Shopify Q1 Earnings Lag Estimates, Revenues Jump Y/Y, Shares Fall

Shopify SHOP reported first-quarter 2025 non-GAAP earnings of 25 cents per share, which missed the Zacks Consensus Estimate by 3.85%. The figure jumped 25% year over year.

Revenues of $2.36 billion surpassed the Zacks Consensus Estimate by 1.32%. The top line soared 26.8% year over year.

Following first-quarter 2025 results, SHOP shares were down 2% at the time of writing this article. Shopify shares have declined 11.6% year to date, outperforming the Zacks Computer and Technology sector’s fall of 9.1%.

SHOP’s Top Line Rides on Growing Merchant Base

Gross Merchandise Volume (GMV) in the first quarter was $74.75 billion, which increased 22.8% year over year. Same-store sales growth from existing merchants, a higher number of merchants on SHOP’s platform, and strong growth in Europe drove GMV in the reported quarter. Offline GMV increased 23% year over year while B2B GMV jumped 109%. International GMV grew 31% year over year, with Europe’s GMV increasing 36% year over year.

Shopify is benefiting from strong growth in its merchant base. Merchant solutions revenues in the first quarter were $1.74 billion and accounted for 73.7% of Shopify’s total revenues. On a year-over-year basis, merchant revenues increased 29%, driven by strong GMV and increased penetration of Shopify payments. 

Shopify Payments’ GMV penetration hit 64% in the first quarter of 2025. Shop Pay GMV increased 57% year over year, and it processed more than $22 billion in GMV. Shop App native GMV jumped 94% year over year and 84% sequentially.

Subscription solutions revenues in the first quarter were $620 million and accounted for 26.3% of Shopify’s total revenues. On a year-over-year basis, subscription solutions revenues increased 21.3%.

Monthly Recurring Revenue (MRR) in the first quarter was $182 million, which increased 20.5% on a year-over-year basis. Plus category accounted for 34% of MRR in the reported quarter, unchanged sequentially.

SHOP’s Operating Expenses Rise Y/Y

In the first quarter of 2025, gross profit was $1.17 billion, up 22.2% year over year. Subscription Solutions’ gross profit grew 19% year over year, while Merchant Solutions’ gross profit grew 24%.

Total operating expenses were $966 million, up 10.9% year over year. As a percentage of revenues, total operating expenses declined 590 basis points (bps) to 40.9%.

Sales & Marketing (S&M) expenses increased 12.2% year over year to $405 million. As a percentage of revenues, S&M expenses decreased 220 bps year over year to 17.2%

Research & Development (R&D) expenses increased 12.5% year over year to $377 million. As a percentage of revenues, R&D expenses decreased 200 bps year over year to 16%.

General & Administrative (G&A) expenses decreased 12.1% year over year to $109 million. As a percentage of revenues, G&A expenses decreased 200 bps to 4.6%.

Consequently, SHOP reported an adjusted operating income of $329 million, up 63.7% year over year.

SHOP’s Balance Sheet Details

As of March 31, 2025, cash and cash equivalents (including marketable securities) totaled $5.51 billion, which decreased from $5.48 billion as of Dec. 31, 2024.

Free cash flow increased 56.5% year over year to $363 million. The free cash flow margin expanded 100 bps to 15% in the reported quarter.

SHOP’s Q2 Guidance Positive

For the second quarter of 2025, Shopify expects revenues to grow at a mid-twenties percentage rate on a year-over-year basis. 

Gross profit is anticipated to grow at a high-twenties percentage rate on a year-over-year basis. 

Shopify expects GAAP operating expense as a percentage of revenues to be in the 39-40% range. 

Free cash flow margin is expected to be in the mid-teens.

The Zacks Consensus Estimate for second-quarter 2025 revenues is pegged at $2.49 billion, suggesting 21.92% growth from the figure reported in the year-ago quarter. The consensus mark for second-quarter 2025 earnings is pegged at 32 cents per share, indicating 23.08% growth from the figure reported in the year-ago quarter. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

Zacks Rank & Stocks to Consider

Shopify carries a Zacks Rank #4 (Sell). 

Chegg CHGG, Broadcom AVGO, and TaskUs TASK are some better-ranked stocks in the broader Zacks Computer & Technology sector. Each of the three stocks carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Chegg is set to report first-quarter 2025 results on May 12. Broadcom is set to report its second-quarter fiscal 2025 results on June 5. Marvell Technology is set to report its first-quarter fiscal 2026 results on May 29.

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

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