Payment Processing Drives Shopify’s Profits

In some ways, Shopify’s financial overview is similar to Amazon’s. Both derive their greatest profits not from their core products but from complementary services. Amazon’s cloud computing division, an extension of its marketplace infrastructure, accounts for more than 60% of gross profit.

Similarly, fees for access to Shopify’s main SaaS platform — called “subscription solutions” — made up less than half of gross profit in the first quarter of 2024.

Shopify’s “merchant solutions” business — almost all of Shopify Payments, its credit card processing service — generated about 70% of first-quarter revenue and 56% of gross profit.

Total revenue for Q1 — subscription solutions plus merchant solutions — grew about 23% year over year, from $1.5 billion to $1.9 billion. By comparison, Amazon’s revenue for Q1 2024 was $143.3 billion, of which $80.4 million came from BigCommerce.

Shopify Plus, for high-volume merchants, accounted for about 32% of subscription solutions in Q1. Example Plus customers include Heinz, FTD, Netflix, Kylie Cosmetics, and SKIMS.

Shopify does not disclose the number of its merchant stores. Estimates range from 2 million to 4 million.

The company has customers in 175 countries, although more than 70% of its revenue in 2023 came from the United States (66%) and Canada (5%).

There are over 8,000 third-party apps available in the Shopify App Store.

Some of Shopify’s most notable board members include Gail Goodman, former CEO of Constant Contact; Fidji Simo, CEO of Instacart; and, as of 2023, Brett Taylor, chairman of the board of OpenAI and co-founder of Sierra Technologies, a conversational AI company.

Shopify has equity investments in three companies: Global-E Online, a cross-border e-commerce facilitator; Affirm, a buy now, pay later service; and Klaviyo, a marketing automation platform. The fair value of each company as of March 31 was:

• Global-E Online: $802 million
• Confirm: $756 million,
• Klaviyo: $451 million.