Shopify shares fell nearly 9% after its third-quarter report, even though revenue rose 32% to about $3.7 billion and free cash flow jumped 61% to $816 million. The author points to slowing gross profit growth, which eased to 28%, and higher marketing spending planned for the fourth quarter as signs that profit growth may ease, though the author does not think these alone explain the drop. Part of the cash flow gain is temporary, and at about 70 times trailing free cash flow the valuation remains high. The stock has moved closer to the price the author would accept, but not yet there; the author would start considering shares around $115, about 55 times trailing free cash flow. Shares recently traded near $144, about 20% below the October 12 record close of $179.22.
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Shopify shares fell about 10% on Tuesday morning after its third-quarter report, leaving the stock roughly 22% below its October record. Results were strong: revenue rose 32% year over year to $3.74 billion, operating income jumped 66% to $568 million, and adjusted EPS of $0.49 beat estimates. Two metrics came in slightly short: gross merchandise volume rose 29% to $119.1 billion, below analyst expectations and slower than 32% in Q2, and subscription revenue of about $836 million fell short of roughly $850 million, at a valuation of about 64 times 2027 earnings estimates. Management expects fourth-quarter revenue growth in the low thirties percent and operating expenses falling to 29–30% of revenue. The author says he is holding his shares and will watch GMV and subscription revenue growth in the coming quarters.
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