This article first appeared on GuruFocus.
Shopify (NASDAQ:SHOP), the e-commerce platform powering millions of online businesses, crushed expectations in the second quarter and sent its shares soaring about 26% in premarket trading. Revenue surged 34% year over year to $3.58 billion, and management followed that up with another confidence boost by forecasting low-30% revenue growth for the third quarter. That’s even faster than the high-20% growth outlook it gave last quarter. Investors weren’t just celebrating a strong earnings beatthey were pricing in a business that’s still hitting the accelerator.
The growth wasn’t limited to the top line. Gross merchandise volume jumped 32% to $115.57 billion, meaning merchants processed nearly $28 billion more sales through Shopify than a year ago. Merchant Solutions remained the growth engine, with revenue climbing 37% to $2.78 billion, comfortably ahead of the 22% increase in Subscription Solutions revenue to $802 million. Meanwhile, operating income rocketed 68% to $488 million and free cash flow surged 55% to $654 million. Shopify also spent $1.42 billion buying back its own shares during the quarter, a clear sign that the business is generating more than enough cash to fund growth while rewarding shareholders.
The GF Value chart adds another interesting angle. Even after the explosive post-earnings rally, Shopify still traded at $143.74 versus a GF Value estimate of $146.48, putting the stock about 1.9% below its estimated fair value. In other words, the market has rewarded the execution, but it hasn’t pushed the valuation into obvious bubble territory. That’s backed by fundamentals too: revenue is growing faster than merchant sales, free cash flow margins continue expanding, buybacks are ramping up and management is guiding for another quarter of 30%-plus growth. If Shopify can keep turning AI tools into higher merchant spending while maintaining this level of profitability, investors may argue this rally still has room to run.
