SHOPIFY INC. Q3 FY2025 earnings

Shopify's fiscal 2025 third quarter showed strong top-line and operating growth, but earnings fell because of swings in equity investments. Revenue rose 31.5% to $2.84 billion. Gross profit rose 24.4% to $1.39 billion. Operating income rose 21.2% to $343 million. Net income fell 68.1% to $264 million, and diluted EPS was $0.20, down 68.8%. The gap between operating results and net income came from investment losses in the current period, while the prior-year quarter included large investment gains. That swing matters for reported earnings, but it does not reflect the core commerce operations.

The merchant base kept expanding. GMV reached $92.0 billion in the quarter, up 32%. For the first nine months, GMV was $254.6 billion, up 29%. MRR was $193 million, up 10% from a year earlier. Shopify said MRR growth was held back by longer paid trials. Shopify Payments penetration was 65%, and $60.2 billion of GMV ran through Shopify Payments. The company said that drove $17.3 billion of additional GMV through Shopify Payments, representing growth of 40%. Free cash flow was $507 million, and free cash flow margin was 18%, marking nine consecutive quarters of double-digit free cash flow margins. Operating cash flow rose 21.3% to $513 million. Capital expenditures were $6 million, up 200%. For the first nine months, operating cash flow was $1.31 billion, up 30.7%.

Margins came under pressure as the revenue mix shifted. Gross margin was 48.9%, down 2.8 percentage points. Operating margin was 12.1%, down 1.0 percentage point. The company said merchant solutions, especially Shopify Payments, carry lower gross margins than subscription solutions. Year-to-date gross margin was 49.0%, down 2.4 percentage points, while year-to-date operating margin was 10.6%, up 0.6 percentage points. Deferred revenue was $410 million, down 8.7%, though management says deferred revenue is not a good indicator of future revenue and points to MRR instead. Year-to-date revenue was $7.88 billion, up 29.9%. Year-to-date operating income was $837 million, up 37.2%. Year-to-date net income was $488 million, down 32.8%, and year-to-date diluted EPS was $0.37, down 33.9%.

Guidance for the fourth quarter of 2025 calls for revenue to grow at a mid-to-high-twenties percentage rate year over year. Gross profit dollars should grow at a low-to-mid-twenties rate. Operating expense as a percentage of revenue is expected to be 30% to 31%. Stock-based compensation is forecast at $130 million, and free cash flow margin should be slightly above Q3 2025. The outlook is for the next quarter, not the full fiscal year. Shopify also notes that the fourth quarter is the busiest retail season, and merchants typically process more GMV during the holiday period. That seasonal pattern can support merchant solutions revenue but also mix toward lower-margin revenue.

Risks remain. Shopify lists exposure to changes in economic conditions and consumer spending in key markets such as the United States and Europe, international trade measures including tariffs, reliance on third-party cloud providers, cyberattacks or security breaches, and serious errors or defects in software or hardware. The company also points to foreign currency fluctuations, especially because a significant portion of revenue and expenses are denominated in EUR, GBP, and CAD. Equity investment volatility can continue to affect reported results, as the quarter's net income decline shows. Transaction and loan losses are another pressure point, with the company citing higher expected losses and realized losses related to Shopify Payments and lending services.