Shopify reported a 32% rise in first-quarter revenue to $3.2bn ($3.1bn expected), ignoring exchange rate impacts. Growth was broad, driven by a 35% increase in the value of orders processed through the platform to $100.7bn.
Operating profit grew 78% to $382mn, driven by the top-line growth.
Free cash flow rose 31% to $476mn, and there was a net cash balance of $5.7bn at quarter-end.
Second-quarter guidance points to revenue growth at a “high-twenties” percentage rate (27% expected).
The shares fell 6.2% in pre-market trading.
Our view
Shopify delivered another strong quarter, with growth across the board and guidance that still points to healthy momentum. But expectations were high, guidance pointed to a slowdown in revenue growth (though high twenties is hardly slow), and there are still questions about margin pressure and AI disruption. That keeps the recent underperformance going, despite a business that looks in good shape operationally.
Shopify is a commerce powerhouse. But rather than selling products itself, it provides the internet infrastructure for businesses to operate online. Its platform simplifies the complex world of online retail, offering a range of tools for businesses of all sizes to create and manage their online shops. This covers website templates to payment processes, and everything in between.
Perhaps unsurprisingly, the shift towards digital shopping has been a major driver of growth. AI adds another angle, but investors are still unsure about which software names will be winners or losers. We think Shopify is better placed than many to adapt, not least because the bulk of revenue comes from merchant services rather than pure software subscriptions.
Recent product launches support that view. Shopify is taking aim at the centre of an evolving shopping journey as AI agents become more involved in discovery and checkout. AI-driven traffic to Shopify stores also grew sharply in the quarter, but it’s early days, and we don’t know how behaviours will shift. Still, we like the proactive approach; being first could be a key advantage.
Investments are being made to expand the range of solutions clients can subscribe to. But for now, merchant solutions remain the main revenue driver, helped by strong adoption of Shopify Payments and Shop Pay. That ties Shopify’s success closely to the health of its customers, but also gives it meaningful upside as merchants grow.
Aside from investing in the business, the group’s been keeping a tight grip on costs, and the underlying financial profile has significantly improved in recent years. There are some near-term margin headwinds from AI investment and payment mix. We think this was part of the negative reaction to results, but see these as manageable if growth remains strong.
Overall, we’re impressed by Shopify’s leading proposition. International expansion, enterprise adoption, payments penetration and AI-led shopping all offer potential growth levers.
The earnings multiple has pulled back to a level that looks sustainable, and there’s room for a more favourable market view over time, provided Shopify delivers on some reasonable earnings expectations. But there’s still little margin for error, and sentiment could weaken if growth slows further or AI disruption proves more meaningful.
Environment, social and governance risk
The technology sector is generally medium/low risk in terms of ESG, though some segments are more exposed, like Electronic Components (environmental risks) and data monetisers (social risks). Business ethics tend to be a material risk within the tech sector, ranging from anti-competitive practices to intellectual property rights. Other key risks include labour relations, data privacy, product governance and resource use.
According to Sustainalytics, Shopify’s management of material ESG issues is average.
ESG reporting is in place and the board is responsible for overseeing ESG issues, but reporting does not align with leading best practices. Data privacy is an important risk, and it’s being managed well but with room for improvement. There haven’t been any major controversies from a data or cybersecurity standpoint, but it could do with improving regular risk assessments.
Shopify key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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