Shopify stock drops after revenue falls short of forecasts
Shopify’s share price fell 6.5% on Tuesday after its third-quarter revenue missed Wall Street estimates for the first time in four years. The company, headquartered in Ottawa, reported total revenue of $3.74 billion, a 32% increase from the same period last year, though this still trailed the anticipated $3.75 billion. Shopify’s third-quarter subscription revenue of $836 million also fell short of analysts’ estimates of $850.2 million.
Financial analysts pointed to high expectations ahead of the earnings release as the primary reason for the shortfall. Kevin Krishnaratne, an equity analyst at Bank of Nova Scotia, observed that while revenue was in line with forecasts, profitability exceeded expectations. Net income jumped to $462 million, up from $264 million a year ago, while free-cash-flow margins expanded to 22% from 18%.
The total value of goods sold on Shopify’s platform, known as gross merchandise value (GMV), increased 29.5% year over year to $119.1 billion, which was described as “slightly light” by RBC Dominion Securities. In North America and Europe, GMV grew 23% and 37%, respectively, over the past three years, aided by expanded local payment offerings. Shopify chief financial officer Jeff Hoffmeister noted that Shopify merchants now capture half of U.S. e-commerce sales and over 40% of European online sales, up from 20% and 25%, respectively, three years ago.
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Shopify continues to focus on expanding its presence in Asia and Latin America with localized offerings. Notable retailers that joined the platform in the third quarter include Lululemon, Pierre Balmain, and Clinique. The company also highlighted its progress in AI integration, with AI-driven traffic increasing 2.6 times year-over-year and AI-powered orders growing 3.3 times. Shopify president Harley Finkelstein emphasized that AI agents are now leveraging purchase histories to streamline checkouts via Shop Pay, marking a shift beyond discovery.
Analysts, including Samad Samana from Jefferies, anticipate that broader adoption of AI assistants could drive more commerce online and encourage merchants to modernize, benefiting Shopify. The company expects fourth-quarter revenue to grow at a low-30s percentage rate year over year and gross profit to increase at a high-20s percentage rate.
