As Shopify Shares Soar, Is It Too Late to Buy the Stock?

Yahoo

2 days ago

Key Points
Shopify easily crushed its prior conservative guidance when it reported Q2 results.
The company gave an upbeat outlook, saying it has seen no effect from tariffs.
However, the stock's valuation has crept up.
10 stocks we like better than Shopify ›
Shares of Shopify (NASDAQ: SHOP) soared after the e-commerce software company reported strong results and issued upbeat guidance, saying an expected tariff effect has not materialized.
The stock is now up more than 40% year to date, and up over 180% during the past year, as of this writing.
Strong results and upbeat outlook
After issuing conservative guidance last quarter, Shopify was decidedly more upbeat this time around. Meanwhile, its second-quarter results easily soared past its earlier cautious guidance. The company grew its Q2 revenue by 31% to $2.68 billion, which was well ahead of the $2.55 billion analyst consensus, as compiled by LSEG.
Gross merchandise volume (GMV) on its platform also jumped 31% to $87.8 billion, led by a 42% increase in international GMV. Europe was particularly strong, with GMV soaring 49%. The company's consumer-facing Shop App, meanwhile, saw GMV skyrocket 140%, helped by artificial intelligence (AI) enhancements.
Overall merchant solution revenue climbed 37% to $2 billion, helped by GMV growth and the increased penetration of Shopify Payments, its payment processing platform. Shopify Payments has expanded into 60 new countries just this year, with multi-currency support now available in 20 countries.
Subscription revenue, meanwhile, increased by nearly 17% to $656 million, helped by higher-priced subscription plans.
Shopify continues to add more large brands to its platform, including Starbucks, Canada Goose, and Signet Jewelers, among others. It said the type of clients it serves keeps expanding, as seen by it adding Boart Longyear, a global leader in mining and drilling services. That's a far cry from the small, drop-ship businesses that Shopify was once known for serving as its primary customer base.
Looking ahead, Shopify forecast third-quarter revenue growth at a mid-to-high twenties percentage rate. That's above the 21.7% growth that analysts were forecasting, according to StreetAccount.
The company said it has not seen any major changes in demand or buyer behavior related to tariffs, although many of its merchants have raised prices. It said any potential effect from the elimination of the de minimis exemption by the U.S. is still early, but that only 4% of its GMV globally is currently shipped under the exemption.
Meanwhile, it is turning to AI to help drive growth. It's created a Shopify Catalog that simplifies the process for apps and AI agents to search and pull product data to make sure results are up to date. It also just launched a Universal Cart, where customers can hold items from multiple stores all in one place.
Is it too late to buy the stock?
Shopify continues to demonstrate strong growth. It's done a great job of moving upmarket, showing the power of its platform. At the same time, it's starting to grow with its customers, as Shopify Payment adoption continues to increase. The company is also constantly innovating, which helps drive revenue for both it and its customers.
It's expanding into new areas, as seen with the addition of Boart Longyear as a customer. Newer areas like offline and business-to-business, which saw its GMV double in the quarter, also continue to show strong growth.
International markets, particularly Europe, were a standout in Q2. With 68% of its revenue coming from the U.S. and Canada, the company has a massive opportunity to continue expanding internationally.
While the company is not immune to a consumer slowdown, thus far, it hasn't seen any effect from tariffs. That's a good sign.
Looking at valuation, Shopify now trades at a more than 18 times forward price-to-sales (P/S) ratio based on 2025 analyst estimates and 15 times 2026 estimates. That's much higher than the 8 to 12 times multiple it has traded at in recent years.
While I like the strides that Shopify is making, I would not chase this recent rally, given its valuation and the weak U.S. job market.
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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify and Starbucks. The Motley Fool has a disclosure policy.
As Shopify Shares Soar, Is It Too Late to Buy the Stock? was originally published by The Motley Fool