Shopify just delivered a holiday quarter that beat on nearly every metric that matters — and the stock dropped 13%. Welcome to 2026, where "good" isn't good enough.
Let's break down what actually happened.
The Headline Numbers
- US Ecommerce Market Share: Now exceeds 14% (based on 2025 GMV, excluding POS)
- Full-Year GMV: $378B (+29% YoY)
- Full-Year Revenue: $11.6B (+30% YoY)
- Full-Year FCF: $2.0B (17% margin)
Q4 Results
| Metric | Actual | Estimate | Beat/Miss |
|---|---|---|---|
| Revenue | $3.67B | $3.59B | ✅ +2.2% |
| EPS | $0.48 | $0.51 | ❌ -5.9% |
| GMV | $123.8B | $121.3B | ✅ +2.1% |
| FCF | $715M | — | 19% margin |
| Rev Growth YoY | +31% | +28% | ✅ |
Revenue grew 31% year-over-year to $3.67 billion. Gross merchandise volume — the total value of goods sold through Shopify stores — hit a record $123.8 billion, up 29% YoY and crushing the $121.3B estimate.
Free cash flow came in at $715 million for the quarter, representing a 19% FCF margin. For the full year, FCF hit $2 billion — the 10th consecutive quarter of double-digit FCF margins.
So Why Is the Stock Down 13%?
Three factors converged:
EPS missed. $0.48 vs $0.51 consensus. A 3-cent miss shouldn't tank a stock, but it gave bears an excuse.
Q1 FCF margin guidance. Management guided to "low-to-mid teens" FCF margin for Q1 — down from 19% — due to heavier AI investments. Markets hate margin compression, even when it's investment-driven.
AI disruption fears. Some investors worry AI could "kill" Shopify by enabling:
- Faster/cheaper custom ecommerce builds
- Open-source alternatives
- AI agents bypassing platforms entirely
These fears have hammered software stocks broadly. Today's selloff saw the EPS miss "overshadow the AI opportunity."
But is the AI threat real? Evidence is limited and speculative. Shopify isn't ignoring AI — they're embracing it:
The Bull Case: Q1 Guidance
Here's what the market is overlooking: Shopify guided Q1 2026 revenue to grow at a "low-thirties percentage rate" year-over-year.
Analysts were expecting 25.1% growth.
Read that again. They guided 30%+ when the Street expected 25%. That's not sandbagging — that's acceleration.
The $2 Billion Buyback
Shopify's board authorized $2 billion in share repurchases. At current prices (~$115), that's roughly 1.3% of the float. Not massive, but it signals management thinks the stock is undervalued.
AI Positioning
Shopify isn't running from AI — they're investing heavily:
- Sidekick — AI assistant for merchants
- Catalog AI — Product management automation
- Instant Checkout — OpenAI partnership for ChatGPT commerce
- Universal Commerce Protocol — Google partnership for AI shopping bots
President Harley Finkelstein on CNBC:
"I think there's an incredible opportunity coming with AI, but I think you have to look at the companies that are acting as infrastructure, as platforms, vs. ones that are just features. Shopify is internet infrastructure."
Leadership views 2026 as the "year of the builders" in AI commerce. The lower Q1 FCF margin? That's the AI investment hitting the P&L. Whether that's smart capital allocation or margin destruction depends on your time horizon.
Holiday Season Tailwinds
The Q4 beat was boosted by a record holiday shopping season. Adobe Analytics reported online spending from Nov 1 – Dec 31 increased 6.8% to $257.8 billion, beating their $253.4 billion forecast.
Shoppers remained resilient despite:
- Weakening consumer confidence
- Trump tariff uncertainty
- Slowing job market
Full Year 2025 Recap
| Metric | 2025 | 2024 | Growth |
|---|---|---|---|
| Revenue | $11.6B | $8.8B | +32% |
| FCF | $2.0B | $1.6B | +26% |
| FCF Margin | 17% | 18% | -1pp |
Over the past five years, Shopify has compounded revenue at 31.6% annually — outpacing the average software company by a wide margin.
The Rule of 40 Check
Revenue growth (31%) + FCF margin (19%) = 50
That's comfortably above the Rule of 40 threshold. Shopify is growing fast and generating cash — the rare combination that usually commands premium multiples.
Our Take
The market is punishing a 3-cent EPS miss on a company that:
- Beat revenue by 2%
- Beat GMV by 2%
- Guided Q1 growth 5+ points above consensus
- Commands 14% US ecommerce market share
- Generates $2B annual FCF
- Just announced a $2B buyback
- Is actively investing in AI (not ignoring it)
Software fears are real, but Shopify isn't a feature — it's infrastructure. The 13% drop looks like an overreaction.
Shopify (NYSE: SHOP) reports Q4 2025 earnings of $0.48 EPS on $3.67B revenue. The stock is down 13% intraday.
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