Is Shopify Dead?

So, is Shopify dead?

Think about it:

- Meta and TikTok shops are on the rise

- Meta and TikTok have every incentive to keep the transaction on their platform

- A decreasing % of transactions are happening on the Shopify storefront

- Payment volume is a large contributor to Shopify’s overall revenue

Looking at the facts on the surface, you could easily come to the conclusion that Shopify’s future prospects as a business & investment are looking bleak.

But I disagree.

I think this trend will have a nominal, if any, impact on Shopify as a business.

In fact, I think it has the ability to be a POSITIVE outcome for Shopify’s merchants.

Here’s why:

Sizing The Problem

The first thing I dug into was sizing the problem.

How much payment revenue could Meta & TikTok realistically steal away from Shopify?

Before we get into the numbers— I want to be clear that these are rough sizing estimates I did in ~30 mins this morning. Don’t take this as financial advice.

Meta’s global advertising revenue is expected to be about $155B in 2024, and TikTok’s is expected to be about $19B.

Now, not all of that goes towards Shopify storefronts; in fact, only about 15% of digital advertising spend goes towards CPG.

(I know that not all Shopify storefronts are CPG products and not all CPG advertising spend is driven to e-commerce storefronts, but let’s assume both those forces cancel out for the sake of this analysis).

In total, I’d estimate that about $26B of Meta and TikTok’s advertising revenue goes towards Shopify storefronts.

If the average Shopify store has a 2.9x ROAS, that’s about $75B in brand revenue driven to Shopify storefonts from Meta & TikTok, globally.

Now, let’s say both Meta and TikTok make massive improvements to their Shops functionalities—like implementation of advanced PDPs and giving merchants more control over their storefront to optimize CRO.

That would be a massive undertaking on their part, but let’s assume they do it.

I think they could theoretically take about ~20% share (and that’s on the high end). Since Shopify Payments has a 58% penetration rate, the maximum Meta and TikTok could take from Shopify Payments is:

75B  * 20% (Share of Revenue) * 58% (Shopify Payments Penetration) = 8.7B         

Shopify’s overall payment processing GMV is $137B, so that would represent about 6.4% of total volume.

If everything goes wrong for Shopify, Meta and TikTok could only steal about 6.4% of Shopify’s payment processing volume.

Now, payment revenue is part of what Shopify deems to be “Merchant Solutions”, which is actually a low margin revenue stream (albeit a majority of revenue).

That 6.4% of total volume only represents a minuscule 3.7% of Shopify’s gross profit. And that’s if everything goes wrong for Shopify.

Other Contributing Factors

There are a couple of other (really important) facts to this:

- Today, Facebook & Instagram Shops payments are actually processed by Shopify, so they are only really losing revenue to TikTok Shops, which is a much smaller %. Of course, Meta could always change that but right now it’s a non-factor.

- Shopify always has the ability to add a small % fee to orders imported from these outside sales channels to make up for lost revenue

- I asked Harley Finkelstein , President of Shopify , about this at Triple Whale 's last event, and he didn’t seem too concerned about it— he mentioned it was Shopify’s goal to do what’s best for merchants, and in this case that means integrating seamlessly with all external sales channels.

Conclusion

Overall, I don’t think this poses a major threat to Shopify in the short and medium term.

I do think that Meta & TikTok improving Shops functionality will be good for merchants as it will hopefully increase overall marketing efficiency.

And I think things that are good for merchants are also good for Shopify.

Who knows how these assumptions will change in the future, so I’ll continue to keep a close eye on this trend.

But I’d love to hear your thoughts— Shopify is one of my top investments, so I rather understand differing perspectives than try and be right about this analysis.

Would love to hear what everyone thinks!