Shopify (TSX:SHOP) reported third-quarter 2025 results, which surpassed guidance across the board — yet the stock sold off.
Motley Fool lead advisor Jim Gillies explains what’s going on with Shopify stock and whether it’s a buy now. Prefer to read? There’s a transcript below.
Is Shopify a good stock to buy?
Nick Sciple: I’m Motley Fool Canada Senior Analyst Nick Sciple, and this is The Five-Minute Major, here to make you a smarter investor in about five minutes. Today, we’re discussing Shopify’s third-quarter 2025 earnings and what’s behind the stock’s reaction. My guest today is Hidden Gems Canada lead advisor Jim Gillies. Jim, thanks for joining me.
Jim Gillies: Thanks for inviting me, Nick.
Nick: Shopify just reported their third-quarter 2025 earnings results. They surpassed their guidance across the board, yet the stock sold off. Last I checked, it was down about 4% in middle of the day here on Tuesday, November 4. What is going on with Shopify today?
Shopify’s third-quarter 2025 earnings
Jim: This was a great quarter, in my opinion. You had gross merchandise volume, GMV, up 32%. You had revenue also up 32%.
Gratifying to see as a long-term owner of Shopify, that didn’t really make a lot of cash in the early days. I think going back to 2016 when we bought it, early 2016, now is clocking in at free cash flow margin of 18%.
These revenue and GMV growth — if you look over the past couple years, quarter to quarter — performances, frankly, in the last eight quarters. I thought it was an excellent quarter, just in general. As you mentioned, they surpassed guidance on every front.
There’s not much more to say. I mean, their guidance for going forward was also excellent. Originally guidance for this quarter was revenue in the mid-20% range up. Like I said, it came in at 32%. They do tend to be a little sandbaggy, I think, if that’s even a word. But, you know, honestly, it was pretty good.
Why is Shopify stock falling?
The only reason I can see for selling the stock off is just it is a richly valued stock. There’s about 21 times sales, 22 times sales coming in. I generally hate the sales multiple, but it’s what we’re going to use for these high-growth names.
But, my take on it is high revenue growth forgives a lot of sins, okay? And, Stock Advisor Canada and the now-defunct Pro Canada, we both bought this in Q1 of 2016, I believe, and at about $4 or $5 Canadian per share.
And we’ve maintained those positions, or at least Stock Advisor has. And the rationale at the time was high valuation, but revenue growth could go on forever and ever in investing terms.
High revenue growth forgives a lot of sins. So, for example, if they hit their Q4 guidance, which is for low to mid-20% range, so let’s say they do 22%, okay?
If they do 22% revenue growth over Q4 of 2024, the incremental revenue that is produced by that growth rate will be roughly 3 times the trailing 12 months’ revenue at the time we recommended it in Stock Advisor Canada.
And that, to me, is remarkable, and they’re not slowing down. If anything, they’re speeding up.
Nick: Jim, you raise an important point, right? When you see a company come out there, beat expectations really across the board, and the stock trade down, often the answer is the stock market is overvalued, or potentially the valuation of the stock got a little bit ahead of what the company was able to deliver. But if you look over the long pull of the history of Shopify’s presence on the public market, it’s been a highly valued company that’s been able to continue to exceed the market’s expectations year over year, if maybe not every single quarter.
Is Shopify stock overvalued today?
As you think about Shopify today, how are you thinking about the company’s valuation from here and its ability to potentially keep raising the bar?
Jim: I think the valuation remains rich.
We literally said in the original recommendations in Stock Advisor Canada and Pro Canada back in 2016, we said, look, it’s gonna hit an air pocket at some point. And by the way, it has, several times. I think it fell almost 70% from November 2021 through 2022.
These things are richly valued, but as I said, revenue growth forgives a lot of sins. So a company like this, it’s going to perpetually look rich until the growth slows, and if anything, growth has been accelerating in recent quarters.
So even at 21 times sales, which, again, I hate the sales multiple, for valuation purposes, but I think it’s very, illustrative here.
This will continue to be richly valued, but as long as they’re posting that growth, I think it’s warranted. There was a little throwaway comment in the press release about global iconic brands taking on more and more space in the Shopify universe. And they specifically called out Estee Lauder. But even in my own day-to-day life, we’ve seen it move away from these small and medium-sized businesses that we originally were attracted to for the story nine years ago. Like, my local junior hockey team, their merch sales are all through Shopify. Netflix Canada, last I checked, was using Shopify, to do their order-taking and what have you. The Globe and Mail, Canada’s national newsletter, guess who they use? Again, Shopify.
And this is just, you know, intrinsic to Canadians in Ontario. The Ontario online cannabis sales, so it’s all regulated by the government. If you don’t want to go to one of the 35 pot stores in your local neighbourhood, you can order online. Guess who powers that? Of course, it’s Shopify, and you can go on and on and on.
That is something that I think is really, really valuable, and kind of not really appreciated in the Shopify story, even today. It’s kind of become the choice of who you’re going to go to to provide your online sales.
It’s starting to look to me like Shopify’s kind of the first choice, and maybe the last choice for a lot of people, so I think that’s excellent.
Nick: Shopify looks like the type of company that can continue to become the default when it comes to online commerce. It’s important to remember this is a stock that was up more than 60% coming into this earnings report. So while the stock may be taking a little bit of a tumble post-earnings over the long pull, it’s been a great performer, and the longer your time horizon is, the less important these quarter-to-quarter fluctuations become. It’s not the two-day, two-week, two-month moves that matter, it’s the two-year, two-decade moves that really make the big money for you as an investor.
That’s all the time we have for this edition of the Five-Minute Major. If you want some more stock ideas from us, maybe the next Shopify, you can click the icon in the upper right corner of your screen. Thank you for joining us for this edition of the Five-Minute Major, and we’ll see you next time.
