Shopify scores a big profit beat, and its stock is surging after earnings

By Emily Bary

Company expects free cash flow margin to improve further in fourth quarter

Shopify Inc. shares were surging about 8% in Thursday's premarket action after the company easily topped profit expectations for its third quarter.

The company notched net income of $718 million, or 55 cents a share, whereas it recorded a net loss of $188 million, or 12 cents a share, in the year-earlier period. On an adjusted basis, Shopify (SHOP) earned 24 cents cents a share, while analysts were modeling 15 cents a share.

Revenue rose to $1.71 billion from $1.37 billion and edged the FactSet consensus, which was for $1.67 billion. The company saw 29% growth in its subscriptions-solutions revenue, which reached $486 million, along with 24% growth in the merchant-solutions category, which raked in $1.23 billion in revenue.

"Our results showcased the durability of our business model as we delivered a compelling combination of both top line growth and profitability," Chief Financial Officer Jeff Hoffmeister said in a release.

Gross merchandise volume increased 22% to $56.2 billion, while analysts had been expecting $54.3 billion. The company generated $32.8 billion in gross-payments volume.

See also: PayPal's new CEO is speaking Wall Street's language, and the stock is rocketing

For the fourth quarter, Shopify expects a "high-teens" rate of revenue growth. The FactSet consensus called for $2.08 billion in revenue, up about 20% from a year prior.

Management also expects to see free cash flow come in at a "high-teens" percentage of revenue. "Free cash flow margin and free cash flow dollars have both improved every quarter this year, and Q4 will continue to deliver on this upward trend -- a clear manifestation of the steps that we have taken this year to drive towards greater profitability, as we build for the long term," the company said in its release.

-Emily Bary

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11-02-23 0716ET

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