Shopify's Merchant Solutions Surge 38.2%, Yet Valuation and Risk Hurdles Loom

What happened

Shopify's Merchant Solutions revenue grew 38.2% with GMV reaching $92B, as reported by Zacks, driven by strength in B2B, Shop Pay, and offline commerce. This acceleration exceeds the mid-to-high-twenties revenue growth guidance for Q4 2025 outlined in the DeepValue report, which had noted Q3 2025 growth at 32%. However, the DeepValue report highlights rising transaction and loan losses as Merchant solutions scale, alongside regulatory exposures under EU DSA and GDPR that could inflate costs. Despite the growth uptick, Shopify's valuation remains demanding with a P/E of 106 and a DCF anchor of $69 versus the current $145 price, indicating limited margin of safety. Investors should view this surge critically, as it may reflect promotional framing by Zacks rather than a fundamental shift in risk-reward dynamics.

Implication

The accelerated Merchant Solutions growth supports Shopify's ecosystem moat and aligns with management's guidance, potentially boosting near-term sentiment. However, the high P/E of 106 and a DCF value well below the current price suggest overvaluation unless sustained high growth is proven. Rising transaction and loan losses, as warned in the DeepValue report, could erode profitability if they outpace volume growth in the payments segment. Regulatory fines up to 6% of turnover under EU DSA add downside risk, requiring careful monitoring of compliance costs. For now, this news reinforces the HOLD stance, with a BUY upgrade contingent on Q4 execution meeting high-end guidance, loss containment, and a valuation reset toward intrinsic value.

Thesis delta

This news partially addresses the DeepValue watch item for accelerating Merchant solutions growth, but it does not yet confirm loss containment or justify a valuation premium. A shift to BUY would require evidence of sustained mid-to-high-20s growth with FCF margins above 20% and transaction losses remaining manageable. Until then, the thesis remains HOLD, with increased focus on Q4 2025 results to validate or challenge current assumptions.