1.78 billion, and operating income rose 66% to $568 million. Free cash flow was $816 million. The margin was 22%, against 18% a year earlier. Adjusted earnings were 49 cents a share. Harley Finkelstein, Shopify’s president, said: “We powered $119 billion in GMV, while continuing to build commerce into every surface, every agent, and increasingly, everywhere.”
Shopify had given its own yardstick for the quarter on 5 August, alongside its second-quarter results. Revenue growth in the low thirties percent, gross profit dollars in the mid-to-high twenties, operating expenses at 33% to 34% of revenue, stock-based compensation of $150 million, and a free cash flow margin in the high teens to low twenties. Revenue grew 32% and gross profit grew 28%. Operating expenses came in at 32.4% of revenue, below the guided range, stock-based compensation was $140 million, and the free cash flow margin was 22%, above the guided range. The quarter met the outlook on every quantified line, and beat it on three.
The published estimates ran higher. FactSet estimates cited by Investor’s Business Daily and The Wall Street Journal put revenue at $3.775 billion, gross profit at $1.799 billion and gross merchandise volume at $120.96 billion. Shopify missed all three, by $33 million, $18 million and $1.8 billion. The gaps were small. Two of the gaps were about 1%; the GMV gap was 1.5%. Adjusted earnings beat the 47-cent estimate by two cents, operating income beat a $523.9 million estimate by $44 million, and merchant solutions revenue beat its estimate. Jeff Hoffmeister, the chief financial officer, said: “We extended our track record of consistent execution, with 32% revenue growth and a 22% free cash flow margin.”
Merchant solutions took in $2.91 billion, up 35%. Subscription solutions took in $836 million, up 20%. The merchant half kept 38.5 cents of each revenue dollar after its direct costs, against 38.2 cents a year earlier. The subscription half kept 79.1 cents, against 81.7 cents. Gross margin for the company as a whole was 47.6%, against 48.9%. The squeeze came from the mix, the lower-margin half growing faster, and from the subscription margin, not from the payments business getting thinner. Monthly recurring revenue was $230 million, up from $193 million.
Loans and merchant cash advances stood at $2.35 billion net at the end of the quarter, up from $1.78 billion at the end of December and $2.18 billion at the end of June. In the quarter Shopify originated $1.7 billion of loans and advances and collected $1.47 billion in repayments and sales. The provision for transaction and loan losses was $67 million, down from $102 million a year earlier. Losses charged to operating expenses were $120 million, down from $148 million. Since April, merchant cash advance flows have been presented in investing cash flows rather than operating cash flows, on the same basis as loans, and the release put the quarter’s net cash use from that presentation at $30 million.
Net income was $462 million, or 36 cents a share, up from $264 million, or 20 cents, a year earlier. Excluding equity investments marked to market, it was $584 million. The difference was $122 million. That was the after-tax effect of marking those investments, after a $117 million net loss on equity and other investments in the quarter. Shopify repurchased $562 million of its own stock in the quarter, against none a year earlier. The diluted share count fell to 1.29 billion from 1.31 billion.
Gross merchandise volume rose 35% in the first quarter, 32% in the second and 29% in the third. Revenue rose 34% in each of the first two quarters and 32% in the third. The second quarter had beaten the outlook Shopify gave in May on every line; the third met the outlook Shopify gave in August. For the fourth quarter, Shopify expects revenue growth in the low thirties percent and gross profit growth in the high twenties. It also expects operating expenses at 29% to 30% of revenue, stock-based compensation of $155 million, and a free cash flow margin consistent with the fourth quarter of 2025. Investor’s Business Daily reported analysts had modelled fourth-quarter revenue growth of about 30%. The miss also depended on which consensus was used. A 28-analyst revenue consensus tracked by Drillr in mid-October was $3.696 billion, below the $3.742 billion Shopify reported.
Orders originating from AI searches rose 3.3 times on a year earlier, Shopify’s investor deck said. AI traffic to merchant storefronts rose 2.6 times, and sessions referred by AI converted 64% better than organic search. Gross payments volume was $81 billion. That was 68% of gross merchandise volume, the same as the second quarter and up from 64% a year earlier. In constant currency, gross merchandise volume grew 30% in Europe and 28% in North America. A timeline in the deck lists a Muse connector for agentic product sourcing among the 29 September launches. Investor’s Business Daily put the bearish view in two lines: AI agents could let merchants build stores, advertise and process sales without traditional e-commerce software, and Meta’s AI shopping tools had pressured the stock.
Three posts from ordinary traders, read on Reddit on Tuesday, showed the fall landing on people who had bet the other way. u/CrimsonBrit wrote in r/stocks: “Ouch. This part is actually quite a shock.” He went on: “I’m gonna need Harley and Toby to explain this one to me. Weakening growth is bad news these days, especially when your PE is 100+.” u/larssonyoo wrote in r/wallstreetbets: “OMFG I BOUGHT SHOPIFY CALLS YESTERDAY”. u/drakilian, in the same forum, wrote: “You know it’s pretty funny that this is the second quarter in a row that shopify climbed to 150 on software resurgence/ai decline and then fallen 15% to 130 after a shit earnings”.
The three posts leave the quarter’s figures alone. The argument is with the price those figures already carried. CrimsonBrit asks the company’s president and chief executive to explain weakening growth at a multiple above 100. Drakilian reads the fall as a repeat, not a surprise. Larssonyoo’s calls were the other side of the premarket quotes that morning, bought the day before the release. Finkelstein and Hoffmeister talked about execution across two realities. The traders in the threads priced a deceleration they could already see in the sequence, and a multiple the officials did not mention.
Cash and marketable securities totalled $4,727 million at the end of the quarter, against $5,778 million at the end of December. Total assets were $14,664 million, against $15,189 million.
