Shopify shares drop after third-quarter revenue narrowly misses estimates

OTTAWA · Shopify Inc.'s third-quarter revenue narrowly missed analyst expectations, sending its share price lower on Tuesday. The Ottawa-based e-commerce company reported revenue of US$3.742 billion for the three months ended Sept. 30, a 31.5 per cent increase from a year earlier but slightly below the consensus estimate of US$3.744 billion compiled by S&P Global Market Intelligence. It was the company's first revenue miss in several quarters. Shopify's stock fell as much as 12.8 per cent at the open on the Nasdaq and was down 6.5 per cent by midday.

The company posted a profit of US$584 million, or adjusted earnings of 49 cents per share, which was slightly ahead of analysts' estimates. Net income was US$462 million, up from US$264 million a year ago. Shopify's free cash flow margin rose to 22 per cent from 18 per cent. "We delivered exactly what we said we would: consistent, durable growth, yet again," Shopify president Harley Finkelstein said on an investor call.

Gross merchandise volume, the total value of goods sold on Shopify's platform, grew 29.5 per cent year-over-year to US$119.1 billion. That figure was slightly below analyst expectations of about US$120 billion. Subscription revenue of US$836 million also fell short of estimates. "Expectations were high," Kevin Krishnaratne, Bank of Nova Scotia's director of equity research, software and services, wrote in an investor note. He described the quarter as in line on revenue with a beat on profitability.

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Finkelstein highlighted the company's expanded free cash flow margins and increased revenues, as well as the addition of major retail clients like Lululemon Athletica Inc., Pierre Balmain and Clinique. He called the GMV results consistent and durable, noting it was the 13th consecutive quarter of GMV growth above 20 per cent. "We're really proud of the print, and we're going to keep building for the long term and ignore the noise day to day," Finkelstein told CNBC. Shopify's focus on artificial intelligence was a key theme. The company has enabled personal AI assistants like Meta Platforms Inc.'s Muse, Anthropic's Claude Duet and Instinct to browse merchants' stores and make purchases. "While the volume is still small here, adoption is growing," Finkelstein said, noting that AI traffic has more than doubled year-over-year while automated orders are up more than three-fold. He said this is the first holiday season where AI-assisted shopping capabilities will become mainstream.

Some major retailers like Amazon.com Inc. have blocked AI agents from their sites, but Shopify has tailored its technology to assist them. "For merchants, this means reach, a huge new pool of customers with zero lift for them," Finkelstein said. He addressed concerns about AI agents negotiating lower prices, saying, "We're not seeing that prices are being lowered." Instead, he said AI agents are driving new traffic and helping consumers find new brands. Shopify has also deployed AI extensively in its own operations. Its Sidekick AI assistant helps clients set up and run their stores, with daily use by merchants up nearly four-fold in the quarter. However, chief financial officer Jeff Hoffmeister said the development of Sidekick and its growing use has lowered the margins of Shopify's subscription sales.

The company continues to expand its global footprint. Gross merchandise volume growth in the North American and European markets was up 23 per cent and 37 per cent, respectively, over the past three years, helped by expanding local payment offerings. "Three years ago, Shopify merchants drove one-fifth of e-commerce sales in the U.S. and nearly a quarter in Europe," Hoffmeister said. "Since the start of 2025, they now capture half in the U.S. and more than 40 per cent in Europe." Shopify said it remains focused on building its presence in Asia and Latin America. For the fourth quarter, which includes the Black Friday and holiday shopping period, Shopify projects revenue will grow at "a low-30s percentage rate" on an annual basis, while holding free cash flow margins steady. That guidance is slightly above analysts' consensus.

With files from The Globe and Mail, Financial Post and CNBC