Shopify stock soars after company launches AI tools, slashes expenses

Shopify (SHOP.TO)(SHOP) shares surged more than 22 per cent on Thursday after the company reported quarterly earnings that surpassed analyst expectations, driven by cost-cutting measures and the launch of new AI tools.

The Canadian e-commerce software company, which reports its financial results in U.S. dollars, said it earned a profit of $718 million in the third quarter ending Sept. 30, up from a loss of $159 million during the same time last year. Total sales grew 25 per cent from last year to $1.7 billion, above the $1.67 billion analysts were expecting.

On an adjusted basis, net income attributable to shareholders was 24 cents per diluted share, up from a loss of 2 cents per diluted share last year, sailing past analysts estimates of 14 cents per share.

Shopify's shares on the New York Stocks Exchange jumped as much as 23 per cent on Thursday, before paring gains slightly and closing the trading day at $59.70 per share, an increase of 22 per cent. Thursday's increase means the company's stock is up 67 per cent so far this year.

The strong results come after a period that saw the company shift its strategy, narrowing its focus to its e-commerce platform and exiting its logistics business, while also slashing expenses.

"We are faster, we are leaner, we are more focused on our mission in becoming this global leader in commerce," Shopify president Harley Finkelstein said on the conference call with analysts.

"We laid out a very deliberate vision in the last couple of quarters to balance both operational ambition and financial discipline and the results speak for themselves in delivering top-line growth and profitability."

Earlier this year, Shopify laid off 20 per cent of its workforce, which marked the second time in less than a year that the company had significantly reduced its workforce. Chief executive Tobi Lutke at the time framed the move as helping the company focus on its "main quest" while eliminating "side quests" that he said were "always distracting because the company (had) to split focus."

Operating expenses in the third quarter were $779 million, a 23 per cent drop from the same quarter last year.

"Our cost basis stabilized and as we continue to lean into the new shape of Shopify. We continue to demonstrate our ability to operate more efficiently, leveraging automation and process improvements, while continuing to launch new products and invest in key areas," chief financial officer Jeff Hoffmeister said on a conference call with analysts on Thursday. While Hoffmeister says the company is hiring, it is doing it selectively "in key areas" and at a slower pace.

Shopify also recently launched AI-powered tools, such as the Shopify Magic suite and app Sidekick, to stay ahead in the hyper-competitive e-commerce business. It also announced in August that Amazon would release an app in its ecosystem that would allow its U.S. merchants access to the "Buy with Prime" option outside of Amazon.com for the first time.

"We think we're uniquely positioned to harness the power of AI and the ultimate result of it will be these capabilities for our merchants to grow their businesses," Finkelstein said.

"It's going to unlock a ton of possibilities for not just small merchants but merchants of all sizes, and we're gonna continue to to work on that. Over time, it's just going to get better and better."

With files from Reuters.

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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