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01/10 16:03
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call highlights strong revenue and gross profit growth, particularly in Canada and the home and garden vertical. Operating expenses improved as a percentage of revenue. The Q&A section reveals positive sentiment towards AI integration and enterprise growth, despite some vague responses on ad revenue. Overall, the company's strategic moves and financial performance suggest a positive stock price movement, likely in the 2% to 8% range.
GMV (Gross Merchandise Volume) Q3 delivered 32% GMV growth year-over-year, reaching $92 billion. This growth was driven by strong performance across all merchant sizes, with significant contributions from North America and Europe. The increase was fueled by both recent and older merchant cohorts, as well as strong performance in verticals like apparel, health and beauty, and emerging categories like pet supplies.
Revenue Revenue grew 32% year-over-year in Q3, driven by strong GMV trends and outperformance in North America. Merchant Solutions revenue increased 38%, while Subscription Solutions revenue grew 15%. The growth in Merchant Solutions was largely due to increased penetration of Shopify Payments, which reached 65% of GMV.
Free Cash Flow Margin Free cash flow margin was 18% in Q3, up from 16% in Q2 and 15% in Q1. This consistent improvement reflects disciplined cost management and increased operating leverage, despite higher payments losses and capital losses.
Shop Pay Shop Pay saw a 67% year-over-year increase, reaching $29 billion in Q3. This growth was supported by expanded partnerships and increased adoption internationally.
International GMV International GMV grew 41% year-over-year in Q3, with Europe being a standout region. Revenue from Europe now accounts for 21% of overall revenue, up from less than 18% two years ago. This growth was driven by product enhancements and increased adoption of Shopify Payments in international markets.
Offline GMV Offline GMV increased 31% year-over-year in Q3, driven by the addition of retail-first brands and the expansion of point-of-sale solutions to new countries.
B2B GMV B2B GMV nearly doubled, growing 98% year-over-year in Q3. This growth was broad-based across new and established merchant cohorts, with standout performance in Canada (155% growth) and the home and garden vertical (150% growth).
Gross Profit Gross profit grew 24% year-over-year in Q3, driven by strong revenue growth. Gross margin for Subscription Solutions was 81.7%, while Merchant Solutions gross margin was 38.2%. The overall gross margin was 48.9%, down from 51.7% last year, due to a mix shift towards Merchant Solutions and increased payments penetration.
Operating Expenses Operating expenses were $1 billion in Q3, representing 37% of revenue. This is an improvement from 39% last year and 45% in 2023, driven by disciplined headcount management and increased productivity through automation and AI.
AI Assistant Sidekick: Adopted by over 750,000 shops in Q3, with nearly 100 million conversations to date. It is becoming a daily tool for merchants, enabling tasks like analytics, customer segmentation, and SEO automation.
Commerce for Agents tools: Includes Catalog, Universal Cart, and Checkout Kit, enabling conversational shopping experiences. Partnerships with ChatGPT and Microsoft Copilot enhance product discovery and in-chat shopping.
Shopify Payments: Achieved 65% GMV penetration in Q3, with Shop Pay growing 67% YoY to $29 billion.
International GMV: Grew 41% in Q3, with Europe accounting for 21% of overall revenue, up from 18% two years ago.
Shopify Capital: Expanded to Ireland and Spain in Q3, doubling its footprint since the start of the year.
Shop App: Expanded Track with Shop and Translations to six new markets, enhancing global buyer engagement.
Operational Efficiency: Operating expenses reduced to 37% of revenue, down from 45% in 2023, driven by flat or reduced headcount and increased productivity through AI.
Free Cash Flow Margin: Achieved 18% in Q3, with consistent growth over the year.
AI Integration: AI is central to Shopify's operations, from product development to merchant tools, positioning the company as a leader in agentic commerce.
Enterprise Partnerships: Estee Lauder, e.l.f Cosmetics, and other major brands joined Shopify, showcasing its scalability and appeal to large enterprises.
AI Integration: The company is heavily investing in AI technologies, which could pose risks if these investments do not yield the expected returns or if competitors outpace Shopify in AI advancements.
Merchant Solutions Revenue: The gross margin for Merchant Solutions decreased due to factors like expanded partnerships and lower noncash revenues, which could impact profitability.
Payments Business: Higher losses in the Payments business due to testing and experimentation with merchant onboarding could affect financial stability.
International Expansion: While international GMV is growing, lower payments penetration in regions like Europe compared to North America could limit revenue growth.
Operating Expenses: Although operating expenses have been reduced, any failure to maintain this discipline could impact profitability.
Economic Conditions: Economic uncertainties, including tariffs and cross-border trade challenges, could affect merchant performance and Shopify's revenue.
B2B Growth: While B2B GMV is growing, any slowdown in this segment could impact overall growth.
Regulatory Compliance: The complexity of maintaining compliance with various regulations in payments and checkout systems could pose operational risks.
Merchant Retention: The company relies on the stickiness of merchant cohorts; any decline in retention rates could impact long-term revenue.
Supply Chain and Fulfillment: Dependence on partnerships for fulfillment and shipping could pose risks if these partners fail to deliver or if costs increase.
AI Integration and Agentic Commerce: Shopify is focusing on leveraging AI to transform commerce, emphasizing agentic commerce, which includes conversational shopping, personalized experiences, and seamless end-to-end shopping. The company is partnering with leading AI platforms like ChatGPT and Microsoft Copilot to enhance product discovery, purchasing, and post-purchase experiences. Shopify aims to become the standard for agentic commerce across the internet.
AI Assistant Sidekick: The AI assistant Sidekick is becoming a central tool for merchants, with over 750,000 shops using it for the first time in Q3 2025. Sidekick has had nearly 100 million conversations with merchants, and its adoption is expected to grow, enhancing merchant operations and decision-making.
Shopify Payments and International Expansion: Shopify Payments reached 65% penetration of GMV in Q3 2025, with significant growth in Europe. The company is expanding its payment solutions internationally, including new partnerships and features like Shop Pay installments in the UK. International GMV grew 41% in Q3, and Shopify is focusing on increasing adoption rates in Europe and other regions.
B2B Growth: B2B GMV nearly doubled in Q3 2025, with strong growth across various verticals and regions. Shopify is targeting more B2B-specific verticals and merchants, with Canada showing over 155% year-over-year growth in B2B GMV.
Offline and Retail Growth: Offline GMV increased by 31% in Q3 2025, with iconic retail brands like UGG Australia and Comme des Garçons joining Shopify. The company is focusing on unified commerce solutions for retail-first brands.
Future Revenue Growth: Shopify expects Q4 2025 revenue growth to be in the mid to high 20s year-over-year, with gross profit dollars growing in the low to mid-20s. Free cash flow margin for 2025 is expected to be similar to 2024, balancing profitability and investment in growth.
The selected topic was not discussed during the call.
The earnings call highlights strong revenue and gross profit growth, particularly in Canada and the home and garden vertical. Operating expenses improved as a percentage of revenue. The Q&A section reveals positive sentiment towards AI integration and enterprise growth, despite some vague responses on ad revenue. Overall, the company's strategic moves and financial performance suggest a positive stock price movement, likely in the 2% to 8% range.
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