Shopify Shares Fall After AI Spending on Sidekick Squeezes Subscription Margins

According to Shopify's earnings release, revenue for the three months to September 30 was $3.742 billion, up 32% on a year earlier. Gross merchandise volume, the value of goods sold through Shopify, was $119.1 billion, up 29%. Operating income rose 66% to $568 million, and the free cash flow margin improved to 22% from 18%.

Several figures still missed forecasts. CNBC reported that revenue was just below the $3.75 billion LSEG consensus. Gross merchandise volume came in under StreetAccount's $120.03 billion estimate. Subscription revenue of $836 million fell short of FactSet's $848.1 million forecast, and subscription gross profit of $661 million was almost $20 million below StreetAccount's $680.3 million. Adjusted earnings of 49 cents a share beat LSEG's estimate of 46 cents. Merchant revenue and merchant gross profit were both ahead of expectations.

The Cost of Sidekick

On the earnings call, chief financial officer Jeff Hoffmeister put subscription solutions gross margin at 79%. He said it had "compressed primarily from incremental AI spend on Sidekick" compared with a year earlier, though support costs fell enough to absorb part of that. He blamed the drop from the second quarter mostly on higher hosting costs, as Shopify added capacity ahead of Black Friday and Cyber Monday.

Hoffmeister said Shopify had been making Sidekick cheaper to run. Between the second and third quarters, merchant conversations with the assistant rose 14% while the cost per conversation fell 28%, and total Sidekick cost fell 18%. He also said the company is "really trying to drive usage on Sidekick because we see significant benefit."

Agentic Commerce

Shopify president Harley Finkelstein used the call to promote AI-driven shopping. He said AI traffic to Shopify merchants was up 2.6 times from a year earlier and that orders were "growing even faster at 3.3x". He also said that "Q3 was the first time we saw shoppers experimenting with delegated purchasing through personal agents," and added: "Volume is, of course, small, but it's growing."

CNBC noted that Meta's consumer AI agent, Muse, launched during the quarter with Shopify as an early partner. Muse can browse and buy Shopify products, and shoppers can pay with Shop Pay. Asked whether AI agents were pushing merchants to cut prices, Finkelstein told CNBC: "We're not seeing that prices are being lowered."

For the fourth quarter, Shopify expects revenue to grow at a low-thirties percentage rate and gross profit dollars at a high-twenties rate, year on year. It expects operating expenses of 29% to 30% of revenue.

Why It Matters

Most of the debate about what AI costs has centred on the data centre budgets of the largest cloud companies. Shopify's results show the same pressure in a software business: Sidekick is included in merchants' subscriptions, so its inference and hosting costs land directly on subscription margins. Executives at other software companies that bundle AI assistants into existing plans will face the same question from investors about whether higher usage pays for the cost of serving it.