Shopify stock falls as its quarterly revenue misses analysts’ estimates

Shopify Inc.’s SHOP-T revenue growth in the third quarter fell slightly short of investors’ expectations and its share price dropped in trading on Tuesday.

The Ottawa-based commerce company reported US$3.742-billion in revenue for the three months through September, shy of the analysts’ consensus estimate of US$3.744-billion, compiled by S&P Global Market Intelligence. That’s still up 31.5 per cent year-over-year.

Shopify has routinely exceeded revenue projections in previous earnings periods. Its share price opened down 12.8 per cent at US$136.21 on the Nasdaq, and was trading at US$143.92 as of 2:37 p.m. ET.

Shopify posted US$584-million in profit for the quarter, accounting for US$122-million in on-paper losses from the falling valuations of its equity investments. That translated to earnings of US$0.49 per share, slightly ahead of analysts’ estimates.

“We delivered exactly what we said we would: consistent, durable growth, yet again,” Shopify president Harley Finkelstein said on an investor call. He cited the firm’s expanded free cash flow margins and increased revenues, as well as the addition of customers such as luxury house Pierre Balmain S.A., Estée Lauder Companies Inc.’s Clinique skincare line and apparel brand Lululemon Athletica Inc. as big wins.

Shopify merchants – which use its tools and services to run online and physical stores – sold US$119.1-billion worth of products in the third quarter, as gross merchandise volume grew 29.5 per cent year-over-year. Much of the firm’s revenue is tied to its clients’ sales, since it earns fees for payment processing, shipping, lending and other services. Shopify’s European clients’ business grew particularly fast, although the U.S. remains the firm’s biggest market.

“Expectations were high,” Kevin Krishnaratne, Scotiabank’s director of equity research, software and services, wrote in an investor note Tuesday. He described clients’ increased use of the firm’s payments processing services, as well as Shopify’s free cash flow figures, as positive signals.

The company has been preparing for the next wave of shopping, by enabling consumers’ personal AI assistants like Meta Platforms, Inc.’s Muse, Anthropic, PBC’s Claude Duet and Instinct to browse merchants’ stores and make purchases. “While the volume is still small here, adoption is growing,” Mr. Finkelstein said, noting that AI traffic has more than doubled year-over-year, while automated orders are up more than three-fold.

Some major retailers like Amazon.com, Inc. have blocked AI agents from their sites, claiming they create privacy and security risks. Shopify, by contrast, has tailored its technology to assist them, building a shared catalog of its clients’ products they can consult and ensuring they receive up-to-date inventory and pricing information. “For merchants, this means reach – a huge new pool of customers with zero lift for them,” Mr. Finkelstein said.

Shopify has also deployed AI extensively in its own operations and systems. The firm’s CEO Tobi Lütke was an early evangelist for AI coding tools. The company’s Sidekick AI assistant helps its clients set up and run their stores. The number of merchants employing the tool on a daily basis was up nearly four-fold in the third quarter compared to a year ago, Mr. Finkelstein said. However, the development of Sidekick and clients’ growing use of it has lowered the margins of Shopify’s subscription sales, CFO Jeff Hoffmeister said.

The fourth quarter is typically Shopify’s biggest, driven by the Black Friday and Cyber Monday sales periods and holiday shopping. The firm projects revenue will grow at “a low-thirties percentage rate” on an annual basis, while holding free cash flow margins steady. That’s slightly above analysts’ consensus.