Shopify (TSX: SHOP) enables businesses to start, operate, and scale their operations across more than 175 countries through its comprehensive suite of commerce products and services. After a sharp sell-off in April, the stock rebounded strongly, delivering a return of over 44% last year. Robust quarterly performances and an improving outlook have supported the share price, allowing Shopify to outperform the broader equity markets.
Maintaining its momentum, the stock is up 5.4% year-to-date. Against this backdrop, let’s take a closer look at Shopify’s most recent quarterly results and growth prospects to assess whether its uptrend can continue.
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Shopify’s third-quarter performance
In its recently reported third-quarter results, Shopify delivered an impressive performance, with gross merchandise value (GMV) rising 32% year over year to $92 billion. This marked the company’s ninth consecutive quarter of GMV growth above 20%. Revenue also increased 32%, driven by a 38% jump in merchant solutions revenue and a 15% rise in subscription solutions revenue. Strong GMV growth, along with deeper penetration of Shopify Payments, supported the expansion of merchant solutions, while higher-priced plans and increased variable platform fees lifted subscription revenue.
Amid solid topline growth, the company’s gross profit rose 24.4% to $1.4 billion. However, its gross margin declined 280 basis points to 48.9% on the back of higher investments to support growing merchant transaction volumes, continued geographic expansion, increased use of artificial intelligence (AI), and an expanded partnership with PayPal.
On a positive note, operating expenses as a percentage of revenue fell 180 basis points to 36.8%, supported by disciplined headcount management, which has remained flat to down over the past two years. Greater automation and increased AI adoption have enhanced productivity, helping it to maintain its headcount. Additionally, Shopify generated free cash flow of $507 million, up 20.4% year over year, with a free cash flow margin of 18%, slightly below the 19% reported in the prior-year quarter.
Next, let’s examine Shopify’s growth prospects.
Shopify’s growth prospects
As e-commerce adoption continues to accelerate, more businesses are embracing omnichannel sales strategies, expanding Shopify’s addressable market. The company also supports small and medium-sized enterprises in navigating an increasingly complex global regulatory environment, strengthening its value proposition. At the same time, Shopify remains focused on launching innovative products that enhance product discovery, improve the purchasing experience, and optimize the post-purchase journey. In support of this strategy, it has partnered with leading AI companies to develop advanced solutions tailored to evolving merchant needs.
Beyond its core offerings, Shopify is expanding its presence in the business-to-business (B2B) segment, enhancing its offline retail capabilities, and extending its payments ecosystem into new international markets – initiatives that reinforce its long-term growth potential. The company has also established strategic partnerships with major logistics and fulfillment providers to improve delivery speeds and provide merchants with more flexible and reliable shipping options.
Concurrently, Shopify continues to prioritize operational efficiency through greater automation and deeper AI integration, positioning the company for sustained, profitable growth. Overall, Shopify’s growth outlook remains robust.
Investors’ takeaway
Following strong buying momentum over the past nine months, Shopify’s valuation has become stretched, with its next-12-month (NTM) price-to-sales and price-to-earnings multiples at 16.4 and 100.4, respectively. While this elevated valuation warrants caution, I believe Shopify’s strong fundamentals and growth potential could continue to support its stock price appreciation.
