Twelve years ago, Tobi Lutke and his co-founders wanted to open a business to sell snowboards online. But there wasn't a ready-made platform to perform the critical functions needed for an e-commerce business, so Tobi built one. Their snowboard business, Snowdevil, became the first Shopify (NYSE:SHOP) customer. Tobi and his co-founder realized that their e-commerce platform was a better business than selling snowboards and in 2006 Shopify was born.
Growing customer base
Shopify has a high-end plan for "enterprise-grade solutions for high volume merchants, and large businesses" called Shopify Plus. The pricing for this program is not published on the Shopify website and likely is variable depending on the services the merchant wants.
Merchants are growing Shopify's revenue even faster
Note that Shopify doesn't provide exact figures for merchants. Since Shopify stated in Q3, they had "more than" 325,000 merchants on their platform, I used 325,001 for calculation purposes. This growth in GMV drove Shopify's merchant solutions revenue up 114% in the company's most recent quarterly release. This growth is astounding -- dwarfing the above mentioned 69% increase in subscription revenue -- and it looks set to continue.
Based on the historical seasonal trend, the merchant solutions revenue is likely to be more than 50% this quarter. Shopify's Q4 has always been a high transactional period for Shopify's customers. Because of this, Shopify gains a higher percentage of revenue from merchant solutions than they've seen throughout the year. Here's what management said in the 2015 annual report about this seasonal trend.
Our merchant solutions revenues are directionally correlated with the level of GMV that our merchants process through our platform. Our merchants typically process additional GMV during the holiday season. As a result, we have historically generated higher merchant solutions revenues in our fourth quarter than in other quarters.
Our merchants represent a wide array of retail verticals and business sizes. We offer pricing plans designed to meet the needs of our current and prospective merchants. Offering different service and pricing levels allows entrepreneurs to scale without leaving the Shopify platform. We believe this ability to retain merchants as they grow is an important factor for success in serving the SMB market.
Brian Withers has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Shopify. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.