Shopify Shares Rise 42% in a Year: Will the Rally Continue in 2026?

Core Insights - Shopify (SHOP) shares have returned 41.6% over the past 12 months, significantly outperforming the Zacks Computer and Technology sector's 20.4% rise, attributed to consistent results and strong execution [1] - Gross Merchandise Value (GMV) and revenues both grew by 32% in Q3 2025, with GMV growth accelerating from 31% in the previous quarter and revenue growth from 31% in the previous quarter [1][2] Performance Metrics - The acceleration in GMV and revenues is driven by an expanding merchant base, expected to continue into 2026, supported by Shopify's merchant-friendly platform and AI-powered tools [2] - Free cash flow margin has shown steady growth, reported at 15% in Q1 2025, 16% in Q2 2025, and 18% in Q3 2025, with Q4 2025 expected to slightly exceed Q3 figures [2] Competitive Positioning - Shopify has outperformed peers such as Amazon (AMZN), Wix.com (WIX), and Commerce.com (CMRC), which saw share declines of 2.9%, 53%, and 37.9% respectively over the same period [3] - The company is leveraging a vast amount of data from its expanding merchant base to enhance shopping experiences, utilizing AI tools for improved product discovery and checkout processes [7][9] International Expansion - International GMV grew by 41% year-over-year in Q3 2025, with Europe contributing 21% of revenues, and Shopify Capital now available in several European countries [10] - Shopify has expanded its payment solutions and partnerships to enhance fulfillment flexibility, including collaborations with major logistics providers [12] Earnings Estimates - The Zacks Consensus Estimate for Shopify's 2025 earnings is $1.45 per share, indicating an 11.54% year-over-year growth, with revenues projected at $11.45 billion, reflecting a 29% increase [13] - Merchant Solutions revenues are estimated at $8.70 billion for 2025, suggesting a 33.3% growth from 2024, while Subscription solutions revenues are expected to reach $2.75 billion, indicating a 17.1% growth [14] Valuation Concerns - Shopify's shares are currently considered overvalued, trading at a forward price/sales (P/S) ratio of 15.43X, significantly higher than the sector averages [15][16] - The company is facing potential gross margin pressures due to a higher mix of low-margin Merchant Solutions revenues and rapid Payments penetration [20]