Shopify's third-quarter results and holiday guidance signaled mounting cost pressure from artificial-intelligence compute and infrastructure buildout costs.
The ecommerce platform on Tuesday forecasted fourth-quarter gross profit growth to slip into the high twenties, trailing projected low-thirties revenue growth. The company expects operating expenses to rise to between 29% and 30% of revenue, while free cash flow margin is forecast to be roughly flat compared with the fourth quarter of last year.
The spread reflects the near-term cost of the company's push to embed generative AI directly into merchant workflows, as computing and token expenses for its Sidekick merchant assistant platform mount alongside elevated infrastructure costs ahead of the peak holiday shopping season.
Shares traded 9.7% lower at $141.00.
On an earnings call Tuesday, Chief Financial Officer Jeff Hoffmeister said gross margins faced pressures from multiple fronts, including the compute expense tied to higher server hosting costs and expanding Sidekick usage across the merchant base.
"Subscription solutions gross margins compressed primarily from incremental AI spend on Sidekick, partially offset by efficiencies in support," Hoffmeister said. "On a sequential basis, our margins declined mainly due to higher hosting costs as we added capacity ahead of BCM [Black Friday-Cyber Monday] and some enhancements to our storefront resiliency and global search capabilities."
For its third quarter, net income came to $462 million, or 36 cents a share, up from $264 million, or 20 cents a share, a year ago. Adjusted earnings were 49 cents a share, topping forecasts by 2 cents.
Revenue rose 32% to $3.74 billion from $2.84 billion a year earlier, but was just shy of the $3.75 billion expected by analysts.
Gross merchandise volume, a key metric that tracks the total sales processed across its platform, reached $119.15 billion, a 29% increase over the prior year.