How does Shopify approach building vs. partnering for product capabilities, especially differentiating between software and fintech solutions?

Harley explained Shopify builds when it can create something 10x better than existing solutions and partners for massive leverage. He cited the growing app developer ecosystem and strategic partnerships for new surface areas like agentic commerce, where Shopify provides its catalog and APIs. “We partner where we can get massive leverage and where we think there's a company out there that's doing a really great job we can plug into. And when we think there isn't something out there that is 10x better than what we can do ourselves, we just build it.”

Is AI lowering barriers to entrepreneurship leading to accelerated SMB sign-ups? Does AI risk pushing Shopify back from a merchant's UX perspective with integrations like Claude/ChatGPT?

Harley clarified that agents don't bypass Shopify but integrate directly, with ChatGPT using in-app browsers for Shopify checkouts. He emphasized AI's role in accelerating entrepreneurship. Jeff noted strong merchant additions, evenly split between same-store growth and new acquisitions, and sees potential tailwinds from AI for SMBs. “agents do not buy pass Shopify, just the opposite. In fact, they write right into Shopify. I mean, I think you saw in sort of recent headlines that merchant store fronts really matter. You saw ChatGPT move to in-app browsers for their checkouts.”

How do AI investments create structural advantages versus merely keeping up with table stakes for SMBs, and how does this translate to margin expansion?

Harley reiterated that AI is Shopify's native language, providing an "exoskeleton" for employees and enabling rapid experimentation. He highlighted that AI writing over 50% of code allows engineers to operate at a higher level, leading to increased product output (300+ features last year) with flat headcount, demonstrating structural efficiency. “AI has given this exoskeleton everyone at Shopify, where effectively every single person on the team has this virtual team of agents that creates incredible opportunity for these like rapid experimentation.”

SHOP

Shopify (SHOP) Q1 FY26 earnings call: guidance and Q&A

Q: How does the AI flywheel (product velocity, Sidekick uptake) play out for KPIs, and how does Shopify balance AI benefits against rising token costs?

Harley highlighted Sidekick's role as a "co-founder" for merchants, with weekly active shops up 4x and 12,000 custom apps created in Q1. Jeff noted AI's pervasive internal use, driving efficiency across departments, and confirmed mindfulness of costs while seeing significant benefits. “AI now writes well over 50% of our code today, and that number is going up significantly, not down.”

Earnings call· Mar 2026 (Q1 FY26)· Information Technology· May 5, 2026

Source: earnings call transcript

Executive summary

Shopify Q1 FY26 — Strong GMV and Revenue Growth Driven by AI Adoption and Payments Penetration

Shopify delivered robust Q1 FY26 results, showcasing strong GMV and revenue growth, fueled by increasing AI product adoption and payments penetration. The company emphasizes its compounding data advantage and the demand conversion flywheel, positioning itself at the center of the AI-driven entrepreneurial era. Management remains focused on execution and leveraging AI for internal efficiency and merchant success.

Highlights

Q1 GMV reached $101 billion, up 35% year-over-year (30% constant currency), marking the second consecutive quarter over $100 billion.
Revenue grew 34% year-over-year (32% constant currency) to $3.2 billion, the strongest quarterly growth rate in over 4 years for the business and U.S.
Free cash flow was $476 million, delivering a 15% free cash flow margin, marking four consecutive quarters of mid-to-high teens FCF margins.
Shopify Payments processed $67 billion of GMV, up 41% year-over-year, reaching 67% penetration (up 3 points from Q1 FY25).
Weekly active shops using Sidekick were up 4x year-over-year, with over 12,000 custom apps created in Q1 using Sidekick.

Concerns

Credit was the largest component of the year-over-year increase in transaction and loan losses, which rose to 3.7% of revenue from 3.2% in Q1 FY25.
Increased LLM costs, driven by growing merchant usage of AI products like Sidekick, partially offset gross margin efficiencies in Subscription Solutions.
Europe will be a near-term headwind to Global Payments penetration metrics due to recent launches, though expected to be a tailwind long-term.

Guidance & targets

Category	Target	Timeline	Confidence
Q2 Revenue Growth	high 20s year-over-year high materiality	Q2 · FY26	High
Q2 Gross Profit Dollars Growth	mid-20s medium materiality	Q2 · FY26	High
Q2 Operating Expenses as % of Revenue	35% to 36% medium materiality	Q2 · FY26	High
Q2 Free Cash Flow Margins	mid-teens high materiality	Q2 · FY26	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
North America (Revenue) North America had its strongest quarterly growth rate in over 4 years.	—	33%	—	—
Europe (Revenue) The pace of growth in Europe speaks to the opportunity that remains ahead.	—	42%	—	—
Asia Pacific (Revenue)	—	30%	—	—
Europe (GMV) Delivering continued mid-30s growth in constant currency against an outstanding 2025 reflects years of deliberate investment. Constant currency growth: 35%	—	48%	—	—
Offline (GMV) Accelerating from Q4, with the fastest growth from merchants operating more than 20 stores. Location growth for merchants with >20 stores: 50% YoY	—	33%	—	—
B2B (GMV) Broad growth across both new and established merchants, with several B2B features now available on standard subscription plans.	—	80%	—	—

SHOP operating KPIs by quarter

SHOP operating KPIs stated on its earnings calls, by fiscal quarter
KPI	Dec 2024 Q4 FY24	Sep 2025 Q3 FY25	Change vs prior quarter
Employees	<8,100 As of December 31, 2024, our headcount was just under 8,100 employees, down from approximately 8,300 at the end of 2023. Source: earnings call transcript	~8,100 But all the time, it's the roughly 8,100 people at Shopify who're relentlessly merchant-obsessed showing up every day to help them win. Source: earnings call transcript	—

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Product announcements

Product	Type	Timeline
Universal Commerce Protocol (UCP)	milestone	Last month
Merchant Billing (7 new European currencies)	expansion	Q1 FY26
Capital (France)	expansion	Q1 FY26
Smart Market and Smart Language Recommendations	update	Q1 FY26

Deals & partnerships

Mulberry customer contract

Signed as a new luxury brand customer in Q1.

BevMo! customer contract

Signed as one of the largest liquor store retailers in the U.S. to power all locations with Shopify POS.

LVMH customer contract

Signed as a new luxury brand customer in Q1.

Ragan Bone customer contract

Welcomed in fashion in Q1.

The Outnet customer contract

Welcomed in fashion in Q1.

RooGuilt Group customer contract

Welcomed in fashion in Q1.

Lands End customer contract

Welcomed in fashion in Q1.

Orvis customer contract

The outdoor brand founded in 1856 is moving to Shopify for a full unified commerce solution.

The Benetton Group customer contract

Went live with Shopify in Q1.

Victoria's Secrets customer contract

Went live with Shopify in Q1.

Body customer contract

Went live with Shopify in Q1.

Epic Shop by Vail Resorts customer contract

Went live with Shopify in Q1.

Reitmans customer contract

Went live with Shopify in Q1.

Groons divestiture over $1 billion

Gummy supplement brand launched on Shopify in 2023, acquired by Unilever for over $1 billion.

Unilever acquisition over $1 billion

Acquired Groons, a Shopify merchant, for over $1 billion.

Google partnership

Co-developed the Universal Commerce Protocol (UCP).

Amazon, Meta, Microsoft, Salesforce, Stripe partnership

Joined the UCP Tech Council and UCP Governing Council, committing expertise to build the Universal Commerce Protocol.

Risks & headwinds

Increased LLM costs Q1 FY26

partially offset by increased LLM cost

Mitigation:Driven by growing merchant usage of AI products, most notably Sikik. We expect this dynamic to continue. The more merchants use these products, the more data we have and the better the outcomes we can deliver.

Near-term FX headwind to Global Payments penetration metrics in Europe Near term

approximately 0.5 point of FX tailwinds (for Q2 revenue, implying less tailwind than Q1's 2 points)

Mitigation:Given the recent launches of payments in numerous countries last year, but that should prove to be a tailwind for us over time.

Credit losses Q1 FY26

Credit was the largest component of the year-over-year increase in transaction and loan losses, which rose to 3.7% of revenue from 3.2% in Q1 FY25.

Mitigation:Goal is to keep loss rates low as we scale merchant adoption.

Q&A highlights

How does the AI flywheel (product velocity, Sidekick uptake) play out for KPIs, and how does Shopify balance AI benefits against rising token costs?

Harley highlighted Sidekick's role as a "co-founder" for merchants, with weekly active shops up 4x and 12,000 custom apps created in Q1. Jeff noted AI's pervasive internal use, driving efficiency across departments, and confirmed mindfulness of costs while seeing significant benefits.

“AI now writes well over 50% of our code today, and that number is going up significantly, not down.”

asked by Justin Patterson · answered by Harley Finkelstein

2 min read 6 chapters

Detailed narrative

AI as Shopify's Native Language

Shopify has deeply embedded AI into its products, channels, and internal operations, viewing it as an "exoskeleton" for employees. This approach enables rapid experimentation and allows the company to absorb complexity, making it more valuable to merchants. AI now writes over 50% of Shopify's code, increasing engineering efficiency and output, and allowing engineers to operate at a higher level.

Compounding Data Advantage

With 20 years of commerce data, Shopify possesses unique insights into purchase intent across millions of merchants and billions of products. This deep experience, applied at speed, allows Shopify to build products grounded in real behavior, creating a compounding advantage that is hard to replicate. Every capability added embeds merchants further into the platform, growing its value.

Demand Conversion Flywheel

Shopify is evolving from merely converting demand to actively creating it. AI-driven traffic to Shopify stores grew 8x year-over-year, with orders from AI-powered searches increasing nearly 13x. New buyer orders from AI channels occur at nearly twice the rate of other channels, driven by Shopify's structured catalog of over 1 billion products, which converts 2x more than general AI searches.

Invisible Complexity and UCP

Shopify thrives by handling the "invisible complexity" of commerce, making it appear simple for merchants. The company co-developed the Universal Commerce Protocol (UCP) with Google, an open standard for agentic commerce. Amazon, Meta, Microsoft, Salesforce, and Stripe have joined the UCP Tech Council, positioning Shopify at the center of how commerce gets done in the age of AI agents.

Enterprise Momentum

The number of large merchants doing over $100 million in GMV on Shopify has nearly doubled in the last two years. Shopify's value proposition of better conversion, lower total cost of ownership, and a unified commerce system is attracting heritage retail brands like Orvis and fostering the growth of new billion-dollar brands, such as Groons, which was acquired by Unilever for over $1 billion.

Financial Services Expansion

Shopify continues to expand its financial services offerings, including Capital and Balance, which are deeply embedded in the platform. The company is exploring further moves into financial services, such as money transfer licenses, to accelerate merchant growth and add value, leveraging its decade-long experience in products like Capital.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.