Shopify
SHOP · NasdaqInvestment 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%.
Q2 FY2026, the quarter to Jun 30, 2026 · 10-Q filed Aug 5, 2026
- Operating margin
- 13.6%
- Net income
- $1.5B
- Free cash flow, quarter
- $654.0M
Largest source of revenue: Merchant solutions, 77.6% of the total.
Where Shopify's money goes
- 01
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%.
Why it matters
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'.1
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.1
Operating cash flow of $658 million was 0.44 times net income, because a mark-to-market gain brings in no cash.1
AnalysisAnalysis: 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.
- 02
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.
Why it matters
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'.1
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%.1
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'.1
AnalysisAnalysis: 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.
- 03
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.
Why it matters
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.1
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.1
AnalysisAnalysis: 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.
Sources
- 1.Shopify 10-Q for the period to 2026-06-30 (the filing), Aug 5, 2026, read Nov 2, 2026
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Growth, profit and margin
Revenue went from $5.6B in FY2022 to $11.6B in FY2025, the operating margin from -14.7% to 12.7%, over 3 years.
- Revenue$11.6B
- Operating income$1.5B
- Operating margin12.7%
- Period
- Q2 FY2026
- Revenue
- $3.6B
- Operating income
- $488.0M
- Operating margin
- 13.6%
- Net income
- $1.5B
- Free cash flow
- $654.0M
Does the profit turn into cash?
Q2 FY2026: free cash flow of $654.0M against net income of $1.5B in the quarter.
- Operating cash flow$2.0B
- Capital expenditure$26.0M
- Free cash flow$2.0B
- Net income$1.2B
Capital expenditure is drawn below the axis as cash out. Cash conversion is operating cash flow over net income, shown in the tooltip for years with a profit.
Financial data and sources
How the revenue mix has shifted
Each breakdown the filing reports, as shares of revenue, for every period it restates.
Revenue streams
Condensed Consolidated Statements of Operations and Comprehensive Income. The filing restates this breakdown for 1 period.
Click a member to isolate it across the years shown.
The figures
Margins, cash and growth for the period, each with what it was computed from.
Where revenue comes from
Every breakdown the filing reports for the period, with each item's share.
Revenue streams
| Merchant solutions | $2.8B | 77.6% |
| Subscription solutions | $802.0M | 22.4% |
Source10-Q, us-gaap:Revenues, as reported in the 10-Q filed 2026-08-05
What it costs
The cost lines beneath operating income, each as a share of revenue, then the operating result.
Costs are reported by function: what it cost to make what was sold, then the expenses of selling, developing and administering.
| Cost line | Q2 FY2026 | Of revenue | Source |
|---|---|---|---|
| Cost of revenues | $1.9B | 52.3% | Source10-Q, us-gaap:CostOfGoodsAndServicesSold, as reported in the 10-Q filed 2026-08-05 |
| Income from operations | $488.0M | 13.6% | Source10-Q, us-gaap:OperatingIncomeLoss, as reported in the 10-Q filed 2026-08-05 |
Operating figures the company states
From the text of the filing rather than its statements, each with the sentence that states it.
View source
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.
View source
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%).
View source
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%).
View source
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%).
View source
We had $221 million of MRR as of June 30, 2026 compared to $185 million as of June 30, 2025.
View source
As of June 30, 2026, MRR totaled $221 million, representing an increase of 19% relative to MRR at June 30, 2025.
View source
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%.
View source
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.
The statements, as filed
The income statement, cash flow statement and balance sheet in the company's own order and words. Every line links to the filing.
Income statement30 lines, as presented in the 10-Q
Cash flow statement29 lines, as presented in the 10-Q
Year to date, as a quarterly filing reports it.
Balance sheet31 lines, as presented in the 10-Q
About this data
- Source
- Shopify 10-Q, accession 0001594805-26-000047, filed Aug 5, 2026, read on Nov 2, 2026.
- History
- From the SEC's XBRL company facts, the value from the latest filing that stated each period.
- Reading
- Paragraphs marked Analysis are CXProWealth's reading; everything else is the filing's own numbers and words, or a cited source.
- Version
- methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02
What holds Shopify's model up, and what could bend it
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.
The detail
Merchants processed $115.6 billion of goods (GMV) against $87.8 billion a year earlier. Of that, $78.1 billion ran through Shopify Payments against $56.6 billion, a penetration rate of 68% against 64%. The filing names both drivers of the payments revenue increase: higher penetration and more GMV.1
Revenue equalled 3.1% of GMV, against 3.05% a year earlier, so the take on each dollar sold held steady while volume grew. Merchant solutions revenue rose 37.4%, close to the 38% growth in payments volume. GMV growth was 30% at constant currency.1
AnalysisAnalysis: the advantage is placement. Payments is built into the checkout merchants already use, so it is switched on rather than sold, and each new merchant brings volume without a separate sales effort. It holds as long as the integrated checkout stays more convenient than plugging in another processor.
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.
The detail
Monthly recurring revenue was $221 million against $185 million a year earlier. The filing attributes the subscription increase to more merchants on the platform and 'a larger percentage of subscriptions coming from higher priced plans, such as Plus', and notes that MRR growth was helped by the prior-year extension of paid trials.1
Subscription solutions revenue of $802 million grew 22.3%, faster than MRR. The filing attributes part of the increase to variable platform fees that rise with GMV; the line also includes apps, themes and domains, which MRR excludes. Cost of subscription solutions, mostly cloud and infrastructure, was $163 million.1
AnalysisAnalysis: subscriptions give the business a floor that does not depend on how much merchants sell in a given month, and the move toward higher plans lifts it without a matching rise in cost.
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.
The detail
The filing attributes most of the increase to losses on lending services 'driven by an expansion of our offerings and programs', and the rest to Shopify Payments losses on higher volume. The losses equalled 28.9% of income from operations, against 27.5% a year earlier.1
AnalysisAnalysis: growth in lending is benign only if interest and fees on the book rise at least as fast as the losses and the newer loan vintages stay current. The loan note in each quarterly report shows both.
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.
The detail
Cost of subscription solutions rose to $163 million from $121 million; the filing attributes the increase to cloud and infrastructure costs 'which includes AI-related usage'. Research and development rose to $445 million from $394 million, with computer hardware and software costs, again including AI-related usage, named as the largest driver.1
AnalysisAnalysis: so far AI appears in the cost lines. For it to pay, it would need to show up as merchants moving to higher plans, adopting paid features or selling more, visible in recurring revenue or volume. Combined with the mix shift toward lower-margin payments, it adds a second source of gross margin pressure.
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.
The detail
The quarterly report adds no new risk factors and says 'Current global economic and geopolitical events and conditions may amplify many of these risks.' The MD&A lists 'the macroeconomic conditions and overall levels of consumer spending on goods' among the drivers of future cash needs, and says a significant proportion of revenue is billed in euros, pounds and Canadian dollars.1
AnalysisAnalysis: because most revenue moves with merchants' sales, a slowdown in spending on goods reaches Shopify directly, and a stronger dollar would turn this quarter's currency tailwind into a headwind without any change in merchant activity.
Sources
- 1.Shopify 10-Q for the period to 2026-06-30 (the filing), Aug 5, 2026, read Nov 2, 2026
Shopify, further in
Member research, then your own questions on ChatGPT.
What could change the outlook
What Shopify's numbers depend on from here, read from the filing: the conditions behind this period's margins and growth, and where a change would show first.
- What has to stay true for operating margin to keep widening
The cost lines that decide whether payments growth keeps turning into operating profit, and the signs in each quarterly report that the spread is narrowing.
- How much cash is left once the loan book is funded
A reading of free cash flow alongside the lending in the investing section, and what the loan vintages say about where credit losses are heading.
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Have a question about Shopify?
Explore its profit drivers, competitive edge, risks, or your own investment and business questions with CXProWealth on ChatGPT.
- How much of Shopify's second-quarter net income came from gains on its stakes in companies such as Affirm and Klaviyo rather than from operations?
- Why does Shopify Payments growth lower Shopify's gross margin but raise its operating margin?
- How does Shopify's free cash flow change once the cash it lends to merchants through Shopify Capital is counted?
Business Lens describes Shopify from its own filings with the SEC. It is not a view on its shares, a target, or advice to buy, sell or hold anything; figures are as filed and may be restated by the company later. The filing, the dates and the version are under the financial data above.