What happened

Shares of Shopify (SHOP -1.40%) popped 14.9% last week, according to data from S&P Global Market Intelligence. The all-in-one e-commerce platform for individuals and businesses posted strong revenue growth in its third-quarter report, beating Wall Street's expectations.

So what

Shopify reported its third-quarter earnings last Thursday morning. Revenue grew 22% year over year to $1.37 billion, which was better than the consensus analyst estimate of $1.33 billion. The company is not generating a profit today (although it did in 2020 and 2021), booking an operating loss of $345 million in the period. Current investors don't seem to mind though, and with the stock down around 80% this year, revenue growth expectations were likely low heading into the release.

How is Shopify growing its revenue even amid a global economic slowdown? First, the number of merchants using the platform to power their e-commerce sites continues to rise, which boosted its subscription revenue by 12% year over year to $376.3 million. Second, shoppers continue to spend more money at those merchants' websites, and Shopify takes a cut of sales through its payment processing services. In the third quarter, merchant solutions revenue increased 26% year over year to $990 million.

The company has been driving growth for its merchant clients by expanding the ways consumers can access their products. This quarter, Shopify management highlighted the growth of its in-person point-of-sale product and the expansion of the Shopify Fulfillment Network -- an important offering in that helping merchants ship products in a more timely manner should improve customer satisfaction.

Now what

For the rest of 2022, Shopify expects its gross merchandise volume (the value of total sales flowing through its platform) to grow at a faster rate than the overall U.S. retail market. This shows the power of Shopify's software, payment, and other products, which are enabling it to gain market share vs. the broader retail industry.

At a market cap of $43 billion, Shopify now trades at a trailing price-to-sales ratio of 8.3, which is a premium multiple. The company is not generating consistent profits today, so we can't gauge it on a price-to-earnings basis. But if the company continues to grow revenue at a 20%+ rate for the next three to five years, investors will likely do well owning the stock. It may not reach its all-time high market cap of over $200 billion anytime soon, but that does not mean it won't be a good investment for new investors today.