Shopify Stock

Shopify Inc. (Shopify) operates as a leading provider of essential internet infrastructure for commerce, offering trusted tools to start, grow, market, and manage a retail business of any size.

Shopify makes commerce better for everyone with a platform and services that are engineered for simplicity and reliability, while delivering a better shopping experience for consumers everywhere.

The company software enables merchants to easily display, manage, market and sell their products across over a dozen different sales channels, including web and mobile storefronts, physical retail locations, pop-up shops, B2B, social media storefronts, native mobile apps, buy buttons, and marketplaces. More than 80% of the company’s merchants have installed two or more channels. The Shopify application program interface (API) has been developed to support custom storefronts that let merchants sell anywhere, in any language.

The company’s software provides one single integrated, easy-to-use back end that merchants use to manage their business and buyers across these multiple sales channels. Merchants use their Shopify dashboard, which is available in 21 languages, to manage products and inventory, process orders and payments, fulfill and ship orders, discover new buyers and build customer relationships, source products, leverage analytics and reporting, manage cash, payments and transactions, and access financing.

The company’s software is delivered to merchants as a service, and operates on a shared infrastructure. This cloud-based infrastructure not only relieves merchants from running and securing their own hardware, it also consolidates data generated by the interactions between buyers and a merchant's products, providing rich data to inform merchant decisions. With a highly qualified team of data science personnel, the company expects to continue leveraging data for the benefit of its merchants with critical safeguards in place to ensure privacy, security and compliance.

Shopify also enables merchants to build their own brand, leverage mobile technology, sell internationally, and handle massive traffic spikes with flexible infrastructure:

Brand Ownership: Shopify is designed to help the company’s merchants own their brand, develop a direct relationship with their buyers, and make their buyer experience memorable and distinctive. The company recognizes that in a world where buyers have more choices than ever before, a merchant’s brand is increasingly important. The Shopify platform is designed to allow a merchant to keep their brand present in every interaction to build buyer loyalty and create competitive advantages. While the company’s platform is designed to empower merchants first, merchants benefit when buyers are confident that their payments are secure. For merchants using Shopify Payments, buyers are already getting a superior experience, with features, such as Shop Pay and Shop Pay Installments, and with the company’s investments in additional buyer touchpoints, such as retail, shipping, fulfillment, and Shop, its all-in-one digital shopping companion app, brands that sell on Shopify can offer buyers an end-to-end, managed shopping experience that previously was only available to much larger businesses.

Mobile: As transactions over mobile devices represent the majority of transactions across online stores powered by Shopify, the mobile experience is a merchant’s primary and most important interaction with online buyers. Shopify has focused on enabling mobile commerce, and the Shopify platform includes a mobile-optimized checkout system, designed to enable merchants’ buyers to more easily purchase products over mobile websites. The company’s merchants are able to offer their buyers a quick and secure check-out option by using Shop Pay, Apple Pay, Meta Pay, and Google Pay on the web, and it continues to explore other new ways to offer payment flexibility and accelerated checkout. Just as Shopify's tools enable brands to sell directly to their buyers, the Shop app provides merchants that same direct sales power through a mobile experience. The Shop app is a digital shopping assistant that is available to buyers on iOS and Android mobile devices. Buyers use the Shop app to track packages, discover products from their favorite merchants, earn cash back through the company’s rewards program, Shop Cash, and engage with brands directly, which helps merchants increase opportunities to find new customers and drive greater loyalty and lifetime value of their buyers. Shopify’s mobile capabilities are not limited to the front end: merchants who are often on-the-go find themselves managing their storefronts via their mobile devices, and Shopify continues to strive to make it easier to do so.

Global: Shopify offers merchants across several countries a localized experience within the country in which they are based. In addition, Shopify Markets, enables merchants to manage localized storefronts in different countries through one global store, making cross-border commerce easier for entrepreneurs. With Shopify Markets, merchants can easily set up market-specific buying experiences, enabling buyers to shop in their local currencies, languages, domains, and payment methods. Shopify Markets also calculates duty and import fees. Such tailored experiences are designed to increase local buyer trust and conversion, enabling merchants to enter new geographies more easily. Shopify Markets Pro, introduced in 2022, offers merchants a native merchant-of-record tax and duty compliance solution. Shopify Markets and Shopify Markets Pro complement the company’s partnership with Global-E, an offering for merchants who want to fully outsource their cross-border business with an approved third-party partner.

Infrastructure: The company builds its platform to address the growing challenges facing merchants and with the aim of making complex tasks simple. The Shopify platform is engineered to enterprise-level standards and functionality and designed for simplicity and ease of use. The company also designs its platform with a robust technical infrastructure able to manage large spikes in traffic that accompany events, such as new product releases, holiday shopping seasons, and flash sales. The company is constantly innovating and enhancing its platform, with its continuously deployed, multi-tenant architecture ensuring all of its merchants are always using the latest technology.

This combination of ease of use with enterprise-level functionality allows merchants to start with a Shopify store and grow with the company’s platform to almost any size. Using Shopify, merchants may never need to re-platform. The company’s Shopify Plus subscription plan was created to accommodate larger merchants, with additional functionality, scalability and support requirements. The Shopify Plus plan also appeals to larger merchants not already on Shopify who want to migrate from their expensive and complex legacy solutions to achieve greater functionality and flexibility.

Merchants

The company’s marketing efforts primarily focus on selling to small and medium-sized businesses (SMBs) and entrepreneurs while its direct sales team primarily addresses the needs of large merchants. The large majority of the company’s merchants are on subscription plans. As of December 31, 2022, the company had millions of merchants from more than 175 countries using its platform, geographically dispersed as follows: 55% North America, 25% Europe Middle East and Africa, 15% the Asia Pacific, Australia and China and 5% in Latin America (Mexico and South America). The company’s merchants represent a wide array of retail verticals and business sizes.

Offerings

The company’s business model has two revenue streams: a recurring subscription component the company calls subscription solutions, and a merchant success-based component it calls merchant solutions.

Subscription Solutions

The company generates subscription solutions revenues primarily through the sale of subscriptions to its platform, including variable platform fees, as well as through the sale of subscriptions to its POS Pro offering, the sale of themes, the sale of apps, and the registration of domain names.

The company offers pricing plans designed to meet the needs of its current and prospective merchants. Offering different service and pricing levels allows entrepreneurs to scale without leaving the Shopify platform: as a merchant upgrades to the higher-priced options, they receive more powerful tools and improved product pricing for certain merchant solutions. While most merchants subscribe to the company’s Basic and Shopify plans, the majority of its GMV comes from merchants subscribing to its Shopify Plus plans. Merchant retention rates are also higher among merchants on higher-priced plans. Offered at a starting rate that is several times that of the company’s Advanced plan, the Shopify Plus plan solves for the complexity of merchants as they grow and scale globally, offering additional functionality, and support, including features like Shopify Audiences for buyer demand, B2B features enabling merchants to sell business-to-business, and Launchpad for ecommerce automation, as well as dedicated account management where appropriate. Mattel, Gymshark, Heinz, FTD, Netflix, Kylie Cosmetics, SKIMS and Supreme are among the Shopify Plus merchants leveraging the company’s reliable and scalable commerce solution.

The company’s subscription plans typically have a one-month term, although merchants can elect to make an annual commitment. Those who sign on to Shopify Plus initially have annual or multi-year subscription terms. Subscription terms automatically renew unless notice of cancellation is provided in advance. Merchants purchase subscription plans directly from the company. POS Pro subscriptions fees are charged on a per month and per location basis. POS Pro enables brick and mortar merchants to seamlessly bridge online and offline commerce operations and offer their buyers a smooth shopping experience through features, such as smart inventory management and buy online-pickup/return in store or curbside.

Merchant Solutions

The company offers a variety of merchant solutions to augment those provided through a subscription to address the broad array of functionality merchants commonly require, including accepting payments, shipping and fulfillment, and securing working capital.

The company principally generates merchant solutions revenues from payment processing fees and currency conversion fees from Shopify Payments, transaction fees, referral fees from partners, advertising revenue on the Shopify App Store, Shopify Capital, Shop Pay Installments, Shopify Balance, Shopify Shipping, service fees from Shopify Fulfillment Network, including Deliverr, Inc. (Deliverr), 6 River Systems sales, non-cash consideration obtained for services rendered as part of strategic partnerships, the sale of POS hardware, Shopify Email and Shopify Markets.

Shopify Payments is a fully integrated payment processing service that allows the company’s merchants to accept and process payment cards online and offline, and is also designed to drive higher retention among merchants. Shopify Payments eliminates the need for merchants to set up and maintain a direct relationship with a third-party payment gateway, gives merchants access to low credit card processing rates, and allows the company to cross-sell additional solutions to its merchant base. The company introduced Shopify Payments in the United States and Canada in 2013, and has been expanding into additional geographies in subsequent years. More than two-thirds of eligible merchants have enabled Shopify Payments, which is available in 22 countries. As a result of introducing Shopify Payments, the company’s revenues from merchant solutions and associated costs have increased. Shopify merchants that have adopted Shopify Payments also have access to Shop Pay, the company accelerated checkout, Shop Pay Installments, its 'buy now, pay later' product, and Shopify Audiences (for Shopify Plus merchants) aimed at helping merchants target advertising campaigns toward high-intent buyers.

For Shopify Payments transactions, processing payment fees are determined based in part on a percentage of the dollar amount processed plus a per transaction fee, where applicable. Currency conversion fees are determined based on a percentage of the dollar amount converted in a payment processing transaction, where applicable.

The company generates referral fees from partners to which it directs business and with which it has an arrangement in place. Pursuant to terms of the agreements with the company’s partners, these revenues can be recurring or non-recurring. Advertising revenue is earned on the Shopify App Store as merchants click on the apps being advertised by the company’s partners. The company recognizes advertising revenues when it is entitled to receive payment from the partner.

Shopify Capital, a merchant cash advance (MCA) and loan program, helps eligible merchants secure financing and accelerate the growth of their business by providing access to simple, fast, and convenient working capital. In 2022, Shopify Capital was launched in Australia, bringing its availability to four countries (launched in the United States in 2016, and in the United Kingdom and Canada in 2020). The company applies underwriting criteria prior to purchasing the eligible merchant's future receivables or making a loan to help ensure collectability. Under Shopify Capital, the company purchases a designated amount of future receivables at a discount or make a loan. The advance, or the loan, is forwarded to the merchant at the time the related agreement is entered into, and the merchant remits a fixed percentage of their daily sales until the outstanding balance has been remitted. For Shopify Capital merchant cash advances (MCAs), the company applies a percentage of the remittances collected against the merchant's receivable balance, and a percentage, which is related to the discount, as merchant solutions revenue. For certain Shopify Capital loans, there is a fixed maximum repayment term. For certain other Shopify Capital loans, the company calculates an expected repayment date. Using the merchant's contractual or expected repayment date, the company calculates an effective interest rate based on the merchant's expected future payment volume to determine how much of a merchant's repayment to recognize as revenue and how much to apply against the merchant's receivable balance. The company has mitigated some of the risks associated with Shopify Capital by opening insurance policies with Export Development Canada (EDC) to insure some of the MCAs and loans offered by Shopify Capital in the United States, the United Kingdom, Canada and, Australia. In early 2023, the company further enhanced its risk management and funding capabilities with the ability to sell certain Shopify Capital loans in the United States.

Shop Pay Installments, a ‘buy now pay later product’ available to merchants and buyers in the United States, enables merchants to sell their goods to buyers on an interest-free payment plan, as well as an interest-bearing payment plan, which was introduced in 2022. Merchants receive upfront payment for a sale, net of fees, without the worry associated with collecting future payments from the buyer. The company recognizes revenue when a merchant sale is made through the use of the product based on a percentage of the total order value. The company earns and recognizes a portion of the revenue from each merchant sale, with the majority of revenue earned and recognized by its third-party provider that bears the buyer underwriting and buyer credit risk associated with the product.

Shopify Balance, the company’s money management product, rolled out to all eligible merchants in the United States in 2022. Shopify Balance offers merchants a no fee money management account, providing merchants with fast access to their cash, a card for spending online, on mobile, or in-store, and rewards featuring cash back, perks, and discounts on everyday business spending. While Shopify earns a small fee upon the use of its card, the company expects to use Shopify Balance primarily as a way to introduce and centralize more financial services to simplify its merchants’ financial lives.

Shopify Shipping allows merchants doing their own fulfillment and shipping to select from available shipping partners to buy and print outbound and return shipping labels and track orders directly within the Shopify platform. Shopify Shipping was launched in France, Italy, and Spain in 2022, bringing its availability to seven countries. For Shopify Shipping, fees are determined based on the type of labels purchased or the arrangement negotiated with third parties.

In June 2019, the company announced Shopify Fulfillment Network which aims to offer fast, affordable, and reliable fulfillment to independent businesses. In 2022, Shopify Fulfillment Network was offered to a subset of merchants in the United States. On July 8, 2022, Shopify completed the acquisition of Deliverr, an ecommerce fulfillment technology company, to accelerate the development of Shopify’s logistics offering.

The logistics services being built by Shopify aim to help merchants through three critical stages of their logistics journey: freight, distribution, and fulfillment. Starting with freight, in 2022, Shopify began a partnership with Flexport to help merchants more easily and cost-effectively inbound freight to the United States.

Upon arriving at the U.S. ports, Shopify Fulfillment Network helps to prepare and route inventory for distribution across multiple channels including forward-positioning inventory to optimal warehouses based on predicted merchant demand. With the integration of Deliverr and by leveraging a network of Shopify-operated warehouse hubs and largely third-party owned and operated warehouse spokes, Shopify's logistics offering intends to help fulfill merchants’ orders to their buyers quickly and cost-effectively by leveraging Shopify’s scale with deep machine learning tools, including demand forecasting, predictive inventory allocation across warehouses and intelligent order routing.

Shopify partners leveraging 6 River Systems’ cloud-based software and collaborative mobile robots can increase the speed and reliability of their warehouse operations by empowering on-site associates with daily tasks, including inventory replenishment, picking, sorting, and packing. 6 River Systems, LLC (6 River Systems) also sells its collaborative warehouse fulfillment solutions to retail and third-party fulfillment customers independent of Shopify Fulfillment Network and Deliverr.

Shopify also introduced Shop Promise in 2022. Shop Promise is a buyer-facing badge that tells buyers that orders will be fulfilled and delivered in five or fewer calendar days, and is intended to help merchants build trust and customer loyalty and improve sales conversion.

Shopify POS is a sales channel that lets merchants sell their products and accept payments in person from a mobile device almost anywhere, including brick-and-mortar shops, markets, and pop-up shops.

Shopify POS syncs with Shopify to track merchant orders and inventory across retail locations, a merchant's online store, and other active channels.

While the majority of the POS-compatible hardware the company sells has been designed and manufactured by third-party vendors, it also offers Shopify-designed hardware, including POS card readers with integrated payments and a retail stand with expanded functionality to better meet the needs of its merchant base and increase the visibility of the Shopify brand. In addition to launching Tap to Pay on iPhone, which allows merchants to accept contactless credit and debit cards and digital wallets without any hardware, in 2022, the company introduced POS Go, a powerful hardware that enables merchants to meet customers where they are from counter to curb, into early access in the United States.

In 2022, the company expanded availability of its POS card reader with integrated payments to Belgium, Denmark, Finland, Italy, Singapore and Spain, bringing its availability to 14 countries. Merchants can purchase POS card readers from Shopify's hardware store and Shopify generates incremental Shopify Payments revenue for transactions conducted via its card readers with integrated payments.

Shopify Email, launched in 2019, is the company’s native email marketing tool designed to enable merchants to create, run, and track email marketing campaigns from within the merchant admin, and help merchants to build direct relationships with buyers.

Shopify Markets, the company’s end-to-end cross-border commerce product offerings launched in 2021, integrate services to centralize the platform's cross-border capabilities and enable merchants to penetrate the global commerce market. Shopify Markets leverage the company’s existing transactional services and partnerships from which it earns referral fees to provide a tailored experience for each market.

In 2022, the company introduced Shopify Markets Pro into early access, which is its native merchant-of-record solution that manages tax and duty compliance on behalf of the merchants, as well as Shopify Translate and Adapt, which helps merchants quickly and accurately localize the customer journey through language translation and adapting custom content for each market. Shopify generates revenue when duty and import taxes and currencies are converted for buyer orders, on international payment processing, and on merchant-of-record transactions. Global-E, an offering that gives merchants the option for a more full-service, outsourced solution for cross-border commerce, complements Shopify Markets and Shopify Markets Pro.

Seasonality

The company’s merchants typically process their lowest level of gross merchandise volume (GMV) in the first quarter (year ended December 31, 2022) and their highest level of GMV during the fourth quarter holiday season. As a result, the company has historically generated higher merchant solutions revenues in its fourth quarter than in other quarters.

Growth Strategy

Key elements of the company’s strategy include grow its base of merchants; grow its merchants’ revenue; continuous innovation and expansion of its platform; continue to grow and develop its ecosystem; continue to expand its referral partner programs; and continue to build for the long-term.

Significant Events

In the fourth quarter of 2022:

Shopify launched Shopify Tax, which offers robust tax compliance tools for the U.S.-based merchants that sell to customers in the United States.

In the third quarter of 2022:

Shopify acquired Deliverr, Inc. (Deliverr), an ecommerce fulfillment technology company.

Shopify announced the YouTube Shopping channel, which enables merchants to easily integrate their online store with one of the world’s biggest entertainment platforms.

Shopify launched Shopify Collabs, which gives merchants a new channel to find highly engaged consumers and powers commerce for the creator economy.

Shopify launched Shopify Capital in Australia, expanding its availability to four countries.

Shopify introduced Shopify Markets Pro, a cross-border merchant-of-record solution, and Shopify Translate and Adapt, which helps merchants accelerate their global expansion without adding complexity.

Shopify introduced Flex Comp, a new compensation system that gives employees agency to decide how much of their total compensation should be in the form of cash versus equity.

Shopify launched POS Go, new retail hardware that empowers merchants to meet consumers wherever they are and however they want to shop - from counter to curb.

In the second quarter of 2022:

Shopify launched Shopify Audiences, an advertising tool that helps merchants find high-intent buyers.

Shopify introduced Shopify Editions, a semi-annual showcase that features new launches and improvements across the platform.

In the first quarter of 2022:

Shopify launched Linkpop, a link in bio tool that enables creators and merchants to launch social storefronts to sell directly on the platforms they are already engaging with followers.

Government Regulation

The company is subject to the U.S. and Canadian laws and regulations that govern or restrict its business and activities in certain countries and with certain persons, including the economic sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Control, the sanctions regulations administered or enforced by the Office of the Superintendent of Financial Institutions in Canada, and the export control laws administered by the U.S. Commerce Department’s Bureau of Industry and Security, the U.S. State Department’s Directorate of Defense Trade Controls and the Canadian Export and Import Controls Bureau. The company is subject to a variety of laws and regulations in Canada, the United States, the European Economic Area and elsewhere related to payment processing and other financial services.

History

The company was founded in 2004. It was incorporated under the Canada Business Corporations Act (CBCA) in 2004. The company was formerly known as Jaded Pixel Technologies Inc. and changed its name to Shopify Inc. in 2011.