Shopify netted a profitable third quarter as its revenue grew nearly 26 per cent year over year, sending its shares soaring more than 20 per cent during morning trading.

The company reported net income of US$718 million for the three months ending Sept. 30, up from a net loss of US$159 million in the same quarter last year. It also follows a second-quarter loss, mostly due to costs from workforce changes and the sale of its logistics division to Flexport, a supply-chain tech company.

The profit bump came as Shopify spent US$229 million less on operations—down from just over US$1 billion in the third quarter of 2022. That drop came primarily from lower staffing costs and the Flexport deal.

Shopify’s shares made big gains after the release. They were up more than 22 per cent on the New York Stock Exchange and the Toronto Stock Exchange.

The key numbers: The results beat analysts’ expectations in several key metrics.

Revenue totalled US$1.7 billion, up from US$1.4 billion in the same period last year. That was ahead of analysts’ estimates of US$1.67 billion, according to PitchBook.

Gross merchandise volume, the total value of merchant sales across Shopify systems, rose to US$56.2 billion, up 22 per cent from the same quarter in 2022. That outpaced estimates of US$54.3 billion, according to a note from ATB Capital Markets. Shopify attributed the growth to adding more merchants, especially in Europe, where its existing clients also sold more.

Merchant-solutions revenue—which accounts for service fees including payment processing—grew 24 per cent year over year, totalling US$1.228 billion in the quarter. Analysts had expected that figure to come in at US$1.198 billion, according to ATB.

AI is top of mind: “We believe AI is for everyone, and its capabilities should be captured and embedded across the entirety of a business,” said Shopify president Harley Finkelstein on a conference call with analysts Thursday morning. 

The company relies on AI tools internally, he said, to help support staff answer simple questions like password queries.

It has also created a suite of free AI products for its merchants, dubbed Shopify Magic, that vendors can use to create content like email campaigns. They can also use an AI bot named Sidekick to edit their websites and implement discounts. “Merchants are already finding success with unblocking productivity and creativity,” said Finkelstein.

While he avoided answering how or if the company will monetize Magic, Finkelstein suggested in an earlier response the success of a recent price increase to the company’s standard plans has led it to consider the challenge in general. “We’re really thinking about how to monetize, which products and when. We’re doing that across the board,” he said.

Shopify will also continue to make investments in AI, executives said, even as it focuses on keeping capital expenditures low.

Focus on new-ish deals: Management discussed, but provided few details on recent partnerships. 

The company said it has finalized a commercial agreement that makes San Francisco-based Flexport its “preferred logistics provider.” 

In the past quarter, Shopify announced a deal with Amazon to integrate the e-commerce giant’s Buy with Prime, an in-house payment and fulfillment service. The partnership will see Shopify Payments process payments while Amazon handles deliveries. Finkelstein said Amazon “will release an app in the Shopify app ecosystem in the coming weeks.”

Also in the third quarter, Shopify invested in the e-commerce marketplace Faire. The partnership will see Shopify recommend Faire to its merchants, while Faire will recommend Shopify to its clients. And management gave a nod to another partner company, Klaviyo. The Boston-based marketing automation company backed by Shopify recently held an initial public offering on the New York Stock Exchange. Finkelstein said the IPO “demonstrates the strength of Shopify’s ecosystem in helping our partners find success.”

A return to hiring: Like many tech companies, Shopify chose to do several rounds of layoffs during the recent economic downturn, letting go of about 10 per cent of its staff in July 2022 and another 20 per cent in May.

“We are selectively rehiring in key areas,” said CFO Jeff Hoffmeister, “but we decided to restart that process at a slower pace.”

The company currently has 69 positions open on its website.

Outlooks are back: Shopify provided quarterly guidance, but shied away from peering into its crystal ball for 2024.

Shopify expects its 2023 revenue to grow in the mid-twenties percentage rate compared to last year, a slight bump from its expectations last quarter. It expects that growth to come from a fourth-quarter revenue increase in the high teens.

With the holidays coming, Shopify noted customers have been resilient to the economic pressures they face and that it expects Americans to start their seasonal shopping earlier than usual, with Gen Z spending more than other generations.

Hoffmeister declined to provide projections for next year, though, and warned investors not to expect them at its investor day in New York City on Dec. 5.