Impact of Tariff Policy on Shopify’s Business and Investors
When President Trump won reelection, investors anticipated changes in policy. However, few expected a tariff approach that would target nearly every nation, including allies and adversaries.
Although President Trump has paused his proposed tariffs to engage in negotiations, a fixed minimum tariff of 10% remains on all countries, with a notable 145% tariff specifically for China. Investors are assessing the potential ramifications of these tariffs on their investments.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »
This article will explore how the new tariff policy could affect Shopify‘s (NASDAQ: SHOP) prospects.
Image source: Getty Images.
Effects of Tariffs on Shopify’s Merchants
If enacted, the new tariff policy could have significant and immediate adverse effects on Shopify’s merchants.
The most direct impact would be an increase in the cost of goods sold for merchants, many of whom operate as resellers or drop-shippers. For instance, a product priced at $10 from overseas would now cost a minimum of $11 due to the 10% tariff. Merchants face a difficult choice: absorb the cost and reduce their profit margins or pass the expense onto customers, which may lead to decreased sales due to higher prices.
Worse still, those relying on Chinese suppliers could see their costs surge to $24.5 because of the steep 145% tariff on Chinese goods, making their business models potentially unsustainable. Without viable alternatives, these merchants could be forced to close their online operations.
Moreover, the introduction of tariffs adds complexity to the checkout process. Merchants will need to account for duties and taxes for accurate pricing during transactions. Any errors in communicating pricing may result in customer dissatisfaction and reduced profits.
Merchants will also struggle with uncertain planning for upcoming quarters due to the ongoing negotiations between the countries involved. Orders placed today may arrive with increased costs, reflecting fluctuating tariff rates, leading to a cautious approach that could stymie sales volume in the short term.
Even if merchants manage to navigate the challenges in the short run, they are likely to face an increased cost structure in the long term. This is true even if they source goods from countries with lower tariffs or pursue local production. Ultimately, higher tariffs will raise global production costs. As consumers pay more for many essentials, they will likely have less disposable income, adversely affecting merchants’ long-term sales potential.
In summary, Shopify’s merchants face significant challenges as a result of the new tariff policy.
Implications for Shopify’s Business
Shopify, operating as an e-commerce software-as-a-service (SaaS) provider, may not experience direct financial repercussions unless tariffs extend to digital products.
A portion of Shopify’s revenue comes from recurring monthly subscription fees, which should remain stable as long as merchants continue using the platform. For the year ending December 31, 2024, Shopify anticipates $178 million in monthly recurring revenue, equating to $2.1 billion annually—this revenue stream tends to be more resilient amidst tariff disruptions.
However, most of Shopify’s revenue—approximately $8.9 billion—relies on its gross merchandise value (GMV), which encompasses payment processing, transactions, and shipping fees. If merchants’ sales decline due to higher costs from the tariffs, Shopify’s take rate, or share of GMV, may drop. Increased product prices may further depress sales volume, affecting payment and transaction revenues.
Should the tariff conflict escalate, Shopify’s future growth prospects in North America and globally could also diminish. Tariffs essentially function as a tax on trade, likely stifling international commerce, which remains vital for Shopify’s long-term strategy.
On a more positive note, the added complexities presented by the evolving trade environment could yield opportunities for Shopify to develop new tools and technologies aimed at assisting merchants. For instance, there may be potential for AI-driven tools that address sourcing, pricing, and tax management.
In conclusion, while Shopify might find ways to adapt, the anticipated impact of the tariff policy could lead to lower revenues in the short term and hinder growth prospects in the long term.
Investor Considerations
Although tariffs do not impose a direct charge on Shopify, they create challenges for the merchants who contribute to Shopify’s growth.
Investors should brace for revenue and GMV pressures in the near term. Should trade barriers persist, Shopify’s ambitious global vision could face structural hurdles. It is crucial for investors to watch indicators of merchant churn, GMV trends, and the company’s capacity to monetize new tools designed to assist merchants in navigating this complex global commerce landscape.
Shopify’s potential for long-term growth remains, but the path ahead has grown increasingly complicated.
Should You Invest $1,000 in Shopify Now?
Before purchasing stock in Shopify, consider this:
The Motley Fool Stock Advisor team has outlined what they believe are the 10 best stocks for today’s investors to consider, and Shopify did not make the list. The nominated stocks have the potential to deliver substantial returns in the coming years.
Consider this: if you had invested $1,000 in Netflix when it was included on December 17, 2004, you would now have approximately $524,747!* Or if you invested in Nvidia on April 15, 2005… your investment would be worth $622,041!*
Overall, it is noteworthy that Stock Advisor averages a total return of 792%—significantly outpacing the 153% return of the S&P 500. Don’t miss out on their latest top 10 stocks, accessible when you join Stock Advisor.
*Stock Advisor returns as of April 14, 2025
Lawrence Nga has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
