Shares of Shopify (TSX:SHOP) soared more than 25% on Tuesday, marking their best trading day in a year after the e-commerce giant reported a robust third-quarter revenue increase.
Shopify posted revenue of $2.16 billion, a 26% year-over-year increase, surpassing the FactSet consensus estimate of $2.1 billion.
This marks the sixth consecutive quarter in which Shopify’s revenue grew by over 25%, excluding the sale of its logistics unit.
The company’s gross merchandise value (GMV) also rose 24%, indicating solid growth in the total value of goods sold on its platform.
Shopify earnings drive investor optimism
Shopify’s GAAP earnings of 64 cents per share significantly exceeded the market’s estimate of 19 cents per share, reflecting efficient cost management and strategic growth.
For the fourth quarter, Shopify expects to sustain its momentum, projecting revenue growth in the mid-to-high-twenties year-over-year.
“Entrepreneurship and global commerce are both expanding, and Shopify is capitalizing on these vast markets,” Shopify President Harley Finkelstein told Barron’s.
Finkelstein attributed the revenue increase to growth across newer segments that support diverse businesses on Shopify’s platform, including point of sale, business-to-business (B2B), and enterprise solutions.
“These are new on-ramps for Shopify that we didn’t traditionally have, allowing us to position ourselves well for continued growth,” Finkelstein added.
Shopify stock: analysts maintain a positive outlook
Analysts have maintained a positive outlook on Shopify’s stock, citing sustainable growth in GMV as a key driver.
Bhavin Shah, an analyst at Deutsche Bank (ETR:DBKGn), reiterated his “Buy” rating on Shopify, noting that its focus on enterprise and B2B offerings could expand its addressable market further.
Shopify’s shares have gained 44% since its second-quarter earnings in early August, compared to the S&P 500’s modest 9% increase in the same period.
A disciplined approach to marketing boosts profitability
While Shopify’s recent profitability was impacted by a surge in marketing expenses, analysts are optimistic about its future margins.
Citi analyst Tyler Radke noted that although Shopify may continue to invest in marketing through 2025, these costs could be offset by a more restrained approach to core expenses.
Finkelstein underscored this disciplined strategy on Tuesday, describing the company’s marketing efforts as “very scientific” and emphasizing that spending would only be deployed where meaningful opportunities arise.
With strong revenue and a focus on sustainable growth, Shopify appears well-positioned to capitalize on its expanding market footprint, reinforcing investor confidence for the future