Shopify (SHOP 1.93%) will announce its earnings for the third quarter of 2025 on Nov. 4. The stock of the Canadian e-commerce platform company is up nearly 575% from its 2022 lows, and it's near the record high it first reached in 2021.
Nonetheless, higher stock prices have meant higher valuations and higher expectations. With the stock nearing its all-time high, is the upcoming earnings report a sign to turn against Shopify, or should investors keep buying it?
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Shopify's third-quarter earnings
In the upcoming earnings report, consensus estimates point to revenue of nearly $2.8 billion. If that prediction holds, it will represent a 28% increase from year-ago levels.
Moving on to net income forecasts, analysts believe the company will earn $0.34 per share in Q3, a 26% increase from year-ago levels. The company fell short of consensus estimates in the fourth quarter of last year, though it beat estimates in the three other quarters over the last year.
Moreover, the long-term outlook is bright, as Shopify is in the middle of a secular bull market in its industry. Grand View Research believes the global e-commerce industry will grow at a compound annual growth rate (CAGR) of 19% through 2030, taking its size to over $83 trillion!
Investors should note the industry's diversity, with much of the business going to major platforms such as Amazon and Alibaba. Still, numerous companies will turn to sites like Shopify to run independent e-commerce platforms. Since Shopify is the No. 1 e-commerce platform in the U.S. by number of active websites and claims 10% of the market globally, it's likely to claim a significant share of this fast-growing pie.
NASDAQ: SHOP
Key Data Points
Potential headwinds
Amid that opportunity, investors should remember that Shopify will face challenges. Long-term investors will recall that Shopify's stock plunged in the 2022 bear market after an attempt to start a capital-intensive logistics business. During that bear market, Shopify stock fell by as much as 87%.
Abandoning that effort helped it return to profitability and ultimately has almost brought the stock back to all-time highs. Nonetheless, Shopify stock may be vulnerable to bad news amid its valuation. Shopify sells at a P/E ratio of 96. Additionally, the price-to-sales (P/S) ratio of 22 confirms that the stock price may be slightly ahead of the fundamentals.
Rapid growth tends to appease valuation concerns, and if Shopify maintains the 27% revenue growth like analysts predict, the valuation is less of a worry.
Unfortunately, analysts believe revenue growth will slow to 22% in 2026. Since investors tend to punish stocks with slowing revenue growth, that could bode poorly for Shopify, at least for a time. Still, that slowdown is merely an analyst viewpoint for now, making it a concern investors should watch for but not necessarily worry about yet.
Should investors buy Shopify stock before the earnings announcement?
Given the state of Shopify's stock, Shopify investors should probably treat the stock as a cautious buy regardless of whether they add shares before or after the Nov. 4 earnings report.
As mentioned before, Shopify continues to benefit from rapid revenue increases in a fast-growing industry. Even with one slight earnings miss last year, its surging profits have undoubtedly helped boost its stock, making it understandable why it has trended higher in the previous few years.
Admittedly, if predictions of slowing revenue growth come true, investors may begin to rethink the stock's elevated valuation. That is an issue shareholders should watch in the upcoming quarters.
However, since Shopify has not confirmed a coming slowdown, it is unlikely to affect the third-quarter earnings report, meaning buyers of the stock should feel safe adding shares cautiously.
