Motley Fool lead advisor Jim Gillies explains what’s going on with Shopify stock and whether it’s a buy now. Would you rather read? Below you will find a transcript.
Is Shopify a Good Stock to Buy?
Nick Sciple: I’m Motley Fool Canada Senior Analyst Nick Sciple, and this is The Five-Minute Major, here to make you a smarter investor in about five minutes. Today we discuss Shopify’s Q3 2025 earnings and what’s behind the stock’s reaction. My guest today is Jim Gillies, Principal Advisor of Hidden Gems Canada. Jim, thanks for joining me.
Jim Gillies: Thanks for inviting me, Nick.
Nick: Shopify just reported Q3 2025 earnings results. They exceeded their expectations across the board, but the shares sold. Last I checked, it was down about 4% in the middle of the day here on Tuesday, November 4th. What’s going on with Shopify today?
Shopify’s Q3 2025 earnings
Jim: In my opinion, this was a great quarter. You had gross merchandise volume, GMV, up 32%. You also had a 32% increase in sales.
It’s gratifying to see that as a long-time owner of Shopify, this didn’t really make much money in the early days. I think if we go back to 2016, when we bought it, early 2016, we’re now hitting a free cash flow margin of 18%.
This revenue and GMV growth – if you look quarter to quarter over the last couple of years – honestly outpaced the last eight quarters. Overall, I thought it was an excellent quarter. As you said, they exceeded guidance on every front.
There’s not much more to say. I mean, their guidance moving forward was excellent as well. The original expectation for this quarter was a turnover increase of mid 20%. Like I said, it came to 32%. They tend to be a little gritty, I guess, if that’s even a word. But you know what, honestly it was pretty good.
Why is Shopify stock falling?
The only reason I can think of to sell the stock is that it is simply a richly valued stock. About 21 times the turnover comes in, and 22 times the turnover. I generally hate sales numbers, but here’s what we’re going to use for these fast-growing names.
But my opinion is that high sales growth forgives many sins, okay? And Stock Advisor Canada and the now defunct Pro Canada, we both bought this in the first quarter of 2016, I believe, and for about $4 or $5 Canadian per share.
And we’ve kept those positions, or at least Stock Advisor. And the rationale at the time was a high valuation, but revenue growth could go on forever and ever in investment terms.
High sales growth forgives many sins. So for example, if they hit their Q4 guidance, which is a low to mid range of 20%, let’s say they hit 22%, okay?
If they achieve 22% revenue growth in the fourth quarter of 2024, the incremental revenue generated by that growth rate will be roughly three times the trailing twelve month revenue at the time we recommended this in Stock Advisor Canada.
And I think that’s remarkable, and they’re not slowing down. If anything, they speed up.
Nick: Jim, you’re raising an important point, right? When you see a company exceeding expectations across the board, and the stock trading down, the answer is often that the stock market is overvalued, or that the stock’s valuation may be slightly ahead of what the company could deliver. But when you look at the long history of Shopify’s presence in the public marketplace, it’s a highly regarded company that has been able to continue to exceed market expectations year after year, if not every quarter.
Is Shopify Stock Overvalued Today?
When you think about Shopify today, what do you think about the company’s valuation from here and its ability to potentially raise the bar?
Jim: I think the valuation remains rich.
We literally said in the original recommendations in Stock Advisor Canada and Pro Canada in 2016, look, it’s going to hit an air pocket at some point. And by the way, that’s happened several times. I think it dropped almost 70% between November 2021 and 2022.
These things are lavishly appreciated, but as I said, revenue growth forgives many sins. So a company like this will look rich all the time until growth slows, and growth has accelerated at least in recent quarters.
So even at 21 times sales, which again, I hate about sales multiples, for valuation purposes, but I think it’s very illustrative here.
This will continue to be richly appreciated, but as long as they show that growth, I think it is justified. There was a little note in the press release about global iconic brands taking up more and more space in the Shopify universe. And they specifically called out Estee Lauder. But even in my day-to-day life, we’ve seen it move away from the small and medium-sized businesses that we were initially attracted to in the story nine years ago. Like my local junior hockey team, their merchandise sales are all through Shopify. Netflix Canada, last time I checked, used Shopify to take their orders and such. The Globe and Mail, Canada’s national newsletter, guess who they use? Again, Shopify.
And this is just inherent to Canadians in Ontario. So, online cannabis sales in Ontario are all regulated by the government. If you don’t want to go to one of the 35 cannabis stores in your area, you can order online. Guess who controls that? Of course it’s Shopify, and you can go on and on.
That’s something that I think is really valuable and not really appreciated even today in the Shopify story. It’s become a bit of a choice as to who you go to to handle your online sales.
It’s starting to look to me like Shopify is the first choice, and maybe the last choice for a lot of people, so I think that’s excellent.
Nick: Shopify seems like the type of company that can remain the standard when it comes to online commerce. It’s important to remember that this is a stock that is up over 60% in this earnings report. So while the stock may slump a bit over the long term, it is performing very well, and the longer your time horizon, the less important these quarter-to-quarter fluctuations become. It’s not the movements of two days, two weeks, two months that matter, it’s the movements of two years, two decades that really make the big money for you as an investor.
That’s all the time we have for this edition of the Five-Minute Major. If you want even more stock ideas from us, perhaps the next Shopify, you can click the icon in the top right corner of your screen. Thanks for joining us for this edition of the Five-Minute Major, and we’ll see you next time.
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