Shopify's Growth Comes At The Cost Of Margins

Shopify (NASDAQ:SHOP) stock slid after the company reported fiscal third-quarter results on Tuesday.

• SHOP is lagging behind market performance. Get the inside scoop here

The company's quarterly revenue growth of 32% year-over-year to $2.84 billion beat the analyst consensus estimate of $2.76 billion. 

The e-commerce platform company reported adjusted EPS of 34 cents, which was in line with the analyst consensus estimate.

Also Read: Shopify ‘Priced for Perfection,' Setting High Bar for Upcoming Earnings Report: Analyst

Key Metrics

The adjusted net income was $441 million compared to $459 million a year ago.

Gross merchandise volume increased 32% Y/Y to $92.01 billion. Merchant solutions revenue increased 38.2% Y/Y to $2.15 billion.  Subscription solutions revenue rose by 14.6% Y/Y to $699 million.

The quarter's adjusted gross margin was 48.9%, compared to 51.7% in the same quarter last year. The adjusted gross profit grew by 24.4% Y/Y to $1.39 billion.

Shopify generated $513 million in operating cash flow and $507 million in free cash flow for the quarter. The free cash flow margin declined 100 bps Y/Y to 18%, marking nine consecutive quarters of double-digit free cash flow margins.

Shopify President Harley Finkelstein remarked that the company unlocks value for first-time entrepreneurs, as well as global brands like Estée Lauder. He stated that Shopify's platform continues to power commerce worldwide as merchants head into the busiest retail season.

Outlook

Shopify expects fourth-quarter revenue growth to be in the mid-to-high twenties percentage rate on a Y/Y basis (roughly $3.51 billion to $3.59 billion), versus an analyst consensus estimate of $3.48 billion.

It projects a free cash flow margin of slightly above that of the third quarter of 2025. 

Shpify expects fourth quarter gross profit dollars to grow in the low to mid-20s percentage year-over-year.

SHOP Price Action: Shopify shares were down 2.86% at $168.00 at the time of publication on Tuesday, according to Benzinga Pro data.

Read Next:

• Roblox's Strong Results Impress Wall Street, But Cautious 2026 Outlook Creates Uncertainty

Photo by Piotr Swat via Shutterstock