$SHOP · The Motley Fool · 2026-11-03

Shopify just released their third quarter results and their revenue growth rate was a whopping 32 percent. Operating income increased by 66 percent and free cash flow increased by more than 60 percent.

These are great figures for any company , but the share price fell 10 percent in early trading on Tuesday. It had fallen as much as 16 percent before the market opened. So, what's really going on with these shares ? Is this a buying opportunity?

Before getting into the numbers, I think the first thing to understand about Shopify is that this company is currently often valued based on expectations of perfect performance.

The company's price-to-sales multiple is currently around 13. It remains in the same condition even after today's price drop. This stands after calculating their revenue jump in the third quarter.

Let's look at two more metrics that are important for investors. The price-to-earnings multiple is now at an astonishing 86, and the price-to-free cash flow is around 68.

Therefore, Shopify's share price is based on pure expectations, and it is not uncommon for the stock to experience significant price declines as a result. Even slightly lower-than-expected earnings could cause the stock price to fall,

but let's look at Shopify's current situation from a long-term perspective, because I think it's hard not to be optimistic about the company after seeing this quarter's results.

Now let's start with Shopify's key performance indicators, because these are the most important for driving the business forward in the long term. Gross merchandise volume increased by 29 percent to $119.1 billion.

This is a slightly slower growth than in the second quarter , when the growth rate was 32 percent.

So, you start thinking about what investors are worried about. Is growth slowing down? This is something no one wants to see about any company, and that's exactly what we're seeing with Shopify.

So, these are the situations when warning signals or yellow flags appear, and if growth really slows down, it is a red flag or danger signal. I do n't think this is a huge challenge, because a 30 percent growth rate is still extraordinary, but it needs to be kept in mind.

Gross payment volume actually showed even higher growth, at 35 percent. This is the payment that Shopify itself processes through Shop Pay. The business is mainly divided into two parts: Subscriptions and Merchant Solutions.

So, subscription revenue this quarter was $836 million. This is up from $699 million a year ago and is where a large portion of their margin comes from.

For example, when you create a Shop store, you have to pay this subscription fee for all the services you receive. Once they create all this, they can sell it to thousands or millions of customers.

This is where the high margins come from and this is why people choose Shopify.

The other part is merchant solutions. This is mainly revenue related to transaction processing. Its margins are slightly lower, but its revenue is higher, amounting to $2.9 billion this quarter.

So, once again, the key performance indicators and business segments are moving in the right direction and are growing at a rate of more than 20 to 30 percent.

The question for investors today is, is this growth slowing down and is it meeting current expectations based on share prices? The current stock price is the result of this tension.

However , let's not forget how well positioned Shopify is for the future. They discussed this issue on a conference call. Agentic shopping is not currently a big volume driver, but Shopify is building the tools and infrastructure to make it a bigger part of their business.

So, when someone goes to a chatbot or chatbot like Muse and says, "Hey, you know what? I want to order a new shirt. I need something for my home construction project." Then they will be able to go and find the right product.

Shopify wants to showcase the products to those agents and make the purchasing process extremely easy.

If you are a merchant, this is why you would build a business on a platform like Shopify. So, I think these tools will drive the company forward in the future, but they haven't had much of an impact on the bottom line or net profit yet.

The positive side of this is that it will create new ways to find products on the Shopify platform. They have the infrastructure and Shopify's tools if they can be deeply integrated into these agents, it will be in a tremendous position.

The downside is that it may not create much value for merchants. A big part of Shopify's business is building merchant solutions and then maintaining ongoing relationships with subscriptions and customers.

If agents are shopping for you, it may not have as much value as it used to.

So, we will have to see where the situation goes. It's not a big part of the financial report yet, but I think Shopify is in a very advantageous position for the future.

So, let's step back a bit and see where the business is currently. Because in my opinion, when you look at Shopify as a whole , everything is moving in the right direction in almost every area.

The chart here is a bit complicated, but the green column is indicating Shopify's quarterly revenue. You can see a growth rate of 32%, shown by the blue line. This growth rate of over 30% is not possible for many companies, especially to sustain this revenue growth over a long period of time.

There is one area of concern here, where Shopify failed to meet expectations this quarter, and that is gross profit margin. That gross profit margin is 47.6%, which is lower than a year and two years ago.

So, margins are not moving in the right direction,

but on the contrary, the company is becoming much more efficient. A year ago, the operating margin was 12.1%. This quarter it was 15.2%. This is how Shopify is growing their operating profit and free cash flow much faster than revenue growth.

And they are growing revenue at a growth rate of over 30 percent.

So, we are seeing growth in the right places , and as investors, we want to see this margin expansion. This is how the high multiples that Shopify typically achieves are possible.

So, what's ahead for Shopify? Management expects revenue growth of around 30% in the fourth quarter. Gross profit is expected to grow by about 20% , so we will see the pressure on gross profit mentioned earlier, with gross margins likely to continue to decline.

Operating expenses are likely to increase by about 30% and free cash flow margin will remain at about 19%, the same as the year-ago quarter.

On the positive side, Shopify expects to continue its rapid growth, but there is some pressure on margins and free cash flow. So, maybe the operating leverage that we saw in the third quarter, may not be at this level.

So, how does Shopify currently stand for investors? Free cash flow is quite strong at $2.7 billion over the last four quarters , but keep in mind that this company has a market capitalization of $180 billion.

Therefore, it is difficult to call it a cheap stock at present.

If this company is on your watch list and you're looking for a buying opportunity, I don't think this is a bad time for Shopify. But remember, this is a company that if the economy gets worse or the tech stock sell-off starts, companies with high valuations and high multiples may be the first to suffer.

After 2021, when the market was very strong, Shopify's stock fell by almost 80%. I'm not saying that this will happen in the future, but with an enterprise value to sales ratio of 13 currently, it's not a stock to buy easily.

Even on a forward basis, the price to free cash flow ratio is around 60. So, this is n't a price to buy blindly, but if Shopify's share price drops further, you'll know it's one of the best-run companies in the world.

Very few companies can grow and compound their revenue at a rate of 30% year over year like Shopify. And I think, looking at the future of Agentic, the company is in a really good position.

I'm not buying it today because I think the stock price is still too high for the expectation of being perfect,