My thoughts on Shopify ER:

Overall, this was a strong quarter for Shopify, despite the stock declining by about 8% after earnings. The company beat its Q1 revenue forecast by 5%, which is a strong beat, and revenue growth accelerated to +34.3% YoY. If the company similarly beats guidance in Q2, growth could accelerate further to ~+35% YoY. Guidance for the next quarter came in roughly in line with analyst expectations.

Subscription solutions revenue growth accelerated to +21%, but it still lags overall revenue growth. Subscription solutions gross margin remains high at 80.3%, slightly improving YoY, making it a more profitable segment for the company.

Merchant solutions, on the other hand, is a lower-margin segment, with gross margin at 39%, although it improved compared to Q1 2025. Merchant solutions revenue also accelerated to +39% YoY and now accounts for 76% of total revenue.

Overall gross margin declined slightly YoY, driven by the increasing share of Merchant solutions. However, the growing contribution of Merchant solutions makes Shopify’s model more powerful, as merchants sell more, process more payments, borrow more capital, and use more services within the ecosystem.

Shopify Payments is now available in 39 countries, with recent launches in 15 European countries and Mexico. Transaction and loan losses increased to 3.7% (from 3.2%) of revenue, which is something investors should monitor.

Shop Pay processed $35 billion of GMV in Q1, up 59% YoY, and Shop app GMV grew 70% YoY, showing strong momentum. Shopify also added new demand channels in Q1—ChatGPT, Pinterest, and Microsoft Monetize.

Non-GAAP operating margin increased to 16.5% (from 13.9%), while FCF margin remained around 15% YoY.

In Q1, Shopify reported a net loss of $581M, though this was driven by mark-to-market losses on equity investments.

GMV growth accelerated to +34.8%, outpacing revenue growth. MRR growth also accelerated to +16.5%.

Management sees AI as a major tailwind, stating that AI is now Shopify’s “native language.” AI writes well over 50% of Shopify’s code, and Sidekick has become the main merchant-facing AI product. Weekly active shops using Sidekick increased roughly 4x YoY, while Pulse provides proactive AI-driven recommendations. AI improves merchant productivity on the platform. However, broader AI usage increases LLM-related costs, putting pressure on gross margins in the Subscription solutions segment.

Agentic commerce is also a key strategic direction for Shopify. Traffic generated by AI for Shopify stores increased 8x YoY, and the number of orders from AI-based search increased nearly 13x YoY.

Shopify stands to benefit from AI, as AI-based search can create additional demand. In Q1, new customer orders driven by AI search occurred nearly 2x more frequently than through other channels.

Shopify, together with Google, developed the Universal Commerce Protocol (UCP), which supports search, checkout, payments, and post-purchase actions. Companies such as Amazon, Meta, Microsoft, Salesforce, and Stripe have joined this protocol.

SHOP stock trades at relatively high valuation multiples—EV/Sales of 14.4x and Forward P/E of 70.0x, implying high expectations are already priced in.

Overall, this was a strong quarter for Shopify.