The Canadian equity markets have staged a strong rebound in recent weeks, with the S&P/TSX Composite Index climbing more than 10% from last month’s lows. The rally has been supported by easing geopolitical tensions, including ceasefire developments and ongoing peace talks between the United States and Iran, leaving the index trading just 0.5% below its 52-week high.
Despite this broader market recovery, Shopify (TSX: SHOP) – a global provider of essential internet infrastructure for commerce – has declined by nearly 19% year-to-date. Investor sentiment has been weighed down by macroeconomic uncertainty, valuation concerns, and skepticism surrounding the potential impact of artificial intelligence (AI) on the software sector.
Following this pullback, it’s worth examining Shopify’s fourth-quarter results and future growth prospects to assess whether the recent weakness presents a compelling buying opportunity.
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Shopify’s first-quarter performance
Shopify delivered a strong fourth-quarter performance, with gross merchandise volume (GMV) increasing 31.1% year over year to $123.8 billion. Revenue rose 30.6% to $3 billion, supported by solid contributions from both its Merchant Solutions and Subscription Solutions segments. Notably, Merchant Solutions revenue climbed 34.9% to $2.9 billion, driven by higher GMV and greater adoption of its payments offering. At the same time, Subscription Solutions revenue grew 16.7% to $777 million, fueled by a greater mix of merchants upgrading to premium plans and higher platform fees.
This robust topline growth translated into a 25.2% increase in gross profit. However, gross margin declined by 190 basis points to 46.1%, primarily due to a higher mix of revenue from lower-margin payment offerings and reduced third-party referral and transaction fees. Encouragingly, operating efficiency improved, with operating expenses falling to 28.9% of revenue from 31.5% a year earlier, reflecting disciplined cost management. The company also leveraged AI and automation to enhance product development without expanding its workforce.
On the bottom line, Shopify reported net income of $743 million. Excluding the impact of equity investments, adjusted net income rose 29.7% year over year to $594 million. The company also generated $715 million in free cash flow, representing 19% of revenue, though slightly lower than the prior year.
With this solid operational performance in mind, let’s now turn to Shopify’s growth outlook.
Shopify’s growth prospects
The ongoing shift toward omnichannel commerce is creating significant long-term growth opportunities for Shopify. To capitalize on this trend, the company continues to invest in innovative, integrated solutions – including AI-powered tools – while expanding its payments platform into new markets and strengthening its presence across both direct-to-consumer (D2C) and business-to-business (B2B) segments.
At the same time, Shopify remains focused on improving operating efficiency through disciplined headcount management, AI, automation, and its proprietary project and talent management systems – initiatives that could further support earnings growth.
Given these favourable tailwinds, management expects first-quarter 2026 revenue to grow in the low-30% range, with gross profit increasing in the high-20% range. Operating expenses could account for 37–38% of total revenue, while free cash flow margins could be in the low- to mid-teens. Overall, Shopify’s outlook points to solid, sustained growth in the coming periods.
Investors’ takeaway
Amid the pressure, Shopify trades at a discount of around 30% from its all-time high. Despite the steep correction, its valuation looks expensive, with its NTM (next 12 months) price-to-sales and price-to-earnings multiples at 11.7 and 72, respectively. However, given its higher growth prospects, I believe investors with an investment horizon of more than three years can accumulate the stock to reap superior returns.
