Shopify CEO Tobi Lütke’s $3.7 Billion Quarter Tests His A.I. Shopping Strategy

Shopify CEO and co-founder Tobi Lütke is pushing deeper into payments as the company’s third-quarter results show revenue up 32 percent, exceeding $3.7 billion, and the total value of merchandise sold through its technology in excess of $119 billion—but the more revealing story is not the quarter itself. Rather, it’s the culmination of decisions by Lütke, who has doubled down on Shopify’s transition from a subscription-based software company to an A.I.-savvy fintech giant powering the world’s purchases.

As holiday shopping commences, merchant solutions, led by payment processing and including Shop Pay Installments, now account for nearly 80 percent of the company’s revenue. That mix is the direct result of Lütke’s years-long strategy: moving beyond Shopify storefront software and deeper into the transaction itself. His push to become a ubiquitous checkout option has increasingly tied the company’s fortunes to merchant activity rather than software subscriptions.

More recently, Lütke has pushed Shopify to become a foundational layer for agentic commerce, making Shop Pay available to third-party agents such as Meta’s Muse and connecting merchants’ product catalogs to services including ChatGPT. This puts the company in front of a new class of shoppers just in time for the most consequential quarter in retail. Shopify spent $497 million on research and development during the quarter, up roughly a third from this time last year—that is companywide spending, rather than a disclosed budget for agentic commerce. Early signs suggest the strategy could pay off.

Lütke said on the Sources podcast with Sound Ventures partner Alex Heath on Oct. 28, “Fairly high order value purchases happen with increasing frequency through agents. The things that I personally think are really, really fantastic.”

“A.I. traffic is up 2.6x year over year, [and] orders are growing even faster at 3.3x,” said Harley Finkelstein, president of Shopify, during the Q3 earnings call on Nov. 3. “A.I. channels are sending shoppers straight to product pages at 3x the rate of organic search, and shoppers are converting 64 percent more often.” He cautioned that agentic shopping volume was still small.

Shopify’s gross margin reflects a shift from subscription-heavy revenue to payments solutions that carry third-party processing fees. Shopify’s gross margin declined from 48.9 percent to 47.6 percent year over year. Operating income nevertheless rose 66 percent.

Lütke’s payments-forward and technology-driven mandates have drawn customers from small-to-midsize businesses and enterprises alike.

“It’s an increasingly profitable company transitioning from a software company to a fintech company,” Andy Cloyd, co-founder and CEO of direct-to-consumer growth platform Superfiliate, wrote on LinkedIn in response to Shopify’s earnings. Cloyd added, “At this point, a Q4 miss by Shopify probably says as much about the broader economy as their business itself.”

Under Lütke’s direction, the company in August expanded Shop Pay Installments to Australia in partnership with Affirm. Shopify launched 15 developments between September and October, including small business plugins for ChatGPT and Claude, a new store builder called Canvas and connectors for Grok. In October, he made the choice to launch Shop.dev alongside existing developer tooling, a bold choice to expand Shopify’s ecosystem into third-party agents and apps. Around the same time, the company rolled out cash purchase support in Mexico, “allowing shoppers to place an order online and pay for it in cash at an OXXO convenience store,” Finkelstein said during the earnings call.

Shopify’s impact on the ground

Despite the focus on payments growth, Shopify is managing to secure subscription revenue growth too, earning $836 million for the quarter, up nearly 20 percent year over year.

“I upgraded from Basic to Grow two years ago to take advantage of shipping and processing discounts, so I am spending more with Shopify recently than in the past,” Mark Gillilan, founder and CEO at Shopify merchant Kyoto Botanicals, tells Observer. Even so, he “won’t be going anywhere soon.”

Beyond features, Gillilan says security is one thing keeping him in place. “It is so comforting being able to rely on enterprise-level website security as a small D2C business,” he says.

Even with these benefits, Gillilan recognizes that Shopify merchants “are ultimately at their mercy.” Because Shopify Catalog restricts CBD supplements, only about 20 percent of his products are approved for Shopify’s Agentic Storefronts, which syncs approved products from Catalog to A.I. agents like ChatGPT. He has found that shoppers are still able to find his product pages through chatbots.

For Kyoto Botanicals, visitors from ChatGPT converted at a rate of 14.3 percent from Oct. 1 to Oct. 24, compared to 3.22 percent from organic search, something he attributes to the platform’s A.I.-friendly organization of back-end product data. Gillilan did not provide visitor or order counts, citing competitive concerns.

Damien Castagnozzi, owner of online tungsten wedding band store Tungsten Fashions, says his orders per Google Ads click nearly doubled in August through October compared with the same period last year. Castagnozzi previously ran his store on Shift4Shop (formerly 3dcart) before moving to Shopify in April. “Shopify is actually cheaper for us overall, because the cash back we earn on Shopify’s credit card offsets what we pay,” he tells Observer.

Despite a 2.6-fold increase in A.I.-driven traffic and a menagerie of new features designed to make Shopify a critical infrastructural layer in the agentic commerce era, Lütke remains vulnerable to competitors as Shopify has yet to answer for the needs of every kind of merchant.

At corporate gifting company JNJ Gifts and More, founder Jerina Vincent says Shopify’s standard shopping experience isn’t designed around their complex gifting needs—with corporate clients often ordering 50 to 300 gifts at a time, each with different shipping addresses and personalized messages. “We still rely on additional tools and manual coordination,” Vincent tells Observer. “We continue using Shopify because it provides a solid foundation, but we’re evaluating ways to improve the purchasing experience for our corporate clients.”

Still, Shopify’s choices are running the gamut. Lütke has decided to work in tandem with third-party A.I. agents, while Amazon has blocked Meta’s Muse, citing security concerns. And the recent Shop.dev launch gives developers access to Shopify Catalog and Shop Pay from external agents and apps. Even enterprise migrations are ending up on Shopify, with Finkelstein citing Balmain and Givenchy among larger merchants that chose the platform in the third quarter.

All of this puts Lütke on the front lines of a new era of shopping, one way or another. With this new commerce strategy yet to prove its payoff, its outcome remains indefinite.