Bernstein: Shopify’s third-quarter growth was solid but fell short of the buy-side bar, while margins face structural pressure

Why did third-quarter growth still fall short of the buy-side bar?

Third-quarter 2026 gross merchandise volume (GMV) rose 29% year over year to approximately $119.1 billion. Growth slowed from 32% in the second quarter and was also approximately 1% below market consensus and below the higher buy-side bar. Revenue rose 32% year over year to $3.742 billion, broadly in line with consensus.
North American GMV grew 28% year over year for a third consecutive quarter, while international GMV growth slowed from 37% in the second quarter to 32%. Offline and business-to-business transactions continued to expand: offline GMV rose 30% year over year, and B2B GMV rose 74%.
The company expects fourth-quarter revenue growth in the low thirties year over year and gross profit growth in the high twenties; market consensus is 30% and 28%, respectively.

Merchant solutions revenue grew 35% year over year to $2.906 billion, accounting for 78% of total revenue, up from 75% a year earlier. Shopify Payments revenue increased by $619 million year over year, making it the largest contributor to growth in the business.
Payment volume grew 35% year over year to $81.4 billion, rising to approximately 68% of GMV from 65% a year earlier. Higher payments penetration and growth in other merchant services enabled revenue to grow faster than GMV.
Subscription solutions revenue grew 20% year over year to $836 million, slowing from 22% in the second quarter and falling 2% below market consensus. Bernstein believes the weakness came mainly from non-recurring revenue and speculates that AI tools such as Sidekick may have slowed merchants’ adoption of apps.

Third-quarter gross profit rose 28% year over year to approximately $1.78 billion, growing more slowly than revenue. Overall gross margin was 47.6%, down from 48.9% a year earlier, mainly because lower-margin merchant solutions accounted for a larger share of revenue.
The gross margin of merchant solutions itself improved year over year for a third consecutive quarter, which management attributed mainly to cost savings from negotiations across the payments ecosystem. Subscription gross margin was weighed down by incremental AI investment in Sidekick.
A lower expense ratio produced operating leverage: operating expenses excluding one-off items were 32% of revenue, down from 37% a year earlier; GAAP operating margin rose from 12.1% to 15.2%.
For the fourth quarter, the company expects operating expenses to be 29%–30% of revenue, above market consensus of 28%, partly because marketing spending shifted from the third quarter into the fourth. It expects a free cash flow margin of approximately 19%, below consensus of 21%; the company said the main difference from the third quarter reflects the timing of cash tax payments.

In the third quarter, traffic directed by AI to merchant stores rose to 2.6 times its year-earlier level, and orders from AI search rose to 3.3 times their year-earlier level, although the base remains small. Management said AI-referred traffic converts at a rate 64% higher than organic search, and the rate of orders from new buyers on AI channels is twice that of other online channels.
Shopify believes that even when consumers discover products through AI entry points, transactions still require infrastructure such as product catalogs, checkout and payments. The company hopes to capture these transactions through Shop Pay, its payments business and its merchant catalog. Large merchants’ migration from their own systems remains a lengthy process, and management said the pace of deal progression has changed little.
AI costs are also declining: from the second to the third quarter, Sidekick merchant conversations increased 14%, cost per conversation fell 28%, and total cost fell 18%, thanks to improvements in model selection, distillation and caching.
Bernstein maintained its outperform rating and raised its price target from $160 to $165. Its assessment depends on steady operating performance and Shopify continuing to gain share in AI shopping channels.