Key Points
Despite a slight miss, Shopify's growth remains consistent.
The stock is starting to look attractively valued after this dip.
Shares of Shopify (NASDAQ: SHOP) dropped after the e-commerce software company's Q3 revenue and gross merchandise volume (GMV) missed analyst expectations. The stock is down for the year, although its overall growth has been consistent. Let's see why this dip may be a good time to buy the stock.
Consistent results
Despite an overall sluggish consumer environment, Shopify continues to see healthy growth as well as a big opportunity working with personal AI agents like Muse, Claude Duet, Grokbot, and Instinct. It noted that agentic AI shopping is already gaining momentum, while AI traffic surged 2.6 times year over year in the quarter and orders soared 3.3 times.
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Meanwhile, AI is sending shoppers to product pages at three times the rate as organic search and converting 64% more often. Catalog-based searches, which are designed for AI agents, are converting at twice the rate of ordinary AI searches.
Shopify's AI-powered assistant for merchants, Sidekick, continues to gain traction, with daily active users surging 3.7 times year over year. It's also introduced a new online store builder to help customers create digital stores faster with more personalization. Overall, the company plans to remain at the forefront of innovation and growth in commerce.
Overall, Shopify's Q3 revenue climbed by 32% to $3.74 billion, which just missed the $2.75 billion analyst consensus, as compiled by LSEG. Adjusted EPS, meanwhile, surged 44% to $0.49, topping the $0.46 analyst estimate.
GMV on its platform increased by 30% to $119.15 billion in constant currencies, driven by a 52% increase in large, complex multi-location merchant locations. European GMV jumped 33% in constant currencies, while North American GMV climbed 28% in constant currencies. B2B GMV surged 74%. Analysts, however, were looking for $120.03 billion in GMV, according to StreetAccount.
The company said its offline GMV topped $200 billion in lifetime value for the first time. It noted major physical store expansions at Canada Goose and MAC Cosmetics in the quarter.
Image source: The Motley Fool.
Overall, merchant solution revenue jumped 35% to $2.91 billion, driven by higher GMV growth and payments penetration. Subscription revenue, meanwhile, grew by 20% to $836 million, led by standard subscription plans. Monthly recurring revenue (MRR), which is the value of all its subscription plans at period end, climbed 19% to $230 million.
The company generated $816 million in free cash flow in the quarter, with a 22% free cash flow margin. That was up from $507 million and an 18% margin a year ago. Looking ahead, Shopify projected that Q4 revenue will grow at a percentage rate in the low 30s, which is what it also forecast for Q3. Analysts were looking for 32% growth.
Time to buy the dip?
Shopify continues to deliver strong, consistent growth. In fact, this was its 13th straight quarter of 20% or more GMV growth and sixth consecutive quarter of 30% or more GMV and revenue growth.
Metric |
Q2 2023 |
Q3 2023 |
Q4 2024 |
Q1 2024 |
Q2 2024 |
Q3 2024 |
Q4 2024 |
|---|---|---|---|---|---|---|---|
GMV growth |
18% |
22% |
23% |
23% |
23% |
24% |
26% |
Revenue growth |
31% |
25% |
24% |
23% |
21% |
26% |
31% |
Metric |
Q1 2025 |
Q2 2025 | Q3 2025 | Q4 2025 | Q1 2026 | Q2 2026 | Q3 2026 |
GMV growth |
23% |
31% | 32% | 31% | 35% | 32% | 32% |
Revenue growth |
27% |
31% | 32% | 31% | 34% | 34% | 30% |
Data source: Shopify. All figures represent year-over-year growth.
Nothing has ultimately changed with the Shopify story, and if anything, it's only gotten better with the advent of AI. Given how the company has designed its platform with AI agents in mind, it looks like it could become one of the biggest winners of agentic commerce.
With the stock trading at a forward price-to-sales (P/S) ratio of 10 based on 2027 analyst estimates, the stock has come down to a valuation I currently find attractive. As such, I'd be a buyer on this dip.
Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool has a disclosure policy.