Shopify shares plunge after revenue miss; Wells Fargo flags AI-related margin pressure

Shopify shares fall after quarterly sales miss

Shopify shares fell as much as 20% in New York premarket trading on November 3 after the company reported its first revenue miss since 2022. At around 8:30 a.m. EST, the shares were down 15%, as investors focused on revenue that came in slightly below the Bloomberg Consensus estimate.

Truist analyst Terry Tillman said the selloff largely reflected heightened investor expectations heading into the quarter. The reviewed reporting did not provide a later closing price for the shares.

Revenue growth slows short of estimates

Third-quarter revenue rose 32% to $3.74 billion, narrowly below the $3.75 billion consensus estimate. Subscription revenue was $836 million versus an estimated $850.2 million, while Merchant Solutions, Shopify's largest business, was roughly in line at $2.91 billion against an estimate of $2.9 billion.

Gross merchandise volume totaled $119.15 billion, below the $120.08 billion estimate. Monthly recurring revenue was $230 million, slightly above the $229.9 million estimate.

Adjusted earnings and operating income exceed estimates

Shopify reported adjusted earnings per share of 49 cents, compared with an estimate of 48 cents. Operating income was $568 million against an estimate of $523.9 million, while total operating expenses were $1.21 billion versus an estimated $1.26 billion.

The earnings comparison used adjusted earnings per share, while operating income and total operating expenses were presented separately in the reported results. The revenue shortfall nevertheless prompted the premarket selloff, with investors focusing on subscription revenue and margin pressure.

Wells Fargo attributes margin pressure partly to AI

Wells Fargo analyst Ken Gawrelski said gross-margin headwinds were worsening and identified Sidekick and AI inference as a likely cause. The attribution represented the analyst's assessment rather than a company-confirmed explanation of the margin change.

Shopify separately projected fourth-quarter operating expenses at 29% to 30% of revenue. It also expected the free-cash-flow margin to remain consistent with the fourth quarter of 2025.

Shopify maintains fourth-quarter growth outlook

The company expected fourth-quarter revenue to grow at a low-30s percentage rate from a year earlier, with gross-profit dollars rising at a high-20s pace. These were forward-looking company expectations rather than reported fourth-quarter results.

The next measurement point is Shopify's fourth-quarter performance, including whether revenue growth reaches the low-30s percentage rate, gross-profit dollars grow at a high-20s pace, operating expenses remain within 29% to 30% of revenue, and the free-cash-flow margin stays consistent with the fourth quarter of 2025.