Will Robust Revenue Growth and Declining Margins Shift Shopify's (SHOP) Long-Term Investment Narrative?

• Shopify recently reported its third quarter results, revealing revenue of US$2.84 billion and net income of US$264 million, accompanied by guidance for fourth quarter revenue growth in the mid to high 20s percent year-over-year.
• Client announcements from ONNIT and LiquiDonate highlighted major merchant migrations and app relaunches that leverage Shopify's ecosystem to improve subscription management, drive operational efficiency, and provide sustainability benefits through inventory donations.
• We’ll examine how robust revenue growth but declining profit margins, impacted by loan losses, shapes Shopify’s investment narrative and outlook.

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Shopify Investment Narrative Recap

To own Shopify shares, an investor needs to believe in the company’s role as a core infrastructure for the global shift toward unified commerce, underpinned by strong revenue growth, expanding enterprise adoption, and new monetization layers. Despite robust top-line results, the latest earnings highlight thin profit margins and loan losses, which remain the main risks and near-term catalysts; recent news on large merchant migrations is positive but doesn’t materially shift these short-term forces.

The ONNIT migration to Shopify’s ecosystem stands out, as it reinforces Shopify’s appeal to high-volume brands aiming to streamline operations and boost recurring revenues. While this supports the broader catalyst of moving upmarket and deepening enterprise penetration, it does not directly address near-term profitability pressures from rising credit losses or regulatory concerns.

However, investors should also weigh the risk that even as Shopify grows rapidly, elevated compliance costs and competition may pressure operating margins…

Read the full narrative on Shopify (it's free!)

Shopify's outlook anticipates $18.5 billion in revenue and $2.7 billion in earnings by 2028. This projection relies on an annual revenue growth rate of 22.6% and a $0.4 billion increase in earnings from the current $2.3 billion.

Uncover how Shopify's forecasts yield a $165.87 fair value, a 4% upside to its current price.

Exploring Other Perspectives

Twenty-three members of the Simply Wall St Community value Shopify between US$82 and US$200 per share, with estimates scattered across this wide spectrum. Against this backdrop, ongoing margin pressures and competition highlight why thoughtful consideration of multiple viewpoints is important for your investment research.

Explore 23 other fair value estimates on Shopify - why the stock might be worth 48% less than the current price!

Build Your Own Shopify Narrative

Disagree with existing narratives? Create your own in under 3 minutes - extraordinary investment returns rarely come from following the herd.

• A great starting point for your Shopify research is our analysis highlighting 2 key rewards and 2 important warning signs that could impact your investment decision.
• Our free Shopify research report provides a comprehensive fundamental analysis summarized in a single visual - the Snowflake - making it easy to evaluate Shopify's overall financial health at a glance.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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