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Shopify shares surge on strong second quarter profit as AI helps drive sales

Shopify expects its third quarter revenue to grow at a low-thirties percentage rate and gross profit dollars to increase at a mid-to-high twenties percentage rate on a year-over-year basis.

Shares of Canadian e-commerce giant Shopify Inc. surged more than 17 per cent on Wednesday after the company announced strong second quarter earnings and indicated it its artificial intelligence offerings were continuing to bring in new customers.

Shopify’s gross merchandise value (GMV), the total value of goods sold on its platform, soared 32 per cent in the quarter ended June 30 to nearly US$116 billion, the fifth straight quarter of GMV growth above 30 per cent. Revenue jumped 34 per cent to US$3.58 billion, with its merchant solutions revenue — which rose 37 per cent year over-year — accounting for US$2.78 billion.

The company’s free cash flow margin was up 18 per cent to US$654 million. Net income in the quarter soared to US$1.5 billion, a 66 per cent increase from the US$906 million recorded in the second quarter of last year.

“(Shopify) delivered a clean sweep, and (we) believe the stock is being rewarded for addressing key investor worries,” Samad Samana, equity analyst at Jefferies Financial Group Inc., wrote in a Wednesday note.

The Ottawa-based company , which helps businesses build online stores and sell goods online , said its AI tools, partnerships and integrations are helping merchants tally more sales. AI-driven traffic and orders to Shopify stores tripled year-over-year in the second quarter, company president Harley Finkelstein said during an investor’s call on Wednesday.

“AI is now baked into how Shopify operates … (into) every decision, every experiment and every merchant interaction,” Finkelstein said.

Last year, Shopify inked a deal with OpenAI Inc. to let its customers sell goods via ChatGPT’s Instant Checkout tool. This January, it launched the Universal Commerce Protocol co-developed with Google LLC that helps AI agents shop online . The company has also built a suite of AI tools for merchants that helps them design and manage their online shops.

The company also has “durable growth levers” beyond AI, according to Bank of America Securities analyst Tal Liani, who in a June note highlighted its recent global GMV growth and adoption among clients that earn over US$25 million a year in revenue. In the second quarter, Shopify’s international GMV grew 37 per cent and it scored new clients such as Canadian luxury retailer Holt Renfrew & Co Ltd., fashion brand Guess? Inc. and cosmetics company Avon Products Inc.

Finkelstein suggested that Shopify has more room to grow across all markets.

“We are still underpenetrated … on the international side. We’ve captured less than 1 per cent of global retail sales. And in the core geographies where we operate, the opportunity is still massive,” he said.

The company has also adopted AI in its internal operations, which it says has boosted its engineering team’s productivity by at least 20 per cent.

At the same time, its job postings are sitting at multi-year lows, declining 36 per cent year-over-year to 71 open roles in the second quarter, which is the lowest quarterly number in over five years, RBC Dominion Securities Inc. analyst Paul Treiber wrote in a July note. Shopify cofounder and chief executive Tobi Lütke last year told staff in an internal memo that they would need to prove why jobs can’t be done by AI before receiving approval for hiring headcount and other resources.

Shopify expects its third quarter revenue to grow at a low-thirties percentage rate and gross profit dollars to increase at a mid-to-high twenties percentage rate on a year-over-year basis.

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