Shopify Stock Dives After Revenue and Gross Merchandise Volume Come Up Short

When it comes to AI, Shopify may have to verify. 

Like many of its peers, Shopify is spending big on the technology, but investors want to know whether it’s paying off. Its third-quarter earnings report showed that it pulled in $3.74 billion in sales, below the $3.75 billion Wall Street analysts had expected. It’s the company’s first revenue miss in four years, according to Bloomberg data. Gross merchandise volume and subscription sales also came in below expectations. The Canada-based company’s stock plunged on the news, ending Tuesday down 8.7%. 

Retail Therapy, No More   

Shopify’s subscription-based e-commerce platform is behind the scenes of millions of small businesses and independent brands selling clothing, beauty products, home goods and more, offering a lens into the consumer and retail market for direct-to-consumer businesses. Its less-than-ideal earnings report comes as various reports and studies (including Shopify’s own) signal that consumers are more price-conscious nowadays, forgoing their discretionary items amid still-high prices for everything from gas to groceries. Why buy from an independent or even luxury brand when you can find deals at big box retailers like Costco? 

But Shopify’s earnings report also reflects the need for tech companies at large to prove that their AI spending is worth it: 

• Shopify has been hyperfocused on Sidekick, its AI assistant that it launched in 2023. Its CEO Tobias Lütke also told employees via an internal memo last year that using AI internally is a “baseline expectation,” and the company is embracing “agentic commerce,” which entails AI acting on the behalf of shoppers. But that’s all a potentially pricey endeavor. The company expects operating expenses between 29% and 30% of revenue in the fourth quarter while its free cash flow margin stays flat. 
• “On a year-over-year basis, subscription-solutions gross margins compressed primarily from incremental AI spend on Sidekick, partially offset by efficiencies and support,” Shopify’s Chief Financial Officer Jeff Hoffmeister said on a call with analysts. 

A Penny Spent Is a Penny Earned: Of course, the hope is that the company’s AI spending will eventually come back around to add to the balance sheet. “Sidekick attracts more merchants to Shopify, which manifests in the financials and subscription solutions, and it propels more merchant success, which materializes in merchant solutions,” Hoffmeister added.