Shopify Payments Monetization: Credit Suisse's Perspective on Revenue Modelling and Future Upside

Credit Suisse analyst Timothy Chiodo maintained Shopify Inc SHOP with a Neutral and raised the price target from $53 to $55.

This report provides the analyst's updated thoughts and analysis around Shopify's subscription pricing increases, including an analysis of the potential impact in Q2 and over the next year. 

Additionally, Chiodo provided thoughts around Shopify Capital, an update to his illustrative DCF analysis, and a highlight of his recent Shopify Payments Monetization deep dive report.

Given Shopify's comprehensive suite of commerce enablement solutions, the analyst frequently engaged in investor discussions on how to model several key revenue drivers, most importantly Shopify Payments revenue and transaction fees which combined accounted for ~60% of Shopify's total revenue in 2022, or nearly ~80% of Merchant Solutions revenue. 

The analyst recently published a detailed analysis focused on Shopify's payments monetization, including Shopify Payments, transaction fees, Shop Pay (button), and Shopify POS (in-store). 

This report serves as a reference guide to modeling Shopify's revenue from payments and transaction fees. It provides a detailed analysis of Shopify's volume mix and the economics associated with each part of the volume. 

He updated his Shopify model. The price target reflected ~17x EV/FY 2024E gross profit, directionally supported by his updated illustrative DCF. 

The 2023/2024E gross profit estimates are up ~1% to ~$3.39 billion/$4.11 billion (vs. prior ~$3.36 billion/$4.06 billion). His forecasts do not include meaningful financial contributions from Shop Pay moving off-platform. 

With >100 million users (~23 MAUs at last update as of Q2 2021, out of ~118 million registered users), Chiodo believes Shop Pay (alongside Shop App) can present an upside to his valuation via potential monetization similar to other popular consumer wallets, including payments fees, affiliate marketing/lead-gen fees in the Shop App, consumer financial services and more. 

Price Action: SHOP shares traded lower by 1.14% at $69.47 on the last check Friday.