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New inflation data showed that core prices are still rising, which has led many to expect the Federal Reserve to raise interest rates by a half-point. Higher rates generally make it more expensive for consumers to borrow and spend, which can lead to lower sales volumes for the millions of merchants that use this platform.
Because the company earns a fee on every transaction, its growth is closely tied to how much people are willing to spend online. If higher borrowing costs cause a pullback in consumer shopping, it could slow down the transaction revenue that has been a primary driver of the company's recent performance.
Source: Reuters
After Shopify reported its November results, we updated our fair value. We moved our rating from Buy to Watch. We raised our expectations for how much cash the company can keep after seeing margins on every dollar of revenue reach 22% in the quarter. We have added the impact of investment price swings to what we track and are now following the use of Shopify's payment rails in external AI assistants.
Shopify brought in $3.68 billion in revenue last quarter, a 32 percent jump from a year ago. While that growth is fast for a company of its size, it was slightly lower than the $3.70 billion analysts expected. The total value of all goods sold across its platform rose to about $119 billion, and the company turned 22 percent of its revenue into free cash flow, which is the cash left over after paying for all its operations and investments.
The stock fell about 7 percent following the report. This often happens when a high-growth company delivers results that are strong but do not quite reach the high bar set by Wall Street. For long-term owners, the core story remains intact: the business is growing its sales volume quickly and is far more profitable than it was in previous years.
See the full quarter, and how our tracked metrics did
Source: 8-K filing
Shopify's president noted that shopping through AI channels, such as digital assistants or automated search tools, is becoming a larger part of how people buy goods. While still early, this shift suggests Shopify's software is successfully adapting to new ways people browse the internet beyond traditional search engines and social media feeds.
Source: CNBC Television
Shopify is scheduled to report its latest quarterly performance on November 3. Analysts are looking for revenue of about 3.7 billion dollars and profit of about 46 cents per share. This update will be an important check on whether the company is still successfully moving larger brands onto its platform. These bigger clients provide more stable income than the small businesses that Shopify originally served.
Management has a steady habit of clearing their own bars by a small margin. This suggests they have a tight grip on the business and set targets they are certain to hit.
| Expectation | |
|---|---|
| EPS | $0.62 |
| Revenue | $4.73B |