Why Shopify Stock Just Exploded Higher

Key Points

• Shopify beat forecasts for revenue this morning and guided to strong double-digit growth in Q3.

• Profits growth is lagging sales growth, however, and could lag further in the current quarter.

• Shopify remains a very expensive stock -- even for its high growth rate.

• 10 stocks we like better than Shopify ›

Shopify (NASDAQ: SHOP) stock soared 22% through 9:45 a.m. Wednesday after reporting stronger-than-expected Q2 sales this morning.

Instead of the $2.55 billion Wall Street was expecting, Shopify collected $2.68 billion in revenue in Q2, helped by strong "gross merchandise volume" (GMV) facilitated by its software -- $87.84 billion.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

Image source: Getty Images.

Shopify Q2 earnings

Shopify's a bit eccentric in how it reports earnings, deemphasizing net income (and earnings per share) and focusing more on GMV, revenue, and free cash flow. In today's report, the company boasted of growing revenue 31% year over year, and earning 16% free cash flow margins on its revenue.

GMV grew 31% year over year, resulting in similar revenue growth. Free cash flow generated from these sales, however, grew slower at 27%, and operating profits were up only 21% year over year -- numbers that may discourage growth stock investors a bit once they notice them.

Is Shopify stock a buy?

Guidance may also come as something of a shock, with management forecasting sales growth to slow into the "mid-to-high twenties percentage rate" in Q3, and gross profit rising even less, in the "low-twenties." On the plus side, management forecasts free cash flow margin to be somewhere in the "mid-to-high teens."

If that's how things play out, it implies Shopify should at least maintain the 16% FCF margin it did in Q2, in the coming quarter -- and might even exceed it. That would presumably provide a bigger boost to both FCF and profits.

Speaking of which, Shopify's $200 billion market cap today prices the stock at 111 times free cash flow, and more than 87 times net profit. That's quite a high price for a stock growing at 31% -- much less the "mid-to-high teens."

Therefore, despite the earnings beat, Shopify's still a sell for me.

Should you invest $1,000 in Shopify right now?

Before you buy stock in Shopify, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Shopify wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $619,036!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,092,648!*

Now, it’s worth noting Stock Advisor’s total average return is 1,026% — a market-crushing outperformance compared to 180% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of August 4, 2025

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool has a disclosure policy.