Shopify shares sink on weak sales

Shopify shares tumbled 7% on Tuesday after the e-commerce giant reported third-quarter results that fell short of Wall Street expectations. The sell-off followed the release of financial data showing that key performance indicators, specifically subscription gross profit and gross merchandise volume, did not meet analyst forecasts.

The company posted adjusted earnings of 49 cents per share, a figure that surpassed the LSEG consensus estimate of 46 cents. Total quarterly revenue reached $3.74 billion, landing just below the $3.75 billion projected by LSEG. For the fourth quarter, Shopify guided for year-over-year revenue growth in the low thirties percentage range, a outlook slightly higher than the 32.1 percent growth rate projected by analysts.

Gross merchandise volume, which measures total sales processed through the platform, totaled $119.15 billion for the period. This result missed the StreetAccount estimate of $120.03 billion. Subscription gross profit came in at $661 million, falling nearly $20 million short of the $680.3 million estimated by StreetAccount. Merchant gross profit, however, exceeded expectations, while subscription revenue of $836 million missed the FactSet estimate of $848.1 million.

Harley Finkelstein, president of Shopify, defended the performance in an interview on CNBC's Squawk on the Street. He described the gross merchandise volume results as consistent and durable, noting that this marked the thirteenth consecutive quarter of growth exceeding 20 percent. Finkelstein stated that the company is proud of the results and intends to focus on long-term building while ignoring daily market noise.

The quarter also saw the launch of Meta's consumer-facing artificial intelligence agent, Muse, with Shopify serving as an early partner. The collaboration allows users to browse and purchase items on Shopify directly within the Muse app, with transactions completed using Shop Pay. Finkelstein addressed concerns that AI agents might drive down prices through aggressive comparison shopping, stating that the company has not observed a general lowering of prices.

Instead, Finkelstein argued that these AI agents are generating new traffic and helping consumers discover new brands and products. He cited the success of the Tin Can phone, a screenless device designed for children, which he said has seen significant success due to agentic-based commerce. Finkelstein believes this will be the first holiday season where AI-assisted shopping capabilities become mainstream, driven largely by the rise of personal agents.

As the company approaches the holiday season, Finkelstein acknowledged some economic pressure on consumers but expressed optimism about the potential for agentic shopping to reach a breakthrough. He noted that when consumers use merit-based results and specific queries via AI agents, they are presented with high-quality products from the Shopify catalog.