Shopify Q3 2026: Operating Income Up 66% as Buybacks and Lending Drain Cash

Shopify's third quarter of 2026 was a lesson in operating leverage. Revenue rose 32% to $3.7 billion, operating income rose 66% to $568 million, and free cash flow reached $816 million, a 22% margin. But two uses of cash sit outside that free-cash-flow figure, and both grew fast. Shopify Capital's purchases and originations of merchant loans and cash advances reached $1.7 billion in the quarter, 71% more than a year earlier, and Shopify has bought back $2.5 billion of its own shares since January. Together they took Shopify's cash, marketable securities and long-term investments down by about $1.5 billion since December, even as the business itself generated strong cash.

Operating income grew twice as fast as revenue​

Gross merchandise volume, the value of orders on the platform, rose 29.5% to $119,145 million (earnings release). Revenue grew faster, 32% to $3,742 million, because merchant solutions, mostly payments, rose 35.5% to $2,906 million. Subscription revenue rose 19.6% to $836 million, in line with monthly recurring revenue, which rose to $230 million from $193 million.

The leverage came from operating expenses. They rose 16% to $1,213 million, so they fell to 32.4% of revenue from 36.8% a year earlier, by our computation. Gross margin went the other way, to 47.6% from 48.9%, because payments carry lower margins than subscriptions. Operating margin still widened to 15.2% from 12.1%.

The quarter's treemap shows cost of revenues of $1,961 million dominating, then research and development ($497 million), sales and marketing ($466 million), general and administrative ($130 million) and transaction and loan losses ($120 million). The ledger keeps those losses on their own account because they are the cost of Shopify's lending and payments risk, not overhead, and this quarter they fell from $148 million a year earlier while lending grew. Net income rose 75% to $462 million; a $127 million unrealized loss on Shopify's equity investments was the largest of the other items, which this time reduced profit rather than inflating it as they did in the second quarter.

Lending grows faster than GMV, and it sits outside free cash flow​

Shopify reported operating cash flow of $818 million and spent $2 million on property and equipment, which is where its $816 million of free cash flow comes from. Shopify Capital, which advances cash to merchants and is repaid from their future sales, is not in that figure. The 10-Q records purchases and originations of loans and merchant cash advances of $1,700 million in the investing section, against $1,471 million of repayments and sales, so the book grew by a net $229 million of cash in the quarter, by our computation. Originations were 71% higher than a year earlier, more than twice GMV's growth.

In this ledger Assets:Current:Other is mostly that loan book: on September 30 it held $2,350 million of loans and merchant cash advances and $226 million of other current assets. The balance was $579 million at the end of 2021 and $2,018 million at the end of 2025, and it reached $2,576 million at the end of the quarter. For a small business the same distinction applies to a customer who pays later: the sale is revenue now, but until the money arrives it is an asset you financed, not cash in the bank.

Buybacks have pulled paid-in capital back below 2022's level​

Shopify repurchased $550 million of shares in the third quarter after $1,445 million in the second and $521 million in the first, $2,516 million in total under programs its board has authorized up to $5 billion. Shopify's statement of shareholders' equity records each repurchase as a reduction of its common stock account, so the ledger shows it as paid-in capital shrinking:

Equity is a credit, so a shrinking balance plots as a rising line. Common stock plus paid-in capital grew from $8,201 million at the end of 2021 to $10,612 million at the end of 2025 as Shopify issued stock to employees, and fell back to $8,512 million on September 30, below its 2022 level of $8,778 million. Over the same nine months, cash, marketable securities and long-term investments fell to $5,251 million from $6,753 million. Free cash flow was strong; buybacks and lending simply used more than all of it.

What to watch in the fourth quarter​

• The guide. Shopify expects revenue growth in the low thirties, gross profit growth in the high twenties, operating expenses at 29% to 30% of revenue and a free-cash-flow margin consistent with the fourth quarter of 2025.
• Loan losses against the book. Transaction and loan losses fell while originations rose 71%. If losses start rising faster than the loan book, the leverage in operating income narrows.
• The cash balance. At the third quarter's pace of buybacks and net lending, cash and investments keep falling even with a 22% free-cash-flow margin. Whether Shopify slows repurchases is the clearest signal of how it ranks the two.
• Investment marks. Shopify's $4.9 billion of equity and other investments will keep moving net income in both directions, which is why operating income is the better line to compare.