Shopify Company Breakdown: How do they make their Money?

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Shopify Income Statement Breakdown

Let’s take a look at Shopify’s 2024 annual income statement to break down how they make money. We will take a look at their revenue streams, cost of revenues as well as operating expenses and other income to arrive at their net income for the year.

Shopify’s Revenue

If you are wondering how Shopify makes money, they have two primary revenue streams that they break down on their income statement. The first is subscription solutions which is their recurring subscription and merchant solutions which is a success based component.

Subscription solutions: This revenue stream includes subscriptions to their platform, in addition to variable platform fees. This revenue stream also includes the sale of subscription to Shopify’s Point of Sale Pro, the sale of apps, domain name registration and theme sales.

Merchant solutions: These are solutions related to typical services that merchants require beyond those provided in their subscription. These solutions include accepting payments, securing working capital and shipping. The revenues included in this stream come from payment processing fees and currency conversion fees from Shopify Payments. Revenue is also generated from lending and financial products, referral fees from partners and the sale of shipping labels.

Here is revenue broken down over the past 5 years for Shopify as of December 31:

Overall, revenue has seen a steady increase in the past three years. Shopify has experienced double digit growth as their revenue increased 25.78% from $7.06 Billion in 2023 to $8.88 Billion in 2024. Merchant solutions grew by 25.02% as it increased to $6.53B in 2024 from $5.22B in 2023. Subscription solutions also had great growth of 27.93% as it reached $2.34 Billion up from the $1.84 Billion in 2023.

Shopify Cost of Revenues & Gross Profit

The cost of revenues for Shopify are the direct costs associated with providing the subscription solutions and the merchant solutions. This will allow us to see just how profitable each revenue stream is in addition to the overall gross profit for Shopify.

In 2024 the total cost of revenue related to subscription solutions was $434M. For Merchant solutions cost of revenues was $2,556 million. So what does this mean? Well, we can use these costs to calculate the profitability of each revenue stream.

For Subscription solutions Shopify experienced a gross profit of $1,916M after taking revenue of $2,350M and deducting the cost of sales. This revenue line has a profit margin of 81.53% which is very profitable.

Following the same process we arrive at gross profit of $2,556M for Merchant Solutions. The profit margin for this revenue stream is 39.14%. Since Merchant Solutions has an overall higher revenue, it’s lower profit margin pulls the overall profit margin for Shopify downward to 50.36%.

Opearting Expenses

Operating expenses for Shopify have seen a substantial decrease from 2023 which has helped improve Shopify’s profitability. However, a large expense in 2023 was from the impairment on the sale of Shopify’s logistics business which totalled $1,340M.

Net Income

Net Income for Shopify was $2,019 Million in 2024 which is up from the $132 Million in 2023 and the -$3,460 Million in 2022. We can see that this increase in net income is a result of increasing profitable revenue streams, a reduction in expenses and overall strong other income.