Shopify (SHOP.US) Q3 conference call: Management says smart commerce “channel neutrality” does not bet on a single agent, and AI orders increased 3.3 times year-on-year

The Zhitong Finance App learned that Shopify (SHOP.US) announced the results for the third quarter of 2026 before the US stock market on November 3 (Tuesday). According to the data, the company's revenue for the quarter was US$3,742 billion, up 32% year on year; adjusted earnings per share were 0.49 US dollars, higher than FactSet's agreed expectations of $0.47; free cash flow was US$816 million, up 61% year on year, and free cash flow margin increased to 22% from 18% in the same period last year. GMV rose 29.5% to US$119.1 billion, falling short of expectations of some institutions, and the stock price closed down 8.74%.

However, the two core indicators supporting the company's overvaluation fell short of the higher expectations of some institutions: total commodity transaction volume (GMV) increased 29.5% year over year to US$119.45 billion, lower than the market consensus quoted by the Royal Bank of Canada of about US$119.9 billion, and the growth rate also slowed from 31% in the second quarter; gross profit increased 28% year over year, lower than the 31% to 32% range expected by Morgan Stanley. Operating expenses accounted for 32% of revenue, down from 37% in the same period last year.

In terms of the fourth quarter guidance, the company expects revenue to increase by around 30% year on year, with gross profit increasing close to 30% but less than 30%, and the free cash flow margin is about 19% in the same period last year; if realized, it will be the seventh consecutive quarter where the company's revenue growth rate is above 30%. In terms of stock prices, the company once plummeted 19% to 127 US dollars before the market, and eventually closed down 8.74%.

Highlights of the earnings call:

The most focused topic in the Q&A session of this conference was smart business. Samad Samana of Jefferies Research directly asked how Shop collaborates with Meta and Muse on development, how using Shop Pay or Meta Pay affects payment economics, and what early signs of transformation merchants are seeing from this channel. Wolfe Research analyst Schweta Cajulia further inquired about the monetization mechanism of smart commerce: will the merchant pay a certain percentage or share financial benefits with the smart entity, and how the smart body will choose by default when setting up Shop Pay and other payment methods at the same time.

Management did not directly comment on the monetization mechanism, but gave a three-tier response: First, in terms of positioning, Shopify is the business infrastructure behind all agents, maintaining channel neutrality and not betting on a single agent. Muse, Instinct, Claude Duet, and Grok Bot have all been connected; second, in terms of data, AI channel traffic increased 2.6 times year-on-year and orders increased 3.3 times in the third quarter. Catalog-driven search conversion rate was 2 times that of AI search, 74% of AI attributions Purchases come from outside of the top 100 categories; third, in terms of monetization, Chief Financial Officer Jeff Hoffmeister (Jeff Hoffmeister) said that smart devices are essentially “another form of discovery channel”, and the economy flows back in line with any other discovery channel after sending consumers to merchant websites. The focus is on continuing to roll out Shop Pay as the default wallet, and the company already has 400 million shoppers who trust Shop and Shop Pay. Management did not directly respond to Beya analyst Colin Sebastian (Colin Sebastian)'s question about “whether the value of sidekick and catalog translates into higher monetization”.

Here's the full Shopify results call:

I. Executive speeches

Harley Finkelstein, President

Good morning everyone, and as always, thank you all for participating. It's been an incredible quarter for business. The entire industry we're seeing is growing at an extraordinary pace: from the spread of personal agents (personal agents), to the beginning of delegated purchasing (delegated purchasing), to helping entrepreneurs turn any idea into a new tool for business overnight. New interfaces have sprung up, but they're all powered by the same heavy commercial operating system, Shopify. I'll talk about numbers soon, but I'd like to first take a moment to explain the meaning of all of this and why it's so important to merchants.

Imagine you're a retail business owner in 2026. Today you're probably wondering: How is my online store doing? Did ChatGPT properly display my products? How to improve the conversion rate of physical stores? Is it time to consider expanding into new markets? Don't get me wrong, these are all very good “worries”. This is the best time to be an entrepreneur in history, and opportunities are everywhere. And the more opportunities, the higher the complexity; the higher the complexity, the greater our value. The value of a unified business operating system that connects every interface where customers want to shop and every tool the team wants to use is the real story behind this moment. For Shopify, that's the most important thing. As the world takes a foothold in this new era, there's no better place than where we are, and that is everywhere.

OK, let's talk about numbers. The third quarter was another iconic Shopify quarter: GMV grew 29.5% to $119 billion; revenue increased 32% to $3.7 billion; free cash flow margin 22%. We've seen more big retail brands launch on Shopify, from Balmain to Mac, Clinique (Clinique) to Lululemon. We have fully delivered on our promises and have once again achieved continued, steady growth.

But the real story is hidden between numbers: Shopify is very good at living in two realities at the same time. One is the smart future we're building that excites everyone on the conference call, and the other is the current reality in which the vast majority of merchants live today. In practice, it's like this: Since the last performance call, personal intelligence has gone mainstream, and Muse, Instinct, Claude Duet, and Grok Bot have all collaborated with Shopify. Our merchant checkout is supported, and buyers can use Shop Pay as their wallet. We're providing product discovery capabilities for all major AI channels, from ChatGPT to Microsoft to Muse. These are the things that could really drive merchant success in the future. At the same time, we've also launched an incredible array of new products and features across Shopify, expanding our international presence, strengthening our offline business, and making our online store website building tools more powerful, all of which are driving merchant success today.

Importantly, we balance these two realities while running an unusually strong company: 32% revenue growth, 22% free cash flow margin, which is unusual for our size, and I can repeat these numbers every quarter.

Let's talk about the future, especially smart shopping (agentic shopping). Although small in size, adoption is growing, and early signs suggest it has the potential to be a very powerful interface. What we saw: AI traffic increased 2.6 times year over year, orders grew 3.3 times faster; AI channels sent shoppers directly to product pages 3 times higher than organic searches, and shoppers' conversion rate was 64% higher. The numbers are inspiring, but what's even more interesting is the products being displayed: instead of the obvious categories, the AI channel shows products that are highly specific and match the specific needs of specific customers. This is where Shopify's Catalog (product catalog) comes in: Catalog-driven searches have twice the conversion rate of regular AI searches. Because Catalogue was created for smart devices, it transforms more than 1 billion product pages into structured data sets, translating details such as size, color, and material into values that the smart body can read and understand. It's not a simple linear product flow, but a real-time, cross-merchant full-platform product map with real-time prices and inventory to help AI channels make more accurate recommendations, which makes it incredibly powerful.

What's even more exciting is that AI is no longer just a discovery channel. As I mentioned earlier, in the third quarter, we first saw shoppers try to commission purchases through personal agents, which can act for future generations after obtaining user permission. To do this, the smart body must earn trust: does it know what I like? Will I choose the right size? Can I entrust my personal information to it? For Muse, Instinct, Claude Duet, and Grok Bot, the answer is yes, thanks to Shop. Through your Shop account, the smart device understands your preferences and shopping history; through the Shop app, you can track all orders placed by the smart device and display them side by side with other orders; with Shop Pay as your wallet, your payment information is already saved. You're always in control of your purchases, and the smart device never sees your card details.

For Claude Duet, Instinct, and Grok Bot, this coverage extends even to stores outside of Shopify's website: shoppers can now use Shop Pay as any merchant's designated wallet without additional settings. For merchants, this means reaching out and getting a huge new customer base with zero investment; for buyers, it means trust, buying in familiar ways in unfamiliar channels; for developers and AI companies, it means connecting to world-class infrastructure. All the tools they needed to build the shopping experience, including the catalog, checkout, and Shop network, are now all in one place. We call it shop.dev: one stop shop, we handle all the complexity of the business.

On a different topic, let's talk about how we can help merchants build and operate more efficiently with AI. As we predicted in previous quarters, business is fragmenting. AI is not only creating new shopping methods for buyers, but also creating new ways of doing business for merchants. This is the foundation of Shopify. We've always been an open ecosystem, now extending to smart tools: we've built connectors with agents such as Muse, ChatGPT, Claude, Google Gemini, etc., to let merchants decide how and where to operate. This not only gives existing merchants the right to choose, but is also becoming an entry point for new merchants. Imagine a prospective entrepreneur talking to ChatGPT, Claude, or Muse about starting a business. The smart agent suggests that he use Shopify to build a website, then directly help him set up a store during the conversation, and then sign up for a Shopify account when ready to sell. Smart devices can actually become Shopify's promotion ambassadors, connecting new entrepreneurs to the platform at the most appropriate moment. Of course, in terms of our size, this is still a small source of new merchants, but as more people use more tools to turn ideas into businesses, Shopify has been involved in this journey since the beginning.

Speaking of turning an idea into a business: This quarter we released the biggest update to our online store website builder in our 20-year history, called Canvas. Merchants can build a fully customized online store by simply describing what they want to Sidekick without programming or design expertise. A store you can imagine is a store you can build. After only going live for about a month, we saw that the stores built by the merchants were more personalized, and the website was built 20% faster. Off topic, this is the release I'm most excited about in a long time: I put the merchant on X @我展示他们用Canvas建的东西, and the quality and variety is amazing, from handmade pottery to pet treats, band goods, to vintage comics. This is what Tobi (Tobi) and I imagined almost twenty years ago: Anyone who sells anything from anywhere can have their own beautiful, fully functional home on the internet.

Speaking of Sidekick, it is still the most widely used tool for merchants to run their business. Usage increased at a faster rate in the third quarter: Nikkatsu merchants increased 3.7 times year over year, and daily session volume increased 4.2 times. More important than adoption rates is how capable Sidekick is becoming. In Q3, Sidekick created about two-thirds of Shopify's Flow (automated process). I recently met a major furniture retailer whose bespoke Sidekick process covers everything from warehouse inventory snapshots to delivery cost analysis to regional pricing checks. That's the power of Sidekick: it can be fully customized to drive a merchant's specific business. Now these processes extend beyond the back office to the apps that merchants use on a daily basis. Sidekick is the only AI tool that can connect to these apps without manual integration by merchants. We want merchants to enjoy the benefits of AI rather than spend time figuring out how to reap these benefits. There are lots of tools and lots of noise on the market, but what really matters: Shopify's key advantage is that we don't have to choose sides because all of the tools are connected back to our platform, which is why our amazing growth is sustainable over the long term.

Now back to what merchants are most concerned about today. I recently had a forum with some of the biggest and most active merchants and Shopify leadership. Guess what? Merchants aren't talking much about personal intelligence, AI discovery, or commissioned purchases; they're talking about fundamentals: trust, growth, and simplicity. We never forget that.

Let's talk about trust first. I mentioned earlier that Shop Pay brings trust into the strange interface of smart shopping. This trust is based on 20 years of business experience, and it is also why we are seeing more and more excellent brands incorporating Shop Pay into their ecosystem, including Lululemon, one of my favorite brands. They just chose Shop Pay for online stores in North America. History has proven that once you enter the door, the upside is clearly visible. More broadly, the GMV driven by Shop Pay increased by more than 50% year over year in the third quarter. The number of buyers and the number of purchases per capita were growing, and Shop Pay Installments (Shop Pay Installments) also expanded from the US, Canada, and the UK to Australia.

Trust also comes from our work on fraud detection. It's not sexy, but it really matters to merchants. We used signals from millions of merchants to help merchants identify risk, and in Q3, we also added tools to automatically cancel high-risk orders and explain why before checkout to help merchants protect inventory and revenue. Of course, trust also comes from the consistent shopping experience that Shop is famous for: whether you're shopping on the merchant website, Shop app, or the newly launched Shop.com, your preferences, payment and delivery information, and even shopping cart and browsing history will be opened, making the shopping experience seamless and personalized. Speaking of Shop, its GMV more than doubled year-on-year in the third quarter. This is Shop's network effect: more Shop buyers, a more seamless shopping experience, and more merchant revenue.

The second thing merchants really care about is growth. Our merchants grow across channels, they grow, and so do we. Let's talk about offline business: We have crossed a critical milestone this quarter, with offline GMV exceeding a total of 200 billion US dollars. This past quarter alone, Canada Goose (Canada Goose), The Body Shop, BevMo! They all launched Shopify-powered retail stores; SKIMS opened its first international flagship store in London with us; MAC Cosmetics launched 84 stores just 120 days after signing the contract, which was amazing. In the third quarter, we made substantial progress on one of the oldest problems in physical retail: not knowing your customers. We're changing that. Now, when a customer swipes a credit card at a Shopify-powered store and chooses to receive an e-ticket, the system creates a customer profile. This allows the merchant to grasp the shopper and his purchase history, learn about them, know what they like, and even reach eligible customers to bring them back. The rewards are real: the lifetime value of known in-store customers is significantly higher than that of unknown customers. This transforms the POS from a sales channel to a growth engine, and is a very powerful advantage for merchants.

Let's talk about international growth again. Our goal is simple: make selling globally and across borders viable, simple, and local. The results were remarkable: international GMV increased 32% in the third quarter. We have launched mobile-first solutions, such as WhatsApp login and WhatsApp marketing messaging, which will bring huge unlocks worldwide; we launched a localized version of the Shop app in Japan, which topped the shopping category in the Japanese App Store one week after full launch. We are also introducing new payment options around the world that reflect local characteristics, such as launching OXXO local payment methods across Mexico. Shoppers can place orders online and pay in cash at OXXO convenience stores. There will be more such actions in 2027.

The last thing about growth is discovery. Shopping is spreading to more channels, more opportunities, and more complexity, which also means that Shopify can help merchants in more ways. Shopify Campaigns provides a risk-free way for merchants to reach customers across 10 channels (from SHOP to Instagram to ChatGPT). We only charge for transactions and are unbiased against any channel. Momentum is building up: Year-to-date orders through Shop Campaigns more than doubled year over year and accelerated in the third quarter.

Finally, the third thing merchants are concerned about is simplicity. Whether it depends on the merchant's current reality or future direction, one thing is clear: our simple, connected, and unified operating system is a moat. No single merchant can manage more and more sales interfaces on their own, nor should they. This works for merchants of all sizes, including large merchants. These companies want online stores to collaborate with physical stores, and they want the team to spend time improving the customer experience rather than maintaining technology. As AI creates new ways to shop, they want a platform that keeps them ready at any time. This is why we continue to see big merchants join and expand. Iconic luxury retail brands such as Balmain, Givenchy (Givenchy), Jacquemus, Chaumet (Chaumet), and Acne Studios all chose Shopify in the third quarter; another example is Alice + Olivia, which went from a single founder to a world-renowned fashion brand. They started with Shop Pay and saw that it became their most commonly used payment method, and just decided to migrate to Shopify as a whole; There's also Omaha Steaks (Omaha Steaks). I love this story. A 109-year-old company has always run on a custom system built by its CEO. They wanted a platform that could keep up with the pace of technology and allow them to focus on their business. Of course, they also came.

One last note: there's a very special energy within Shopify right now, and Toby has spoken publicly about it. We give our employees the tools and space to play around, test an idea, and turn it into something useful for the merchant. AI is changing what our teams can build and how quickly they can get ideas into the hands of users. Small teams can try more things, learn from what works, and build again. This makes taste and judgment more valuable. Toby wrote in a recent internal memo: “The early answer to how we can popularize commerce was actually simple: build great products for them.” It's what we do every day. Let's leave it to Jeff.

Jeff Hoffmeister, Chief Financial Officer

Thanks Harley. The third quarter was another quarter of strong execution and steady performance. Before I talk about performance, I'll take a step back and talk about our accessible market because we haven't talked about this in a while, and I think smart commerce will expand our market.

Global commerce continues to grow, but beyond that, there are two things to keep in mind about Shopify's role and future opportunities: first, we're driving a growing share of business; second, we're expanding the business itself by helping more merchants survive and prosper, helping them find new buyers, and lowering the threshold for starting a business.

Regarding the first point: In the past three years, the compound annual growth rate of online sales for our US merchants was 23%, while the overall growth rate of US e-commerce was only 8%. Europe is similar: our merchant's online GMV grew at a compound annual rate of 37%, the market was 8%, and our share doubled within three years. These trends are still accelerating: three years ago, Shopify merchants contributed nearly one-fifth of the incremental e-commerce sales in the US and nearly one-quarter in Europe; since the beginning of 2025, they have now taken over nearly half of the increase in e-commerce in the US and more than 40% in Europe. Give everyone an intuitive experience on the scale of a platform: in the third quarter alone, merchants sold more than $119 billion through Shopify, which is almost equivalent to the full year of 2020. That was the year the pandemic brought everything online. Shopify's GMV for a whole year is now a quarter, and it's not even holiday shopping season yet.

Regarding the second point: Using the market potential that exists today to measure our opportunities will miss a critical link. Our products don't just help merchants compete for existing businesses; we help create new businesses. AI is the catalyst for our market, making entrepreneurship easier to try, and raising the threshold for success. In this context, Shopify is a “less secret weapon” for merchants. We make complex simple, and let merchants focus on building strong businesses. We've been and will continue to change the economics of entrepreneurship: when your niche, passionate products are easier to find the right customers, you're more likely to start a business. Smaller niches are now not only accessible, but they're also not that small. With Shopify Catalog optimized for large language models (LLM), more long-tail merchants are succeeding. In the third quarter, three-quarters of AI referral sales once again came from outside the top 100 categories. Since 2018, the number of first-time sellers on Shopify has increased sevenfold; and we've helped new entrepreneurs reach milestones faster: 43% more stores completed their first order within the day of registration compared to three years ago.

We've seen this wave a long time ago. That's why we started building Catalogue three years ago, before the term “smart body” entered the commercial vocabulary; why we co-led the creation of Universal Commerce Protocol (Universal Commerce Protocol) because we know that smart businesses require a common language across the Internet; why we are promoting standards such as Personal Agent Protocol (Personal Agent Protocol) with other technology and retail partners; why we are embedding Shopify into Instinct, Personal intelligence such as Muse. We also recently released Shop.dev and Shop MCP, allowing developers to add Shopify's AI tools, login, and checkout to their apps or agents once connected. Our argument is simple: to trust Shopify, all you have to do is trust commerce.

Now let's take a closer look at the third quarter results. GMV for the third quarter was US$119 billion, up 30% at a fixed exchange rate. This is the sixth consecutive quarter that we have maintained this level of growth. The trend in all dimensions is highly consistent with recent quarters: growth was spread across a wide range of merchant sizes and regions, and new merchants contributed equally to same-store sales. In terms of merchant size, the group with an annual GMV of 2 million to 25 million dollars contributed the most incremental GMV; the group with an annual GMV of 25 million dollars or more grew the fastest, although the base was small. North America continued to grow strongly on a high base, and the GMV fixed exchange rate increased 28% for the third consecutive quarter. The European GMV fixed exchange rate increased 33%, thanks to our continued increase in local payment options in multiple markets. We are also continuing our presence in Asia and Latin America, and have introduced local currency settlement in 10 new countries over the past few months.

According to channels, outside of online: offline GMV increased 30% year over year; large, complex, and multi-store merchants were still the fastest growing group, and their total number of stores on Shopify increased 52% year over year. Importantly, we are becoming more and more successful in expanding POS merchants, and are no longer limited to merchants that started online: 55% of the new POS merchants added in the third quarter were new Shopify customers, and half of the merchants that have already started selling are only offline. B2B GMV grew 74%. The fastest growing vertical industries include home improvement and hardware, electronics, and commercial supplies in retail, laboratory and medical, catering, agriculture, etc. These categories have brought us to the most typical online categories.

Shift to revenue. Revenue for the third quarter increased by 32% (reporting caliber is consistent with fixed exchange rate caliber), fulfilling our expectations and accelerating from a high base of 31% fixed exchange rate growth in the same period last year. Merchant Solutions (Merchant Solutions) revenue increased 35%, mainly driven by stronger GMV and increased payment penetration. Foreign exchange (FX) revenue contributed significantly this quarter. The payment penetration rate was over 68%, up 3 percentage points year over year; Shop Pay GMV increased 50% year over year. Broader services such as advertising are also growing. Subscription Solutions (Subscription Solutions) revenue increased 20%, led by Standard (Standard) subscriptions. Plus subscriptions increased similarly to variable platform fees. MRR (monthly recurring revenue) increased 19% year over year in the third quarter. Plus MRR accounted for 34% of MRR, up 18% year over year. As a reminder, MRR relatively underestimates the impact of GMV's larger merchants.

In terms of profitability: gross profit increased by 28%, in line with guidelines; gross profit margin was 47.6%, the same as in the second quarter. The gross profit of merchant solutions increased 37%, and gross margin increased year-on-year for the third consecutive quarter, mainly due to cost savings obtained through negotiations with partners throughout the payment ecosystem, as well as contributions from foreign exchange business and advertising products. The subscription solution's gross profit increased 16%, and the gross profit margin was 79%; the year-on-year decline was mainly due to Sidekick's incremental AI expenses, partly offset by customer service efficiency; the month-on-month decline was mainly due to the increase in hosting costs due to our increase in capacity before Black Five Network 1 (BFCM), as well as increased store resilience and global search capabilities. Despite the year-over-year pressure on gross margin caused by Sidekick, we have offset this pressure with improvements in model selection, model distillation, and caching: from the second quarter to the third quarter, the number of merchant conversations increased by 14%, the cost of a single conversation decreased by 28%, and the total cost of Sidekick decreased by 18%.

In terms of operating expenses: Operating expenses in the third quarter accounted for 32% of revenue, down from 37% last year; the growth rate of gross profit in each quarter of the year exceeded the growth rate of operating expenses by about 12 percentage points. The year-on-year increase in R&D expenses reflects continued investment in AI, infrastructure, and employee costs; sales and marketing expenses increased 14% year over year. The growth rate was slightly slower because we did some tests in the US and suspended sales for about two weeks in some channels and regions to test the incremental effects of marketing campaigns. This gave us a greater sense of return on investment. Some of the reduced expenses will be postponed to the fourth quarter, but there is no change in marketing methods.

Free cash flow of $816 million, profit margin 22%. I would like to point out that about 150 basis points of the year-on-year improvement in free cash flow profit margins came from structural operating discipline and cost leverage that we continued to implement, and the rest of the improvements came from more temporary projects: marketing tests this quarter, the timing of certain tax receivables, and changes in the accounting caliber of merchant cash advances (merchant cash advance), which are roughly equal in size.

Fourth quarter outlook: Revenue is expected to increase by around 30% year-on-year, reflecting exchange rate headwinds of less than 1 percentage point, with a fixed exchange rate growth rate of 29% in the same period last year; estimated gross profit growth of nearly 30% but less than 30%; estimated operating expenses account for 29% to 30% of revenue, reflecting higher marketing expenses, including some previous BFCM initiatives; free cash flow profit margin is expected to remain the same as in the fourth quarter of last year. Free cash flow for the fourth quarter mainly continues the trend of the third quarter. However, due to the high tax burden of some jurisdictions in the fourth quarter, the accounting changes for merchant cash advances are not expected to be substantial in the fourth quarter impact.

A few final thoughts: Our opportunities are still huge. We're serving more merchants and building more of what they need to grow. Shopify, which reached its first trillion dollars in cumulative GMV in 18 years, is expected to surpass the second trillion by the end of this year, in less than two and a half years. Let's return it to Shane and move on to the questioning session.

II. Q&A session

Jefferies Analyst Samad Samana: Payment Economics and Conversion Signals of Partnering with Meta and Muse

Q: Good morning, thanks for taking the questions and congratulations on another strong quarter. Harley wants to know more about the partnership with Meta and Muse, which is the focus of investors' attention. How do Shop and Meta collaborate on development? How does using Shop Pay, Meta Pay, or other options impact payment economics? Are there any early signs of conversion that merchants are seeing from this channel?

A (Harley Finkelstein): Thank you for asking. Regarding personal intelligence, as I mentioned in my statement, there have been many in the past quarter, Muse, Instinct, Claude Duet, etc. What we're most excited about is that it feels like a brand new channel for merchants, a place where they can actually find new customers. Shop Pay's integration as a wallet means the smart device knows your size, style, and shopping history, and all orders can also be tracked in the Shop app. I'd say it's still early, the kinetic energy is really strong, and the traffic quality is very, very high, and we think this is very important. Smart bodies are just the new front door here; we are everything behind the front door. Every new interface requires an underlying business infrastructure, and that's what we're doing. As far as smart devices as a whole are concerned, you'll see a new agent appear every week or two. I hope you notice that Shopify is the business infrastructure behind all of these agents, and we work with them all. The volume is still small, but traffic increased 2.6 times year over year and orders increased 3.3 times in the last quarter. Shopify Catalog is providing discovery capabilities for almost every major AI channel. Another cool thing: Catalog's conversion rate is twice that of regular AI searches (so-called “scraping”). Finally, we see that these AI channels really reward “specificity”, which is very important for the long end of the business (that is, the main body of our merchants). 74% of AI attributed purchases in the third quarter came from outside the top 100 categories. The third quarter saw personal intelligence go mainstream, and all mainstream agents are cooperating with Shopify.

Citizens Analyst Andrew Boone: Smart Commerce and Shopify's Moat

Q: Harley, I want to move on to the topic of smart bodies. When you talk about the potential of smart entities moving towards “headless commerce” (headless commerce), how will this change Shopify's moat? What about Shop Pay and infrastructure? How are you prioritizing on the road map?

A (Harley Finkelstein): Let me be clear. With the entry of personal smart devices and the beginning of commissioned purchases, smart devices not only recommended products, but also began purchasing on behalf of users. This is indeed the newest front door to commerce. It is a very new act. Of course, it is still small but growing. In the new world of personal intelligence, Shop isn't just a wallet; it's your complete buyer profile. When you connect Shop to Muse, Instinct, Claude, or Grok Bot, the smart device gets three things: first, your entire shopping history at any Shopify merchant to provide highly personalized recommendations; second, you can get saved payment information through Shop Pay, and the smart device can't get this information; and third, the connection to the Shop app means you can track everything you buy later. We already have 400 million shoppers who trust Shop and Shop Pay, and that trust now follows them into every smart device. So we think that in the world of smart shopping, these tools, particularly Shop toolkits, Shop Pay, Shop apps, and even UCP (Universal Business Agreement, which makes your checkout experience completely consistent with your website) will become even more important. Taking it one step further, we believe that smart devices are ultimately a huge new opportunity for merchants, a new interface that didn't exist before. Since the beginning of 2025, although we only account for 14% of e-commerce in the US, we have taken almost half of the increase in e-commerce in the US. Our strategy is to ensure that no matter where consumers buy, online, offline, smart, or social, Shopify helps merchants connect. The more opportunities, the higher the complexity, and this is where Shopify's value rises.

MoffettNathan Analyst Mike Morton: Sidekick Costs and 80% Gross Margin Trend Line

Q: Good morning. Follow up on the Sidekick cost question. You mentioned getting leverage on token fees, which is frequently asked by investors. You've talked about the 80% gross margin trend line for subscription solutions in the past, but now it's been below that level for two consecutive quarters and is still declining. Looking forward to the future, you need to use SideKick not only to serve merchants but also to reduce token fees. Has your position on the 80% gross margin trend line changed?

A (Jeff Hoffmeister): No changes. Mike, my opinion is: First, with regard to the subscription solution, I talked about Sidekick's cost situation, and I also talked about some hosting factors. I feel very good about our approach to subscription solutions; second, what we're doing is very interesting, that is, the cost of each additional inquiry changes compared to usage. We're really trying to drive Sidekick usage because we're seeing significant benefits. From a purely accounting perspective, the cost falls on subscription solutions, but the impact is reflected on both sides of the business, where both merchant solutions and subscription solutions benefit. Also, looking at the gross margin meaning of the fourth quarter guide, whether month-on-month or year-on-year, we feel very good about the approach to the core elements of the business. Part of the pressure in the fourth quarter came from infrastructure investment. In this super important holiday shopping season, we need to ensure ultimate system resilience.

Evercore ISI analyst Mark Mahaney: Why did free cash flow profit margins not increase month-on-month in the fourth quarter

Q: (The line resumed after being interrupted for a while) Another question about the profit margin of free cash flow for the fourth quarter. Your free cash flow profit margin usually increased month-on-month in the fourth quarter. I know there were some small one-off projects in the third quarter. Can you further clarify why the fourth quarter didn't increase month-on-month as usual?

A (Jeff Hoffmeister): There are a few reasons, Mark. First, as I mentioned earlier, some marketing expenses were actually postponed from the third quarter to the fourth quarter due to testing. More importantly, the returns we've seen on the performance marketing side (performance marketing) side are very, very good. As we enter the holiday shopping season, we've already seen some opportunities to invest in marketing funds in a productive way, and I think this is exactly what you want us to do. Even with marketing-side opportunities and infrastructure-side investments, we can still achieve these profit margins. There is a slight time difference between the two quarters, but looking at the final destination for the whole year, from the perspective of overall expenses and profits, there are no fundamental changes. I feel very good about the current state of the company.

Wells Fargo analyst Ken Garelski: The smart device landscape diverges from the growth rate of subscription solutions

Q: Thank you, two quick questions. First, at the industry level, the dispute between horizontal general-purpose intelligence and vertical intelligence is very lively. Although Shop is generally neutral, you have a unique perspective and want to hear Harley's views. Second, subscription solution revenue is slowing down and GMV is still strong. Can you talk about this divergence and the outlook for this business line from the fourth quarter to next year?

A (Harley Finkelstein): I'll answer the first question. You answered half of the answer yourself: our duty is channel neutrality. Everyone is excited to talk about smart devices, but at the same time, our merchants are still selling online and offline. Our job isn't to predict which channel will become the next big channel, but to ensure that merchants are everywhere. Obviously, when big companies launch big new smart devices, we need to make sure we're at the forefront, such as Muse, Instinct, and Claude Duet. In addition to this, we are also building WebMCP to support smart checkout. Any smart device can complete the checkout at any store; we have also built shop.dev and shop.md. A single file can turn any interface into a commercial experience, and a single reminder on the shopper side can turn the smart device into your personal shopping assistant. So no matter what comes up, as long as there is a commercial component, Shopify either directly integrates on the first day or provides tools for any 3rd party developer (whether vertical or horizontal agent) to easily access. The idea is: so good that it can't be ignored.

A (Jeff Hoffmeister): Let me add to the question about subscription solutions and GMV. Most GMV is reflected in payment revenue, which falls on the merchant solution side. We don't just manage a piece of business from an accounting perspective. The subscription solution mainly reflects newly added merchants and variable platform fees. Payment, taxation, logistics, finance, etc. are all part of the merchant solution. This can also be seen in MRR growth: MRR increased 19% year over year. Regarding large merchants, merchants with large GMV will contribute more value on the payment side. Let's look at the two pieces of business together. Revenue increased 32% in the third quarter. If the fourth quarter guidelines are implemented, it will be the seventh consecutive quarter where the revenue growth rate is above 30%. We feel very good about the current situation.

Piper Sandler analyst Jim Callahan: Conclusions from marketing tests

Q: Thank you. Regarding marketing tests, I understand that some of the costs will be reversed in the fourth quarter, but I would like to ask what the test concluded, and did it have an impact on the current quarter's revenue?

A (Jeff Hoffmeister): There was no impact on revenue. The tests were conducted in some channels and in some regions. What we've been doing is making ourselves smarter, making our analysis more accurate, and the test results make us more confident in the rewards we see. The marketing philosophy hasn't changed, and the reliance on performance marketing hasn't changed; we just want to always be smarter and better. The returns have always been very convincing, so make sure every minute of incremental marketing spend is used wisely every once in a while.

A (Harley Finkelstein): One more point. One of the most remarkable things about this business model is the breadth of growth leverage. It is not a bet on a single growth curve, but a combination of core commerce, payment, internationalization, intelligence, and enterprise level. Some are stronger and some are weaker in any quarter, but the resilience of the story lies in the compounding strength of the whole combination. International GMV grew 32%, B2B grew 74%, offline GMV grew 30% and broke through the $200 billion cumulative mark, and enterprise level. What we're thinking about is this combined layout: making sure we're at the forefront no matter what the future holds, while keeping in mind that Shopify is a growth company after all, we focus on driving merchant growth, which in turn drives our growth. We never put eggs in one basket because we have combined opportunities, which shows the resilience of the business model.

Wolfe Research Analyst Schweta Kajulia: Monetization of Smart Commerce and Shop Pay's Default Choice

Q: Thank you for taking the question. Want to follow up on the economics of smart commerce: How would it work in your opinion? Will merchants pay a certain take rate (take rate)? Or will you share the financial benefits with the smart body? How will it evolve in the near term and medium to long term? How do smart devices choose Shop Pay? If I set up Shop Pay and other payment methods at the same time as a consumer, how does the agent select Shop Pay by default?

A (Harley Finkelstein): I'll answer the second part; ask Jeff to talk about the monetization part. The best part about Shop Pay is that our 400 million consumers continue to use it on all of our favorite brands. We want to make sure that when consumers use any smart device and Shop Pay is available, they choose Shop Pay. It all boils down to making sure consumers have a great experience. The reason we started talking about Shop as a product suite (Shop Pay, preferences, order tracking) is because we believe that when faced with multiple options, consumers will choose the one that has the best experience, the safest, the fastest, and knows their purchasing history. This is a competition based on strength, and we believe we can win more consumers with strength.

A (Jeff Hoffmeister): As far as Harley just said, what we need to ensure is that more and more merchants use Shopify as the core platform. For example, if you search on Muse and get directed to a merchant using Shopify, then the financial benefits for us are exactly the same: it's essentially another form of discovery channel, which sends you to the merchant's website, and then everything flows back to Shopify like any other discovery channel. Based on this, what we need to do is make Shop Pay more and more widely spread as a wallet and continue to expand the economic benefits in this area.

Royal Bank of Canada Capital Markets Analyst Paul Triber: Shop.com Takeover Logic

Q: Good morning. Shopify bought Shop.com for about $100 million this quarter, which is quite a bit of money. What do you think about shop.com coexisting with merchant websites and other channels? Why now, especially in the context of the rise of AI smart devices? Why is it important to have a centralized portal?

A (Harley Finkelstein): In the physical retail world, location, location, location. We think like the internet, shop.com is our perfect “golden address”. You can look at it this way: it's a declaration that shows that we're ready for Shop to take a more ambitious stance. We want to deliberately invest in Shop's credibility and discoverability as a consumer shopping destination, not just an order tracking tool. We think this is a very convenient and very easy entry point for shoppers to discover great brands and products. The switch does not require any action from the merchant, and Shop's shopper traffic growth rate on the web side has surpassed that of the app. We just moved from shop.app to shop.com. We think this is one of the most important addresses on the internet, and you can see our ambition for Shop from it.

Beya Analyst Colin Sebastian: POS Merchant Acquisition and Smart Monetization

Q: Thank you. Harley, what helps Shopify win more and more POS merchants that didn't start with your online business? Has this changed the way you get customers? Follow up with a question about the variable economy of smart devices: as Sidekick takes on more merchant workflows and product catalogs become critical to smart devices, are you considering turning this value into higher monetization, or is the focus more on expanding Shopify's share of overall retail?

A (Harley Finkelstein): When it comes to POS and retail, it's really been an incredible quarter for offline business. I mentioned that the cumulative POS GMV in the third quarter exceeded 300 billion US dollars, and GMV increased by 30%. Canada Goose has launched dozens of stores, BevMo! More than 150 stores were launched, and The Body Shop and MAC Cosmetics added 83 new stores in less than 90 days. What we see is that offline is not an independent business; it is the same platform, the same catalog, and the same group of buyer relationships, which only extends to the physical world. More and more businesses with established physical businesses are coming to Shopify because of this unified commercial capability. At the same time, POS can now automatically identify customers through the Shopify payment network when checking out in physical stores. This has never happened before, bringing digital customer portraits to physical retail. Overall, whether it's expanding the customer recognition capabilities of POS or expanding stores, we are becoming one of the default choices for modern retail, not only online but also offline. Enterprise-level business momentum is also very good. Lululemon, Burton, Balmain, and Canada Goose all went online in the third quarter. Enterprise merchant migrations take longer, but we've figured out how to complete the migration as soon as possible under the constraints of their system integration.

(Management did not answer Sebastian's second part of the question “Whether the value of Sidekick and Catalog translates into higher monetization”.)

J.P. Morgan Analyst Brian Smilek: Sidekick 2027 Roadmap and BFCM Infrastructure Investment

Q: Thank you for taking the question. Regarding Sidekick, I'm very happy to see that it continues to improve performance. Can you talk about the 2027 product roadmap, including analysis, code generation, and the broader Canvas? Jeff, a recent question: Where will the incremental infrastructure spending before Black Five Network One (BFCM) be invested? Is it more of Sidekick or is it overall platform capacity?

A (Harley Finkelstein): Sidekick's performance was amazing. For new merchants, it helped to reach their first order faster: in the third quarter, the percentage of merchants using guidance that completed five orders within 60 days increased by 3%, which is a very, very large base. It's also getting better at complex tasks. On average, merchants use 8 apps to run their daily business, all of which can now be integrated into Sidekick. In addition to that, you can also see amazing examples of advanced users doing advanced design, SEO, and product creation. Last quarter, two-thirds of Shopify's Flow was created by Sidekick. The rules are very clear: more merchants use it, each merchant finds more uses, and the value will compound over time. It's driven by 20 years of commercial experience and understands the full context of your store.

A (Jeff Hoffmeister): Brian, about where to invest: part is sidekick; we're also doing some interesting things in terms of search capabilities. The merchant search function has been improving for a while, and we are continuing to enhance it; and store resilience. Entering the peak holiday shopping season, we need to ensure that everything is ready so that merchants can sell as much as possible.

Harley Finkelstein

Before I finish, I'll leave you a few words. First, today's performance reflects the decisions we made about three years ago; the work, new projects, and products we are doing now will be evident in the next three, six, or even nine years. Retail is clearly undergoing a complete transformation, new channels are constantly emerging, and old channels are growing again. It may be hard to keep up with the pace from the outside, but after going through it all, I want one thing to be clear: Shopify is unquestionably at the center of it all. We believe this is one of the most exciting times for retail and commerce in a long time. It's no accident that when you see a new company, new technology, or even a new model being launched, Shopify is integrated whenever commerce is involved.

We are working very, very hard to be a de facto (de facto) partner for internet commerce. If you're a shareholder, this is exactly what you should expect from us: not only a company that bets on commerce, but also a company that helps structure the future and execute this vision, a company that continues to surprise you. As I said in my press release this morning, Shopify is extremely good at living in two realities at the same time: the world merchants live in today, and the world they are moving towards. Businesses of all shapes and sizes are coming to Shopify, whether they're new entrepreneurs who have just completed their first order or the world's biggest brands. There are no floors or ceilings here. Many of you have been betting on Shopify for almost 12 years since the IPO, and I'm sure we've earned the status of a highly credible public company during this time: do what we say, do it reliably, do it consistently, and we will definitely continue to do it.