Please ensure Javascript is enabled for purposes of website accessibility

Helping Merchants Reach More Customers Means More Money for Shopify

By Brian Withers - Dec 30, 2017 at 1:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Find out why Houzz, Kik, and linkr matter to Shopify merchants.

Shopify (SHOP -2.55%), an e-commerce platform company, is adding to the online places where its merchants can sell their products. You've likely heard of Amazon, eBay, and Facebook, but there are many other web properties that merchants are able to access with Shopify's platform and its partnerships. These give merchants different ways to expand their online presence, and as a result, contribute to Shopify's amazing revenue growth.

SHOP Revenue (Annual) Chart

SHOP Revenue (Annual) data by YCharts

Shopify has been adding sales channels for its merchants over the last several years and now has integration with over 20 web properties for its merchants to find buyers.

Woman inputting her credit card number into her laptop.

Image source: Getty images.

Here's a sampling of key channels separated by year they were added to the Shopify platform.

  • 2015: Pintrest, Twitter, Facebook, Wanelo, and Amazon. 
  • 2016: Facebook Messenger, Ebates, and Houzz.
  • 2017: eBay, Buzzfeed, Kik, linkr, and Wish.

Shopify's merchants want to be where the buyers are, and the company is making it happen. You may not recognize all the online spaces and web properties above, but depending on the seller's products, these channels can be a huge opportunity to gain exposure to a new set of buyers.

More channels create more opportunity

Shopify makes it easy for its clients to sell products where they want. The merchant sets up its products once on the Shopify platform, and then can add sales channels via the Shopify app store. Each sales channel is different in the audience, how they work, and the fees. I'll cover three of these (Houzz, Kik, and linkr) briefly so that you can get an idea of the opportunity for Shopify's merchants.

Houzz is a marketplace for buyers interested in remodeling their house. The tag line for the site is "Get Inspired. Shop Products. Find Pros" and it boasts over 40 million active and engaged customers. The company is trying to build its brand; I saw a television advertisement for Houzz recently while watching a college football game. The Shopify app store says the Houzz app is free, but there is a 15% commission per sale.

Messaging app Kik has over 300 million registered users, mostly young millennials or teens. The platform lets sellers engage potential buyers through an intelligent "chatbot" that asks questions and responds to user input as if they are texting with a friend. The chatbot presents possible products for the buyers to consider. Shopify says items including clothes and beauty products are especially popular with Kik's young users. This program is free to Shopify customers until they sell something, then a 10% commission fee is charged.

linkr uses "social influencers" to promote a merchant's products on platforms such as Youtube, Pintrest, Facebook, blogs, and other channels. Merchants can load product descriptions and pictures onto the interface, which allows influencers and merchants to connect and create buzz for the merchant's wares. This platform is available in the U.S., the U.K., and German-speaking areas in Europe. Shopify offers this service via subscription starting at $150 per month; merchants pay the influencers and linkr takes a 15% cut of what they pay the influencer.

Growing gross merchandise volume

When merchants sell products through the Shopify platform, or one of the connected sales channels, this is tracked as gross merchandise volume (GMV) for Shopify, representing the total value of orders processed on Shopify's platform by its merchants, including shipping and taxes. In the most recent quarter, GMV totaled $6.4 billion, up 69% over the previous Q3.

Bar chart showing Shopify's gross merchandise volume going from $0.7 billion in 2012 to $15.4 billion in 2016.

Image source: Shopify.

Whether or not a merchant sells anything on the platform, the company gets a monthly subscription fee, but Shopify does better financially when member merchants' sales are growing. The amazing growth of Shopify's GMV is an indicator that merchants are thriving on the platform.

When merchants make a sale, Shopify takes a small fee and records it as merchant solutions revenue. This segment grew 72% in the most recent quarter, primarily driven by the healthy growth of GMV. Merchant solutions now makes up more than 50% of Shopify's total revenue.

Stacked bar chart of Shopify's revenue by segment from Q3-2015 with merchant solutions at $23 million and a total of $53 million to Q3-2017 with merchant solutions at $89 million out of a total of $171 million.

Chart by author; data from Shopify.

Shopify has a virtuous circle that creates tailwinds for its business. As merchants sell more, the Shopify platform becomes a place to be for partner sales channels. New sales channels available to Shopify merchants provide different ways for entrepreneurs to grow their business. All of this enables Shopify to bring in more merchant services revenue and that's a formula that Shopify investors should love.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Brian Withers owns shares of Amazon, eBay, Shopify, and Twitter. The Motley Fool owns shares of and recommends Amazon, eBay, Facebook, Shopify, and Twitter. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Shopify Inc. Stock Quote
Shopify Inc.
$39.77 (-2.55%) $-1.04

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/08/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.