What investors should know about the impact of tariffs on Shopify’s business
When President Trump was re-elected, investors knew it wasn’t business as usual. But even so, the new president didn’t expect to introduce customs policies targeting most countries, friends and enemies.
President Trump temporarily suspends his proposed policies to negotiate with relevant countries, but there is still a fixed 10% minimum tariff, 145%, for all countries except China. Investors are trying to understand how tariffs affect investments.
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This article explains the impact of the new customs policy Shopify‘s (NASDAQ: Shop) Prospect customers.
Image source: Getty Images.
If implemented, new Customs Policy directly and seriously harms merchants in the short and long term.
The most obvious impact is the increased costs of goods sold for merchants, many of which are resellers or dropshippers. For example, $10 products imported from overseas are currently facing more than 10%, increasing their base cost to $11. This increased cost requires merchants to make tough decisions – they absorb additional costs, hit profits, or pass costs to customers, and sales will be reduced due to rising prices.
But that’s just the best scenario. Merchants who rely on Chinese supplies may have their costs increased to $24.5 (thanks to the 145% tariffs on Chinese products) and may not make their business models fully functional. These merchants must either quickly seek new suppliers or face a loss of sales entirely. If you can’t find a replacement at an acceptable price, you have no choice but to close your online business.
Beyond price pressure, the new tariff introduces the complexity added at checkout. Merchants must consider their duties and taxes during their shopping experience to keep them informed of the latest pricing. Fast and accurate information can lead to customer complaints and lower profits.
Also, merchants will make planning for the next few quarters more difficult given the uncertainty regarding negotiations between the countries involved. Ordering a shipment today can result in a much higher total cost when the product arrives in the US. By then, mutual tariff rates could recover. Merchants have options other than taking a waiting approach, resulting in weaker sales volumes in the short term.
Even if merchants survive in the short term, even if they import from a country with local tariffs and sources, they will inevitably face a much higher cost structure in the future. Ultimately, tariffs inevitably increase the production costs of goods globally. And consumers who pay more for almost everything can have less disposable income to spend, which could impact merchants’ long-term sales outlook.
In short, it’s a huge pain for Shopify merchants.
As e-commerce Shopify, a Software-as-a-Service (SAAS) provider, faces no direct economic impact unless the tariff war on physical goods escalates to include digital products.
What’s more, a portion of Shopify’s revenue is repeated (mainly from monthly subscription fees) as long as merchants remain users of software and tools. For the year ending December 31, 2024, SaaS providers have recurring revenues of $178 million per month, or $2.1 billion per year. This portion of Shopify’s revenue is resilient due to the tariff war.
However, the majority of Shopify’s remaining revenue ($8.9 billion less) depends on the company’s total merchandise (GMV) including payments, transactions, delivery, and more. For example, because customs duties increase product costs, merchants need to raise prices and reduce sales volume. A decrease in sales volume means a decrease in payment fees, transaction value, etc.
And it’s a short term. As the tariff war escalates, it will have a long-term impact on Shopify’s ability to grow business in North America and elsewhere. After all, tariffs are taxes on trade, so a global tariff war could affect international trade, a key component of Shopify’s long-term success.
On a slightly positive note, the increased complexity of the trade environment may provide new opportunities to provide new tools and technologies to overcome an increasingly tricky trade environment. For example, you can provide new AI-driven tools to help merchants with sourcing, pricing, tax management and other tasks.
In short, tariffs can have a negative impact on Shopify, potentially lowering revenues in the short term and slowing growth in the long term.
Tariffs do not tax Shopify directly, they disrupt the merchants who drive its growth.
Expect pressure on revenue and GMV in the short term. In the long run, Shopify’s global vision could face structural challenges if trade barriers continue. Investors need to closely monitor the merchant churn, GMV trends, and the company’s ability to monetize new tools that will help merchants navigate this new age of global commercial.
Shopify can still grow in the long term, but the path forward has become more complicated.
Consider this before purchasing inventory on Shopify.
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