Should You Buy, Sell or Hold Shopify Stock Post Q4 Earnings?

Shopify SHOP reported a mixed fourth-quarter performance, delivering strong revenue growth but missing earnings expectations. The company posted earnings of 46 cents per share, missing the Zacks Consensus Estimate by 8.69%, though improving marginally from a profit of 44 cents per share reported a year ago. 

Revenues rose 31% year over year to $3.67 billion for the fourth quarter, surpassing the Zacks Consensus Estimate by 2.55%, reflecting continued strength in merchant solutions and payments penetration.

However, SHOP shares have declined 21% over the past six months, underperforming the Zacks Computer and Technology sector’s 10.4% return and the Zacks Internet - Services industry’s 50.1% surge. In comparison, peers like Amazon AMZN fell 9.2%, while Wix.com WIX and Commerce.com CMRC dropped 40.3% and 41.5%, respectively. The relative weakness in SHOP appears largely tied to margin mix concerns, as faster growth in lower-margin Merchant Solutions, particularly payments, has tempered gross margin expansion despite operational improvements.

SHOP Stock’s Performance

SHOP Shares Are Overvalued

Shopify shares are overvalued, as suggested by a Value Score of F. The stock trades at 10.8X forward 12-month price-to-sales, above the broader sector’s 6.54X and the sub-industry’s 7.21X. The valuation gap is even more pronounced when compared with peers Amazon, Wix.com and Commerce.com. Shares of Amazon, Wix.com and Commerce.com are trading at P/S multiples of 2.69, 1.75 and 0.62, respectively. The premium looks difficult to justify amid intensifying competition in commerce infrastructure and the higher execution bar needed to sustain platform leadership.

Price/Sales Ratio (F12M)

Robust Cash Generation With Improving Operational Efficiency

SHOP demonstrated disciplined operational execution in the fourth quarter of 2025, generating $715 million in free cash flow and achieving a 19% free cash flow margin. Operating income reached $631 million for the quarter, while operating expenses as a % of revenue came in at 29%, improving 300 bps year over year. The operating leverage came despite continued investments in platform expansion and AI capabilities, highlighting the scalability of the business model as revenues expand.

Gross profit rose 25% year over year to $1.69 billion. Although gross margin faced pressure from a higher contribution of lower-margin Merchant Solutions revenues, which grew 35% compared with 17% growth in Subscription Solutions, overall profitability continued to strengthen. The company ended the quarter with $5.78 billion in cash, cash equivalents and marketable securities and no debt, reinforcing financial flexibility. Strong cash generation combined with a debt-free balance sheet enhances SHOP’s ability to navigate macro uncertainty while sustaining long-term growth investments.

The Zacks Consensus Estimate for SHOP’s 2026 EPS is pegged at $1.78, up by a penny over the past 30 days. The figure indicates a year-over-year improvement of 52.14%.

Shopify Inc. Price and Consensus

Shopify Inc. price-consensus-chart | Shopify Inc. Quote

SHOP’s Strategic AI Push and Expanding Global Presence

SHOP’s investments in AI-driven commerce infrastructure position the company to participate in emerging transaction surfaces beyond traditional web storefronts. The co-development of the Universal Commerce Protocol with Google and the rollout of Agentic Storefronts allow merchants to syndicate products across platforms such as ChatGPT, Google Gemini and Microsoft Copilot. This approach helps ensure that transactions continue to run through Shopify’s checkout and payments rails rather than being redirected to large marketplace ecosystems, including those led by Amazon. While commerce originating from AI search remains early-stage, establishing the underlying transaction infrastructure at this stage strengthens SHOP’s relevance as shopping behavior evolves.

International momentum further strengthens the growth profile. European merchants recorded 45% reported GMV growth in the fourth quarter, supported by expanded payment coverage and localised capabilities. The addition of enterprise brands such as General Motors, L’Oreal and Sonos signals rising penetration beyond small merchants into larger, more complex commerce operations. With merchants spanning over 175 countries, SHOP has built a geographically diversified platform that broadens its revenue base and enhances resilience. Continued cross-border adoption provides incremental growth drivers without relying solely on North American demand.

Conclusion

SHOP demonstrates solid operational execution, with robust cash generation and improving operating leverage despite continued investments in AI infrastructure. The company's strategic positioning in agentic commerce through the Universal Commerce Protocol and strong international momentum establishes a foundation for long-term growth. However, the stock trades at a significant premium to the sector and peers. 

SHOP currently has a Zacks Rank #3 (Hold), suggesting that investors should wait for a more favorable entry point to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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