# How Shopify makes money

CXProWealth Business Lens · Shopify (SHOP) · Q2 FY2026

Read from the 10-Q for the period 2026-04-01 to 2026-06-30, filed 2026-08-05 with the SEC (accession 0001594805-26-000047): https://www.sec.gov/Archives/edgar/data/1594805/000159480526000047/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $3.6B (+33.7% on the year)
- Operating income: $488.0M (operating margin 13.6%)
- Net income: $1.5B (net margin 41.9%)
- Gross margin: 47.7%
- Free cash flow: $654.0M (18.3% of revenue)
- Cash conversion (operating cash flow / net income): 0.44x
- Capital expenditure: 0.1% of revenue

## Where the money goes (Q2 FY2026)

- Subscription solutions → Revenues: $802.0M
- Merchant solutions → Revenues: $2.8B
- Revenues → Cost of revenues: $1.9B
- Revenues → Gross profit: $1.7B
- Gross profit → Total operating expenses: $1.2B
- Total operating expenses → Sales and marketing: $498.0M
- Total operating expenses → Research and development: $445.0M
- Total operating expenses → General and administrative: $136.0M
- Total operating expenses → Transaction and loan losses: $141.0M
- Gross profit → Income from operations: $488.0M
- Income from operations → Income before income taxes: $488.0M
- Total other income (expense), net → Income before income taxes: $1.3B
- Income before income taxes → Provision for income taxes: $273.0M
- Income before income taxes → Net income: $1.5B

## Where the revenue comes from

### Products and services (Condensed Consolidated Statements of Operations and Comprehensive Income)

| Member | Value | Share |
|---|---:|---:|
| Merchant solutions | $2.8B | 77.6% |
| Subscription solutions | $802.0M | 22.4% |

The members sum to total revenue.

## Income statement, as filed

| Line | Q2 FY2026 | Of revenue |
|---|---:|---:|
| Revenues | $3.6B | 100% |
|   Subscription solutions | $802.0M | 22.4% |
|   Merchant solutions | $2.8B | 77.6% |
| Cost of revenues | $1.9B | 52.3% |
|   Subscription solutions | $163.0M | 4.5% |
|   Merchant solutions | $1.7B | 47.8% |
| **Gross profit** | $1.7B | 47.7% |
| Sales and marketing | $498.0M | 13.9% |
| Research and development | $445.0M | 12.4% |
| General and administrative | $136.0M | 3.8% |
| Transaction and loan losses | $141.0M | 3.9% |
| **Total operating expenses** | $1.2B | 34.0% |
| **Income from operations** | $488.0M | 13.6% |
| Interest income | $66.0M | 1.8% |
| Net realized gain on equity and other investments | $1.0M | 0.0% |
| Net unrealized gain (loss) on equity and other investments | $1.2B | 34.9% |
| Net loss on equity method investment | -$22.0M | 0.6% |
| Foreign exchange (loss) gain | -$7.0M | 0.2% |
| **Total other income (expense), net** | $1.3B | 35.9% |
| **Income before income taxes** | $1.8B | 49.5% |
| Provision for income taxes | ($273.0M) | 7.6% |
| **Net income** | $1.5B | 41.9% |
| Basic (in dollars per share) | $1 | 0.0% |
| Diluted (in dollars per share) | $1 | 0.0% |
| Basic (in shares) | 1,295,220,307 |  |
| Diluted (in shares) | 1,297,940,958 |  |
| Unrealized (loss) gain on cash flow hedges | -$4.0M | 0.1% |
| Tax effect on unrealized (loss) gain on cash flow hedges | (-$1.0M) | 0.0% |
| **Total other comprehensive (loss) income** | -$3.0M | 0.1% |
| **Comprehensive income** | $1.5B | 41.8% |

## History

| Period | Revenue | Operating income | Net income | Operating cash flow | Capital expenditure | Free cash flow |
|---|---:|---:|---:|---:|---:|---:|
| FY2013 | — | -$4.3M | -$4.8M | $1.4M | $3.5M | -$2.1M |
| FY2014 | — | -$21.6M | -$22.3M | -$801.0K | $20.6M | -$21.4M |
| FY2015 | — | -$17.8M | -$18.8M | $15.8M | $16.5M | -$769.0K |
| FY2022 | $5.6B | -$822.0M | -$3.5B | -$136.0M | $50.0M | -$186.0M |
| FY2023 | $7.1B | -$1.4B | $132.0M | $944.0M | $39.0M | $905.0M |
| FY2024 | $8.9B | $1.1B | $2.0B | $1.6B | $19.0M | $1.6B |
| FY2025 | $11.6B | $1.5B | $1.2B | $2.0B | $26.0M | $2.0B |

Latest trend (the newest full year against the year before; a reading, not a forecast):

- Revenue: +30.1% (year before +25.8%): accelerating
- Operating income: +36.6% (year before +24.2%): accelerating
- Net income: -39.0% (year before +1,429.5%): slowing
- Free cash flow: +25.7% (year before +76.5%): slowing

## Operating figures stated in the filing

- Gross merchandise volume (quarter): $115.6B (as of 2026-06-30). "For the three and six months ended June 30, 2026 we facilitated GMV of $115.6 billion and $216.3 billion, respectively, (June 30, 2025 - $87.8 billion and $162.6 billion), representing year-over-year growth of 32% on a quarterly basis and 33% on a year-to-date basis (2025 vs 2024 - 31% and 27%)." (Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations)
- Gross merchandise volume (quarter): $87.8B (as of 2025-06-30). "For the three and six months ended June 30, 2026 we facilitated GMV of $115.6 billion and $216.3 billion, respectively, (June 30, 2025 - $87.8 billion and $162.6 billion), representing year-over-year growth of 32% on a quarterly basis and 33% on a year-to-date basis (2025 vs 2024 - 31% and 27%)." (Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations)
- GMV year-over-year growth (quarter): 32.0% (as of 2026-06-30). "For the three and six months ended June 30, 2026 we facilitated GMV of $115.6 billion and $216.3 billion, respectively, (June 30, 2025 - $87.8 billion and $162.6 billion), representing year-over-year growth of 32% on a quarterly basis and 33% on a year-to-date basis (2025 vs 2024 - 31% and 27%)." (Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations)
- GMV year-over-year growth (quarter): 31.0% (as of 2025-06-30). "For the three and six months ended June 30, 2026 we facilitated GMV of $115.6 billion and $216.3 billion, respectively, (June 30, 2025 - $87.8 billion and $162.6 billion), representing year-over-year growth of 32% on a quarterly basis and 33% on a year-to-date basis (2025 vs 2024 - 31% and 27%)." (Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations)
- GMV year-over-year growth, constant currency (quarter): 30.0% (as of 2026-06-30). "On a constant currency basis, in which GMV in the three and six months ended June 30, 2026 is converted using the comparative period's monthly average exchange rates, year-over-year growth was 30% and 30% (2025 vs 2024 - 29% and 27%)." (Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations)
- GMV year-over-year growth, constant currency (quarter): 29.0% (as of 2025-06-30). "On a constant currency basis, in which GMV in the three and six months ended June 30, 2026 is converted using the comparative period's monthly average exchange rates, year-over-year growth was 30% and 30% (2025 vs 2024 - 29% and 27%)." (Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations)
- Monthly recurring revenue: $221.0M (as of 2026-06-30). "We had $221 million of MRR as of June 30, 2026 compared to $185 million as of June 30, 2025." (Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations)
- Monthly recurring revenue: $185.0M (as of 2025-06-30). "We had $221 million of MRR as of June 30, 2026 compared to $185 million as of June 30, 2025." (Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations)
- MRR year-over-year growth: 19.0% (as of 2026-06-30). "As of June 30, 2026, MRR totaled $221 million, representing an increase of 19% relative to MRR at June 30, 2025." (Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations)
- Shopify Payments penetration rate (quarter): 68.0% (as of 2026-06-30). "For the three months ended June 30, 2026, the Shopify Payments penetration rate was 68%, resulting in GMV of $78.1 billion that was facilitated using Shopify Payments." (Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations)
- Shopify Payments penetration rate (quarter): 64.0% (as of 2025-06-30). "This compares to a penetration rate of 64% resulting in GMV of $56.6 billion that was facilitated using Shopify Payments in the same period in 2025." (Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations)
- GMV facilitated using Shopify Payments (quarter): $78.1B (as of 2026-06-30). "For the three months ended June 30, 2026, the Shopify Payments penetration rate was 68%, resulting in GMV of $78.1 billion that was facilitated using Shopify Payments." (Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations)
- GMV facilitated using Shopify Payments (quarter): $56.6B (as of 2025-06-30). "This compares to a penetration rate of 64% resulting in GMV of $56.6 billion that was facilitated using Shopify Payments in the same period in 2025." (Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations)
- Shopify Payments GMV year-over-year growth (quarter): 38.0% (as of 2026-06-30). "These factors drove $21.4 billion of additional GMV facilitated using Shopify Payments in the three months ended June 30, 2026 compared to the same period in 2025, representing growth of 38%." (Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations)

## Key insights

### Investment marks, not operations, made most of net income

Unrealized gains on stakes of $1,249 million were 70.4% of pretax income of $1,775 million; income from operations supplied only 27.5%.

Net income was $1,502 million against $906 million a year earlier, a 41.9% net margin. Most of it came from below the operating line: net unrealized gain on equity and other investments was $1,249 million, against $681 million a year earlier. Income from operations was $488 million. The filing ties the gain to share-price changes in listed holdings and 'an observable price change of a private investment'. _(from the filing)_
The same holdings move the other way too. In the first quarter of 2026 Shopify reported a net loss of $581 million while income from operations was a positive $382 million. The filing describes 'a high concentration of risk associated with a small number of equity and other investments', with listed stakes in Affirm, Global-E and Klaviyo and an equity-method stake in Flexport. _(from the filing)_
Operating cash flow of $658 million was 0.44 times net income, because a mark-to-market gain brings in no cash. _(from the filing)_
Analysis: the operating line and free cash flow describe the business; the investment line describes how markets value Shopify's partners. Reading the quarter by net income, or by the change in net income from one quarter to the next, mostly measures the second. _(analysis)_

### Payments thinned gross margin but widened operating margin

Gross margin slipped to 47.7% from 48.6%, yet operating margin rose to 13.6% from 10.9%, because operating costs grew more slowly than gross profit.

Cost of merchant solutions was 61.6% of merchant solutions revenue, against 20.3% for subscription solutions. Merchant solutions grew 37.4% and subscription solutions 22.3%, so merchant solutions rose 2.1 points to 77.6% of revenue. The filing says this mix 'has caused in the past, and may cause in the future, a decline in our overall gross margin percentage'. _(from the filing)_
Below gross profit the picture reverses. Total operating expenses of $1,220 million took 71.4% of gross profit of $1,708 million, against 77.6% a year earlier ($1,011 million of $1,302 million). Sales and marketing fell to 13.9% of revenue from 15.5%, and research and development to 12.4% from 14.7%. Income from operations rose 67.7% on revenue growth of 33.7%. _(from the filing)_
The filing gives the reason it accepts the trade: Shopify Payments 'requires significantly less sales and marketing and research and development expenses than Shopify's core subscription business'. _(from the filing)_
Analysis: the model only works while operating costs keep growing more slowly than gross profit. Sales and marketing and research and development both still rose in dollars, and the filing names higher marketing program spend and AI-related computing costs, so the spread can narrow if either accelerates. _(analysis)_

### Free cash flow leaves out the money lent to merchants

Free cash flow of $654 million exceeded income from operations of $488 million, but cash Shopify lends to merchants is reported in investing, not in that figure.

Operating cash flow was $658 million and capital spending $4 million, leaving free cash flow of $654 million, 18.3% of revenue. A year earlier free cash flow was $422 million against income from operations of $291 million, so cash running ahead of operating profit is not new. _(from the filing)_
The cash flow statement places purchases and originations of loans, and repayments of them, in investing activities. Starting in April 2026, merchant cash advances moved there too, 'on a basis consistent with loans', after amended Canadian regulations led Shopify to convert its Canadian advances into loans. Non-cash charges, including stock-based compensation and the provision for transaction and loan losses, are added back to operating cash. _(from the filing)_
Analysis: for a company that is also a growing lender, free cash flow overstates the cash left over once the loan book is funded. A fuller view sets free cash flow against the net cash going into loans and advances, which the investing section of each quarterly report shows. _(analysis)_

### Competitive edge

- **Its own checkout now carries 68% of merchant sales** Shopify Payments volume grew 38% against 32% for all merchant sales, so a rising share of every sale pays Shopify a processing fee.
- **A recurring subscription base that costs little to serve** Monthly recurring revenue reached $221 million, up 19%, and subscription costs were 20.3% of that line's revenue, against 61.6% for merchant solutions.

### What to watch

- **Loan and transaction losses grew faster than revenue** Transaction and loan losses were $141 million against $80 million a year earlier, rising to 3.9% of revenue from 3.0%, led by lending.
- **AI usage is lifting cloud and computing costs** Cost of subscription solutions rose to $163 million from $121 million, outpacing subscription revenue growth of 22.3%, which the filing ties partly to AI-related usage.
- **Merchant volume rests on consumer spending and currency** GMV grew 32% as reported but 30% at constant currency, and the filing links its cash needs to consumer spending on goods.

## Investor view

**Investment gains of $1,249 million, not operations, produced most of Shopify's second-quarter net income**

### How it makes money

Shopify earns in two ways. Subscription solutions, the monthly plans plus apps, themes and domains, brought in $802 million this quarter, 22.4% of revenue. Merchant solutions brought in $2.78 billion, 77.6% of revenue, and come 'principally' from payment processing and currency conversion fees on Shopify Payments, with lending, partner referral fees, shipping labels, point-of-sale hardware and advertising on top. The filing calls the first 'a recurring subscription component' and the second 'a merchant success-based component'. _(from the filing)_
Revenue follows the money merchants process. Merchants sold $115.6 billion of goods through the platform (GMV) against $87.8 billion a year earlier, and Shopify's revenue equalled 3.1% of that volume, against 3.05% a year earlier. The filing is explicit that 'GMV does not represent revenue earned by us', but says merchant solutions revenue is 'directionally correlated' with it. The take on each dollar sold held roughly steady; the dollars grew. _(from the filing)_
Payments is the engine inside merchant solutions. 68% of GMV ran through Shopify Payments this quarter, against 64% a year earlier, which put $78.1 billion of volume on Shopify's own checkout against $56.6 billion. The filing names the two drivers of the payments revenue increase: a higher penetration rate and more GMV from merchants using the platform. _(from the filing)_
Subscriptions are the higher-margin layer. Monthly recurring revenue stood at $221 million against $185 million a year earlier, up 19%, helped by 'a larger percentage of subscriptions coming from higher priced plans, such as Plus'. Cost of subscription solutions was $163 million, 20.3% of subscription revenue, and is mostly cloud and infrastructure. Cost of merchant solutions was $1.71 billion, 61.6% of merchant revenue, driven by payment processing fees. _(from the filing)_

### What shifted

Merchant solutions outgrew subscriptions. Merchant solutions revenue rose 37.4% and subscription solutions 22.3%, so merchant solutions gained 2.1 points of the revenue mix, to 77.6%. GMV grew 32%, or 30% at constant currency, and Shopify Payments volume grew 38%, faster than GMV, as penetration rose from 64% to 68%. Revenue growth of 33.7% sits just above GMV growth. _(from the filing)_
Gross margin slipped while operating margin widened. Gross margin was 47.7%, against 48.6% a year earlier, as the lower-margin payments mix grew. Income from operations rose 67.7%, to $488 million from $291 million, taking operating margin to 13.6% from 10.9%. Sales and marketing fell to 13.9% of revenue from 15.5%, and research and development to 12.4% from 14.7%, though both grew in dollars. The filing names marketing program spend and 'computer hardware and software costs, which includes AI-related usage'. _(from the filing)_
Credit costs grew faster than revenue. Transaction and loan losses were $141 million against $80 million a year earlier, 3.9% of revenue against 3.0%. The filing attributes most of the increase to lending, 'driven by an expansion of our offerings and programs', and the rest to Shopify Payments losses on higher volume. _(from the filing)_
Net income was mostly investment marks. Net unrealized gain on equity and other investments was $1,249 million, against $681 million a year earlier, equal to 70.4% of income before taxes of $1,775 million; income from operations was 27.5% of it. The filing ties the gain to share-price changes in listed holdings and 'an observable price change of a private investment'. Interest income fell 37.7%, to $66 million from $106 million. Net income was $1,502 million against $906 million. _(from the filing)_
Cash kept pace with operations, not with net income. Free cash flow was $654 million, 18.3% of revenue, on capital spending of $4 million. Operating cash flow of $658 million was 0.44 times net income, because the investment gains are not cash. Diluted shares averaged 1.298 billion against 1.309 billion a year earlier, after the company began repurchasing shares. _(from the filing)_

### Risks in the filing

The quarterly report adds no new risk factors. It points back to the annual report and says 'Current global economic and geopolitical events and conditions may amplify many of these risks.' The MD&A ties future cash needs to, among other things, 'the macroeconomic conditions and overall levels of consumer spending on goods', the base on which merchants' volume rests. _(from the filing)_
Mix pressure on gross margin is named outright: the lower margins on merchant solutions mean their growth 'has caused in the past, and may cause in the future, a decline in our overall gross margin percentage.' The company also says the business may become more seasonal as merchant solutions grow, with the fourth-quarter holiday season carrying more of the year. _(from the filing)_
The investment portfolio is a stated source of earnings volatility. The filing describes 'a high concentration of risk associated with a small number of equity and other investments', with listed stakes in Affirm, Global-E and Klaviyo, private holdings remeasured on observable price changes, and an equity-method stake in Flexport whose share of losses flows into earnings. _(from the filing)_
Credit, currency, regulation and tax. Loans and merchant cash advances expose Shopify to merchant credit losses. A significant proportion of revenue is billed in euros, pounds and Canadian dollars. Amended Canadian regulations led the company to move its Canadian financing from merchant cash advances to loans. The Canada Revenue Agency has proposed a transfer-pricing assessment, which the company disagrees with and intends to defend. _(from the filing)_
Two of these risks already show in this quarter's numbers: gross margin edged down as payments grew, and the investment line moved the bottom line further than operations did. Credit risk is starting to show, with loss expense growing faster than revenue. Currency and tax remain prospective on this filing. _(analysis)_

## Founder view: mechanisms

### Charge a small share of merchant success

Shopify keeps the entry price of a store low and earns most of its revenue as a small slice of what merchants sell, through payments, lending, shipping and partner fees. Its revenue rises when merchants' sales rise, so the company's growth and the customer's growth move together. Subscriptions set a floor; volume sets the ceiling. _(analysis)_

### Trade gross margin for operating margin

Shopify Payments is a lower-gross-margin product because much of each fee passes to card networks and processors. The company accepts that because payments, once attached, sells itself: merchants already on the platform switch it on, and it needs little extra selling or engineering per dollar of revenue. Blended gross margin falls while operating margin rises. _(analysis)_

### Lend against data you already see

Shopify Capital lends to merchants and is repaid out of their sales. Shopify sees each merchant's daily volume, so it can underwrite on live sales history that a bank would not have, and collect through the same payments flow. The cost is credit risk, partly held on Shopify's own balance sheet. _(analysis)_

### Partners paid in equity

Shopify holds stakes in companies whose products it distributes to merchants, some received as payment for referral and other services under strategic partnerships. Affirm, Global-E and Klaviyo are the listed examples. The stakes tie partners to Shopify's merchant base, and their value now moves Shopify's reported profit more than its operations do. _(analysis)_

## Member research

Signed-in members read, on the page: what Shopify's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- Shopify 10-Q for the period to 2026-06-30: https://www.sec.gov/Archives/edgar/data/1594805/000159480526000047/ (2026-08-05)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02 · as of 2026-11-02