People talk at a Shopify exhibit during a national retail show in New York on Jan. 12. The company has set aside $2-billion for share buybacks as it seeks to lift investor sentiment.Kylie Cooper/Reuters
Shopify Inc. SHOP-T has set aside US$2-billion for a share buyback program to help lift shareholder sentiment after a month in which investors shed software stocks on concerns tied to artificial intelligence.
The Canadian e-commerce giant on Wednesday also announced higher revenue and gross profit in its fourth quarter, and continued growth and profit guidance for the current quarter. Its quarterly results and forecast both beat analyst expectations
However, the company estimated that its free cash flow margin would be in the “low-to-mid teens” during the current quarter, slightly below last year and compared to analyst consensus of 17 per cent. Despite the share buyback program and earnings growth, Shopify shares on the Toronto Stock Exchange closed down 7.03 per cent on Wednesday.
On Wednesday, the company said its board of directors had authorized the US$2-billion share repurchase plan and that it expects the program to be executed using prearranged algorithmic trading instructions, with no set quarterly or annual minimums.
In a call with analysts, Shopify’s chief financial officer Jeff Hoffmeister said the decision reflects the company’s confidence in its long-term value, “given the ongoing momentum of the business and the financial results that we can drive.”
The company earned US$2-billion in free cash flow in its 2025 financial year.
“We view the buyback as signaling management’s confidence in the business, important given recent volatility across the broader software industry,” said Bank of Nova Scotia analyst Kevin Krishnaratne in a note to investors Wednesday.
In recent months, investors have been shedding shares of software companies on concerns that artificial-intelligence tools could affect sales or disrupt markets by replacing products, threatening pricing and making software easier to build.
Shopify’s share price was also affected by this sell-off, falling by more than 30 per cent in the span of a few weeks in late January before rebounding 13 per cent last week.
Analysts have adjusted their estimates accordingly. Earlier this week, Bank of Montreal analyst Thanos Moschopoulos lowered his price target to US$112 from US$150 to reflect the sell-off, despite long-term confidence in the company.
“We believe SHOP is more likely to be a beneficiary of – rather than disrupted by – AI, and that the stock merits a premium valuation. However, we’re also mindful of the recent multiple compression across the software sector, prompting us to use a more conservative target multiple,” he said in a note to investors Monday.
Rise of AI chatbots for online shopping boosts analyst hopes for Shopify’s growth
The day before Shopify’s earnings, ATB Capital Markets analyst Martin Toner said in a note that despite near-term gross margin headwinds, he is “increasingly convinced” that Shopify’s long-term operating margins will improve.
Despite the stock fluctuations, Shopify posted double-digit growth figures for its fourth quarter ended Dec. 31.
The company had revenue of US$3.6-billion, a 30-per-cent increase from the year before, in line with analyst consensus. Gross profit was US$1.6-billion, up 25 per cent, and operating income was US$631-million, up 35 per cent, though the two measures were below consensus.
Shopify’s income related to equity investments in other companies was US$149-million in the quarter, much smaller than the US$835-million contribution last year. Nonetheless, the company’s net income excluding the impact of those investments was US$594-million, up 30 per cent from last year.
Gross merchandise value – the value of products sold over its platforms – was up 30 per cent for the quarter, which included Black Friday and the typically busy December shopping period. Monthly recurring revenue from subscriptions was up 15 per cent.
For the current quarter, Shopify’s executives expect revenue growth in the low thirties, higher than the analyst consensus of 25 per cent, and gross profit growth in the high twenties, also above expectations.
Shopify was early in publicly declaring its approach to artificial intelligence. In addition to the release of a slew of AI-powered products for merchants, last year co-founder Tobi Lütke told employees that they would need to justify why AI could not be used before hiring a person to do the work.
In recent months, the company has announced partnerships with several AI chatbots including OpenAI’s ChatGPT, Google’s Gemini and search platform and Microsoft’s CoPilot.