Shopify (SHOP 1.42%) is widely known for providing an e-commerce platform for merchants, but that's not all investors need to know. In this Fool Live clip, recorded on June 23, Fool.com contributor Brian Withers discusses what he loves about Shopify's business model that many investors don't fully understand.
Brian Withers: We're going to kick it off with Shopify. So, what are you missing with Shopify? One of the things that I really like about Shopify: it's got a powerful customer-aligned revenue model. What do I mean by that? Here's their annual revenue by their two segments that they report. The bottom piece, the dark green, is subscription solutions, which now makes up about 31% of their overall revenue. You can see that's steadily grown through the last five years. But this top piece, merchant solutions, seems to be growing much faster, and it absolutely is. This now makes up almost 70% of the business. The subscription solutions are basically what it says: what customers pay to access the platform. But the merchant solutions piece are the things that when a merchant makes a sale, there's transaction fees, potentially Shopify payments if they're using the shipping network or the fulfillment network. Many of the other things that make merchants successful, and the more successful merchants are, the more transaction fees that Shopify will collect. It's really neat to see the merchant solutions piece growing much faster than the subscription solutions because that means that the merchants on Shopify are thriving and continuing to sell more and get more out of the platform. When their customers win, Shopify wins. That's what I mean by customer-aligned revenue model. I'll show you one other slide. Here's some of the new products that have come out. Well, not new -- Shopify Payments has been around for a while -- but Shopify Capital is pretty new, and their Shop App along with Shop Pay is a recent innovation. But all of these other products that they keep adding are also adding to that merchant solutions business and making that piece of the pie grow even faster. It makes the Shopify platform even more valuable for its customers.
