Shopify Stock Is Up 85%, But Can It Really Keep Climbing?

September 24th, 2025 by Trefis Team
SHOP: Shopify logo
SHOP
Shopify

Shopify (NASDAQ: SHOP) enables businesses to create and manage online stores. Clients include Skullcandy, Daily Harvest, and Carrier. The stock has surged roughly 85% over the past year, far outpacing the S&P 500’s 16% gain, and currently trades at $149, just below its September 2025 peak of $157.12. While growth is strong and recent results have impressed, Shopify’s history of volatility reminds investors that downside risk is real. Also see Buy or Fear Shopify Stock?

The company has expanded aggressively in Europe, where gross merchandise volume (GMV) has grown sharply, and is investing heavily in AI and technology to improve search for merchants. These moves strengthen long-term growth prospects, yet the stock trades at very high multiples, implying the market may already be pricing in perfection. Historical swings show Shopify can fall sharply if growth or margins disappoint — and in a downside scenario, shares could realistically decline by as much as 50% from current levels. We examine three key drivers of potential downside: revenues, margins, and valuation. Separately check, What’s Behind IONQ Stock’s Winning Streak?

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Revenues: Strong Growth, But Risks Remain

Shopify’s revenue has grown at an average of 26% over the past three years, increasing from $7.8 billion to $10 billion in the last 12 months. The most recent quarter saw revenue rise 31% year-over-year.

However, several data points highlight potential downside risk:

  1. Macro Sensitivity: E-commerce spending in the U.S. and Europe is forecast to slow to 4–5% annual growth in 2025, down from pandemic-era growth of 20–25%. If Shopify’s GMV growth aligns with this trend, its top-line could grow closer to $10.4–10.5 billion, a sharp slowdown from the 28% annual growth in the last 12 months.

  2. Merchant Churn and Competition: Shopify’s total active merchants are about 2.2 million. Even a modest 5% increase in churn due to competition from BigCommerce, Wix, or Amazon could reduce annual recurring subscription revenue by $100–150 million.

  3. International Expansion Risks: Europe accounts for roughly 15–20% of Shopify’s GMV. A slowdown in adoption or regulatory hurdles could reduce expected international revenue growth by $150–200 million annually.

Margins: Healthy Today, But Potential Pressure

Shopify currently reports an operating margin of 15.3% and a net margin of 23.4%, generating nearly $1.8 billion in operating cash flow over the past 12 months. While these figures are strong for a high-growth platform, several factors could pressure profitability and contribute to downside risk:

  1. Rising Investment Costs: Shopify is investing heavily in AI, international expansion, and marketing. If these investments grow by even $300–400 million annually without immediate revenue payoff, operating margins could decline from 15.3% to about 12%, reducing operating income by roughly $360–400 million.

  2. Merchant Discounting and Competition: To retain and attract merchants, Shopify may increase promotional support or lower subscription fees. A 2–3% drop in effective revenue per merchant could shave another $200–250 million from gross profits.

  3. Macro Pressures on Transaction Fees: Slower e-commerce spending could reduce Shopify Payments volume. For example, if GMV growth slows from 30% to 10%, transaction fee revenue could decline by $200–300 million, further compressing margins.

Valuation: Priced for Perfection

Shopify’s current valuation amplifies the downside risk. The stock trades at a price-to-sales ratio of 19.5, a price-to-earnings ratio of 83.1, and a price-to-free-cash-flow ratio of 107.3, far above S&P 500 averages. These multiples imply that the market is expecting continued aggressive growth in revenue and margins.

  1. Revenue Shortfall Impact: If Shopify’s revenue growth slows from 29% to about 10%, total revenue over the next 12 months could reach $10.8–11 billion instead of $12–13 billion. With the current price-to-sales multiple, this revenue shortfall could reduce implied market capitalization by $20–25 billion, or roughly 10–15% of the current stock price.

  2. Margin Compression Impact: Quantitatively, combining investment, discounting, and macro pressures, operating income could decline from $1.5 billion to $900–950 million over the next year, a 35–40% contraction. Assuming the stock re-rates to reflect this reduced profitability, margin compression alone could contribute 15–20% of the potential 50% downside in Shopify shares.

  3. Historical Volatility: Shopify has a track record of sharp multiple contractions. During the 2022 inflation shock, despite positive operating cash flow, the stock fell 84.8%, reflecting how quickly high-growth, richly valued stocks can de-rate when expectations are unmet.

  4. Investor Sentiment: With the stock up 87% over the past year, expectations are elevated. Any deviation from growth or margin forecasts could trigger further multiple compression, adding to potential downside.

Combining revenue deceleration, margin pressure, and multiple contractions, Shopify shares could realistically face up to a 50% decline from current levels in a scenario where growth slows, margins compress, and sentiment shifts.

Shopify is a strong company with robust growth, global reach, AI-driven innovation, and solid profitability, but timing is uncertain, and downside risk remains if sales slow, margins compress, or competitors gain ground.

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