Second-quarter revenue rose 33%, excluding currency movements, to $3.6bn ($3.4bn expected). Growth was driven by strong performances in Merchant Solutions and Subscription Solutions, growing 37% and 22%, respectively.
Operating profit increased 68% to $488mn, driven by top-line growth.
Free cash flow rose 55% to $0.7bn. The group ended the period with net cash, including leases, of $4.9bn.
Third-quarter revenue is expected to grow in the ‘low-thirties’ percent rate (26% expected).
The shares were up 19.1% in early trading.
Our view
Shopify delivered the kind of quarter that can reset the debate. Strong growth was paired with better margins, while upbeat guidance suggests the momentum has further to run. More importantly, early evidence points to AI widening the opportunity rather than disrupting Shopify’s role in commerce. That helps answer one of the biggest questions hanging over the shares.
Shopify is a commerce powerhouse. Rather than selling products itself, it provides the infrastructure businesses need to operate across online, physical and increasingly AI-led shopping channels. Its platform brings together everything from website design and inventory management to payments and checkout.
The shift towards digital shopping remains a major growth driver, but Shopify is also moving beyond its traditional small-business base. Larger merchants are contributing more, international growth remains healthy and rising adoption of Shopify Payments is deepening its role in each transaction. This broadens the opportunity and makes the platform increasingly difficult to replace.
AI adds a new dimension. Traffic and orders from AI tools more than tripled in the quarter, while conversion from AI search was reportedly well ahead of traditional routes. Volumes remain small, but the direction is encouraging. Shopify’s opportunity is to remain the infrastructure behind the transaction, regardless of where a shopper first discovers a product.
That is why new products and their agent-led commerce tools matter. They help merchants reach customers through new channels while keeping checkout, payments and the underlying data within Shopify’s ecosystem. We think that leaves the group better placed than many software businesses to benefit from AI.
Subscriptions are the hook that brings merchants onto Shopify, but add-ons like payment services (booked in Merchant Solutions) are the main revenue engine, accounting for around 75% of revenue. That ties growth to the health of its ecosystem, yet these revenues are sticky. Replacing the full stack is difficult, especially for larger businesses, where Shopify is gaining traction.
The add-ons are lower margin, so their high mix is a drag on profitability. Shopify is managing that pressure well through tight control of hiring and operating costs. Group operating margins have actually improved for the past year, alongside stronger cash generation. AI investment could create bumps, but recent execution shows Shopify can fund growth while still delivering healthy operating margins.
Overall, we’re impressed by Shopify’s market position and execution. The group trades on a premium multiple, both relative to peers and in absolute terms, at just shy of 70x expected profit. With momentum now well-entrenched, we think that’s sustainable, leaving valuable earnings growth as a healthy tailwind. But there’s little room for error and inherently higher risk.
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.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.