Shopify Stock Just Plunged. Here's Why I'm Not Selling
Shopify Stock Just Plunged. Here's Why I'm Not Selling
Matt Frankel, CFP®, The Motley FoolTue, November 3, 2026 at 6:00 PM UTC
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Image source: Getty Images.Key Points -
Shopify grew revenue by 32% and operating income by 66% in the third quarter.
A small miss on gross merchandise volume and subscription revenue sent the stock falling.
Shopify’s business is growing fast and producing strong cash flow, but the stock still isn't cheap even after the drop.
10 stocks we like better than Shopify ›
Shares of Shopify (NASDAQ:SHOP) fell by about 10% on Tuesday morning after the e-commerce platform reported its third-quarter results. The drop left the stock roughly 22% below its October record. As a Shopify shareholder myself, I obviously don't enjoy watching the stock price fall. But after going through the report, I'm not planning to sell a single share.
Here's what happened, and why I think the market's reaction says more about expectations than about Shopify's business.
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A strong quarter by almost any measure
Shopify's revenue grew 32% year over year to $3.74 billion. Merchant solutions revenue, which mostly comes from payment processing, rose 35%, and subscription revenue grew 20%.
The company's profits grew even faster. Operating income jumped 66% to $568 million, and free cash flow came in at $816 million, or 22% of revenue, up from 18% a year earlier. Shopify also spent $562 million buying back its own stock. On the bottom line, Shopify posted earnings of $0.49 per share (adjusted), which surpassed analyst estimates.
So, why did the stock fall?
Based on the last section, you might be wondering why Shopify's stock is under pressure. And the reason is that two metrics came in a bit light. First, gross merchandise volume (GMV), the total value of sales on Shopify's platform, rose 29% to $119.1 billion. That's an impressive growth rate for a platform this size, but it was slightly below analysts' expectations and slower than the 32% growth rate Shopify reported in the second quarter. Subscription revenue of about $836 million also fell short of the consensus estimate of roughly $850 million.
Normally, misses this small wouldn't be that concerning. The problem is that Shopify's stock was priced for near-perfection. As of Monday's close, Shopify traded for roughly 64 times analysts' 2027 earnings estimates heading into the report. With that kind of valuation, investors tend to punish anything short of perfect. We've seen this with several other big-name tech stocks that have fallen after strong earnings and guidance.
The outlook still looks solid
Speaking of guidance, management expects fourth-quarter revenue to grow in the low thirties (percentage) and gross profit in the high twenties. It also expects operating expenses to fall to 29% to 30% of revenue, from about 32% in the third quarter, and it guided to a free cash flow margin in line with last year's fourth quarter. In other words, Shopify expects to keep growing at about the same pace through the holiday season while becoming more profitable.
On artificial intelligence (AI), Shopify's Harley Finkelstein said the company is building commerce "into every surface, every agent, and increasingly, everywhere."
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Why I'm not selling
I've owned Shopify since 2022, and my thesis rests on three things. I want rapid growth, expanding margins, and a platform that gets stronger as more merchants and shoppers use it. This quarter checked all three boxes. A company growing revenue by about a third while increasing its operating income by two-thirds is doing what I want it to do.
To be sure, the stock isn't cheap even after the drop, and the two metrics Shopify missed expectations on are certainly a concern worth keeping an eye on. If GMV growth continues to slow, the valuation could keep shrinking, and that's the main risk I'll be watching over the next couple of quarters. The same goes for subscription revenue.
Having said all that, I don't think a slight GMV miss in one quarter changes Shopify's long-term path, nor does it make the company 10% less valuable than it was yesterday. I'm holding my shares, and if the price keeps falling, I'm more likely to add than to sell.
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Matt Frankel, CFP® has positions in Shopify and has the following options: short January 2028 $170 calls on Shopify. The Motley Fool has positions in and recommends Shopify. The Motley Fool has a disclosure policy.
Source: “AOL Money”
