Key Takeaways
- Shopify shares fell 10% after its third-quarter GMV of $119.1 billion came in just under the $120.1 billion analysts expected.
- Operating income rose 66% to $568 million on 32% revenue growth, and free cash flow of $816 million beat the $723 million analysts expected by 13%.
- Shopify expects fourth-quarter revenue to grow at a low-thirties rate, at or above what analysts expected before the report.
- The sell-off is about the stock’s rich price and one growth metric, while the business keeps getting more profitable as it grows.
Shopify (SHOP) grew its operating income 66% in the third quarter, and the stock fell 10% today anyway.
Why? Gross merchandise volume (GMV) was $119.1 billion, just under the $120.1 billion analysts expected.
That’s a miss of less than 1%.
What exactly happened
Here’s what Shopify reported for the quarter ended Sept. 30:
- Revenue rose 32% to $3.74 billion, in line with expectations.
- GMV rose 29% to $119.1 billion.
- Operating income rose 66% to $568 million, and the operating margin widened to 15% from 12%.
- Free cash flow climbed to $816 million, a 22% margin against 18% a year earlier and 13% above the $723 million analysts expected.
The outlook was good too. Shopify expects fourth-quarter revenue to grow at a low-thirties percentage rate, at or above the roughly 30% analysts were expecting.
TIKR tracks 54 analysts on Shopify. How many say “Buy”?
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More profit on every dollar
Operating income grew about twice as fast as revenue because Shopify kept a lid on spending. Gross profit rose 28%, while operating expenses rose 16%.
The cash also came in ahead of plan. Before the report, analysts expected free cash flow to keep climbing every year through 2028:
Shopify expects its fourth-quarter free cash flow margin to match last year’s, so the full year should land right around the $2.86 billion analysts expected. I see nothing in this report that should push those estimates down.
Higher margins aren’t new for Shopify, either. Its operating margin had beaten the year-ago level in each of the four quarters before this one:
At 74x earnings, a small miss stings
So why the sell-off? Price.
Shopify went into the report at 74x forward earnings. That’s in line with its average since late 2023 and below the 96x it reached at the end of 2025. At that multiple, investors were paying for earnings to more than double, from $1.43 a share in 2025 to the $3.36 analysts expect for 2028.
Growth is what investors buy Shopify for, and GMV is where a slowdown would show up first. GMV growth slowed to 29% from 32% in the second quarter. But to me, missing by less than 1% on a number growing 29% is noise, especially with revenue still guided to grow in the low thirties.
After today’s drop, the multiple is lower still, closer to the 60x low it hit at the end of June.
Next up: GMV has to hold
The way I see it, investors sold Shopify over its price and a rounding error. In the same quarter, the business got more profitable as it grew. The stock is cheaper than it was yesterday, and I see no reason for the estimates behind it to fall.
Of course, the fourth-quarter report in February needs to show GMV growth staying near 30%. Harley Finkelstein, Shopify’s president, says the company is building commerce into “every surface, every agent, and increasingly, everywhere.” Those agent orders need to start showing up in GMV.
So what is Shopify stock actually worth?
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
