SHOPIFY INC. 10-K

Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations In this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), "we", "us", "our", "Shopify" and "the Company" refer to Shopify Inc. and its consolidated subsidiaries, unless the context requires otherwise. In this MD&A, we present Shopify's results of operations and cash flows for the fourth quarter and the fiscal years ended December 31, 2025, 2024 and 2023, and our financial position as of December 31, 2025. You should read this MD&A in conjunction with the audited consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. Our audited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). All amounts are in U.S. dollars ("USD") except where otherwise indicated. Our MD&A is intended to enable readers to gain an understanding of Shopify's results of operations, cash flows and financial position. To do so, we provide information and analysis comparing our results of operations, cash flows and financial position for the most recently completed period with the same period from the preceding fiscal year. We also provide analysis and commentary that we believe will help investors assess our future prospects. In addition, we provide "forward-looking statements" that are not historical facts, but that are based on our current estimates, beliefs and assumptions and which are subject to known and unknown important risks, uncertainties, assumptions and other factors that could cause actual results to differ materially from current expectations, including those discussed under Item 1A. Risk Factors of this Annual Report on Form 10-K. Forward-looking statements are intended to assist readers in understanding management's expectations as of the date of this MD&A and may not be suitable for other purposes. See "Forward-looking Statements" in Part I of this Annual Report on Form 10-K for the fiscal year ended December 31, 2025. In this MD&A, references to our "solutions" means the combination of products and services that we offer to merchants, and references to "our merchants" as of a particular date means the total number of unique shops that are paying for a subscription to our platform. Business Overview We believe we can help merchants of all verticals and sizes, from aspirational entrepreneurs to companies with large-scale, direct-to-consumer or B2B operations, or both, realize their potential at all stages of their business life cycle. In the year ended December 31, 2025, our platform facilitated gross merchandise volume ("GMV") of $378.4 billion, representing an increase of 29% from the year ended December 31, 2024. A detailed description of this metric is presented below in the section entitled, "Key Performance Indicators". During the year ended December 31, 2025, our total revenue was $11.6 billion, an increase of 30% versus the year ended December 31, 2024. Our business model has two revenue components: a recurring subscription component we call subscription solutions and a merchant success-based component we call merchant solutions. In the year ended December 31, 2025, subscription solutions revenues accounted for 24% of our total revenues (December 31, 2024 - 26%). We offer a range of plans that increase in price depending on additional features and economic considerations. Shopify Plus is offered at a starting rate that is several times that of our standard Shopify plans. Shopify Plus solves for the complexity of merchants as they grow and scale globally, offering additional functionality and support, including access to features like Shopify Audiences, B2B features and Launchpad, for ecommerce automation. Aldo, BarkBox, Carrier, Meta, Vuori, SKIMS and Supreme are a few of our notable merchants seeking a reliable, cost-effective and scalable commerce solution. The flexibility of our pricing plans is designed to help our merchants grow in a cost-effective manner and to provide more advanced features and support as their business needs evolve. Revenue from subscription solutions is generated through the sale of subscriptions to our platform, including variable platform fees, as well as through the sale of subscriptions to our POS Pro offering, the sale of apps, the sale of themes and the registration of domain names. Subscription solutions revenues 46 Table of Contents increased from $2.4 billion in the year ended December 31, 2024 to $2.8 billion in the year ended December 31, 2025, representing an increase of 17%. Our merchants typically enter into monthly subscription agreements. The revenue from these agreements is recognized over time on a ratable basis over the contractual term and therefore we have deferred revenue on our balance sheet. We do not consider this deferred revenue balance to be a good indicator of future revenue. Instead, we believe Monthly Recurring Revenue ("MRR") is most closely correlated with the long-term value of our merchant relationships. As of December 31, 2025, MRR totaled $205 million, representing an increase of 15% relative to MRR at December 31, 2024. A detailed description of this metric is presented below in the section entitled, "Key Performance Indicators". We offer a variety of merchant solutions that are designed to add value to our merchants by passing on our economies of scale and augmenting our subscription solutions. During the year ended December 31, 2025, merchant solutions revenues accounted for 76% of total revenues (December 31, 2024 - 74%). We principally generate merchant solutions revenues from payment processing fees and currency conversion fees from Shopify Payments. Shopify Payments is a fully integrated payment solution. In addition to payment processing fees and currency conversion fees from Shopify Payments, we also generate merchant solutions revenue from our lending services and financial products, referral fees from partners, the sale of shipping labels, the sale of POS hardware, advertising on the Shopify App Store and Shop Campaigns, our buyer acquisition offering. The majority of our merchant solutions revenues are directionally correlated with the level of GMV that our merchants process through our platform. Merchant solutions revenues increased from $6.5 billion in the year ended December 31, 2024 to $8.8 billion in the year ended December 31, 2025, representing an increase of 35%. Our business model is driven by our ability to attract new merchants, retain revenue from existing merchants and increase sales to both new and existing merchants. Our merchants represent a wide array of retail verticals, business sizes and geographies, and no single merchant has ever represented more than five percent of our total revenues in a single reporting period. We believe that our future success depends on many factors, including our ability to expand our merchant base; localize features for specific geographies; retain merchants as they grow their businesses on our platform and adopt more features; offer more sales channels that connect merchants with potential customers; develop new solutions to extend our platform’s functionality and catalyze merchants’ sales growth; leverage emerging technologies, including AI; enhance our ecosystem and partner programs; provide a high level of merchant support; hire, retain and motivate qualified personnel; and build with a focus on maximizing long-term value. We have focused on rapidly growing our business and plan to continue making investments to drive future growth. We believe that our investments will increase our revenue base, improve the retention of this base and strengthen our ability to increase sales to our merchants. We also maintain a portfolio of investments with varying time horizons in our cash management program. Key Performance Indicators Our key performance indicators, which we do not consider to be non-GAAP measures, that we use to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions are MRR and GMV. Our key performance indicators may be calculated in a manner different than similar key performance indicators used by other companies. The following table shows MRR and GMV for the years ended December 31, 2025, 2024 and 2023: Years ended December 31, 2025 2024 2023 (in US $ millions) Monthly Recurring Revenue 205 178 144 Gross Merchandise Volume 378,441 292,275 235,910 47 Table of Contents Monthly Recurring Revenue MRR is the aggregate value of all subscription plans, excluding variable platform fees, in effect on the last day of the period, assuming merchants maintain their subscription the following month. Subscription plans to both our platform and our POS Pro offering are included in this calculation. When applicable, MRR relating to subscription plans billed in a merchant's local currency is converted to USD using the respective currency exchange rate as of the period end date. Prospective merchants that have joined the platform through special new merchant trial incentives, including paid trials, are included in MRR at their trial price while merchants on free trials are excluded from the calculation of MRR through the duration of the free trial. MRR allows us to average our various pricing plans and billing periods into a single, consistent number that we can track over time. We also consider the factors that contribute to MRR, specifically the number of paying merchants using our platform, the number of merchants that are on full-price plans or paid trials, the mix of subscription plan types and overall pricing of our subscription plans. In addition, we use MRR to forecast monthly, quarterly and annual subscription plan revenue, which makes up the majority of our subscription solutions revenue. We had $205 million of MRR as of December 31, 2025 compared to $178 million as of December 31, 2024 and $144 million as of December 31, 2023. In the year ended December 31, 2025, the MRR growth rate for the period was lower than the same period in 2024 driven by the impact of extending the length of paid trials. Gross Merchandise Volume GMV is the total dollar value of orders facilitated through our platform including certain apps and channels for which a revenue-sharing arrangement is in place in the period, net of refunds, and inclusive of shipping and handling, duty and value-added taxes. GMV does not represent revenue earned by us. However, the volume of GMV facilitated through our platform is an indicator of the success of our merchants and the strength of our platform. Our merchant solutions revenues are also directionally correlated with the level of GMV facilitated through our platform. For the year ended December 31, 2025 we facilitated GMV of $378.4 billion (December 31, 2024 - $292.3 billion, December 31, 2023 - $235.9 billion), representing year-over-year growth 29% (2024 vs 2023 - 24%). On a constant currency basis, in which GMV in the year ended December 31, 2025 is converted using the comparative period's monthly average exchange rates, year-over-year growth was 28% (2024 vs 2023 - 24%). Factors Affecting the Comparability of Our Results Change in Revenue Mix As a result of the continued growth of Shopify Payments, referral fees, other transaction services and other services rendered as part of strategic partnerships and Shopify Capital, our revenues from merchant solutions have increased. Merchant solutions are intended to complement subscription solutions by providing additional value to our merchants and increasing their use of our platform. Gross profit margins on Shopify Payments, the biggest driver of merchant solutions revenue, are typically lower than on subscription solutions due to the associated third-party costs of providing this solution. We view this revenue stream as beneficial to our operating margins, as Shopify Payments requires significantly less sales and marketing and research and development expenses than Shopify’s core subscription business. The lower margins on merchant solutions compared to subscription solutions means that the continued growth of merchant solutions has caused in the past, and may cause in the future, a decline in our overall gross margin percentage. Seasonality Our merchant solutions revenues are directionally correlated with the level of GMV that our merchants facilitated through our platform. Our merchants typically process additional GMV during the fourth quarter holiday season. As a result, we have historically generated higher merchant solutions revenues in our fourth quarter than in other quarters. While we believe that this seasonality has affected and will continue to affect our quarterly results, our continued growth has partially masked seasonal trends to date. As a result of the continued growth of our merchant solutions offerings, we believe that our 48 Table of Contents business may become more seasonal in the future and that historical patterns in our business may not be a reliable indicator of our future performance. Foreign Currency Fluctuations While the majority of our revenues, cost of revenues and operating expenses are denominated in USD, a significant portion are denominated in foreign currencies. Due to offering Shopify Payments, Shopify Capital, subscriptions and other billings to select countries in local currency, a significant proportion of revenue transactions are denominated in Euros ("EUR"), British pound sterling ("GBP") and Canadian dollars ("CAD"). A significant proportion of operating expenses are also incurred and expected to be included in the aforementioned foreign currencies. To help mitigate the impacts associated with foreign currency fluctuations on future cash flows from operating expenses, we maintain a portfolio of foreign exchange forward contracts and options designated as hedging instruments. As our operations continue to expand internationally, we may be exposed to additional fluctuations in other foreign currencies. Refer to "Item 7A: Quantitative and Qualitative Disclosures About Market Risk—Risks and Uncertainties" below for additional information on the effect on reported results of changes in foreign exchange rates. Key Components of Results of Operations Revenues We derive revenues from subscription solutions and merchant solutions. Subscription Solutions We principally generate subscription solutions revenues through the sale of subscriptions to our platform, including variable platform fees, as well as through the sale of subscriptions to our POS Pro offering for brick and mortar merchants. We also generate associated subscription solutions revenues from the sale of apps, the registration of domain names and the sale of themes. We offer subscription plans with various price points, for businesses of all sizes from entry level plans to Shopify Plus, enterprise-level and modular plans that cater to higher-volume businesses that offer additional functionality, scalability and support. Our subscription plans typically have a one-month term, although merchants can have annual or multi-year subscription terms. Subscription terms automatically renew unless notice of cancellation is provided in advance. Merchants purchase subscription plans directly from us. We also generate additional subscription solutions revenues from merchants that have subscription plans with us through the sale of apps, the registration of domain names and the sale of themes. Revenues from the sale of apps, the registration of domain names and the sale of themes have been classified within subscription solutions on the basis that they are typically sold at the time the merchant enters into the subscription arrangement or because they are charged on a recurring basis. Merchant Solutions We principally generate merchant solutions revenues from payment processing fees and currency conversion fees from Shopify Payments, our lending services and financial products and referral fees from partners. Other revenue generating services and products include, but are not limited to, the sale of shipping labels, the sale of POS hardware, advertising on the Shopify App Store and Shop Campaigns, our buyer acquisition offering. For a discussion of how we expect seasonal factors to affect our merchant solutions revenue, see “Factors Affecting the Comparability of our Results—Seasonality". 49 Table of Contents Cost of Revenues Cost of Subscription Solutions Cost of subscription solutions consists primarily of third-party infrastructure, hosting costs and other direct costs, an allocation of costs incurred by both the operations and support functions, including personnel-related costs directly associated with subscription solutions such as salaries, benefits and stock-based compensation, processing fees related to billing our merchants, payments for domain registration and amortization of acquired intangible assets. We expect that the cost of subscription solutions will increase in absolute dollars as we continue to invest in growing our business, and as the number of merchants utilizing the platform increases along with the costs of supporting those merchants. Over time, we expect that our subscription solutions gross margin percentage will fluctuate modestly based on the mix of subscription plans that our merchants select and the timing of expenditures related to infrastructure expansion projects. Cost of Merchant Solutions Cost of merchant solutions primarily consists of costs that we incur when transactions are processed using Shopify Payments, such as credit card network fees (charged by credit card providers such as Visa, Mastercard and American Express) as well as third-party processing fees. Cost of merchant solutions also consists of rewards earned by merchants through our rewards program and advertising costs related to our customer acquisition services, processing fees related to billing our merchants, POS hardware costs, product costs associated with expanding our product offerings, including Shopify Balance, third-party infrastructure and hosting costs, chargeback protection program costs, amortization of acquired intangible assets and an allocation of costs incurred by both the operations and support functions, including personnel-related costs directly associated with merchant solutions such as salaries, benefits and stock-based compensation. We expect that the cost of merchant solutions will increase in absolute dollars in future periods as the number of merchants utilizing these solutions increases, resulting in a growth in volumes processed. We also expect additional increases as we continue to expand Shopify Payments internationally. Operating Expenses Sales and Marketing Sales and marketing expenses consist primarily of marketing programs, partner referral payments related to merchant acquisitions, costs associated with partner and developer conferences, employee-related expenses for marketing, business development and sales, as well as the portion of merchant support required for the onboarding of prospective new merchants. Other costs within sales and marketing include travel-related expenses and corporate overhead allocations. Costs to acquire merchants are expensed as incurred, however, contract costs associated with Shopify Plus merchants are amortized over the expected life of their relative contract. We plan to continue to expand sales and marketing efforts to attract new merchants, retain revenue from existing merchants and increase revenues from both new and existing merchants. Sales and marketing expenses are expected to increase in absolute dollars but over time, we expect sales and marketing expenses will decline as a percentage of total revenues. Research and Development Research and development expenses consist primarily of employee-related expenses for product management, product development, product design, data analytics, contractor and consultant fees as well as internal use hosting costs and corporate overhead allocations. We continue to focus our research and development efforts on adding new features and solutions, and increasing the functionality and enhancing the ease of use of our platform. While we expect research and development expenses to increase in absolute dollars as we continue to increase the functionality of our platform, over the long term we expect our research and development expenses will decline as a percentage of total revenues. 50 Table of Contents General and Administrative General and administrative expenses consist of employee-related expenses for finance and accounting, legal, administrative, talent and information technology personnel, impairment related to certain office leases we have ceased using, professional services fees, sales and use tax and other indirect taxes, insurance, the provision for expected credit losses on uncollectible receivables, corporate overhead allocations, legal contingencies and other corporate expenses, including sustainability spend. We expect that over time general and administrative expenses will decrease as a percentage of total revenues as we focus on processes, systems and controls to enable our internal support functions to scale with the growth of our business. Transaction and Loan Losses Transaction and loan losses consist of expected and actual losses related to Shopify Payments, Shop Pay Installments, Shopify Balance and Shopify Capital. We are exposed to transaction losses on Shopify Payments, Shop Pay Installments and Shopify Balance as a result of unrecovered merchant transactions due to returns and disputes. We are also exposed to Shopify Balance losses when a merchant account experiences unauthorized transactions where funds cannot be recovered or reversed. We are exposed to transaction losses on loans and merchant cash advances offered through Shopify Capital as a result of fraud or uncollectibility. Transaction and loan losses are expected to increase in absolute dollars over time as merchant penetration and adoption grow. (Loss) Gain on Equity and Equity Method Investments (Loss) gain on equity and equity method investments consists primarily of unrealized and realized gains or losses on equity and other investments, gains or losses as a result of our share of the income or loss on our equity method investment in Flexport, Inc. ("Flexport") and loss on the embedded derivative held to settle our previously issued convertible senior notes (the "Notes") in the fourth quarter of 2025. Equity and other investments in publicly traded companies with readily determinable fair values are carried at fair value at each balance sheet date based on the closing share price at the end of the period. Equity and other investments in private companies without readily determinable fair values are carried at cost less impairments, with subsequent adjustments for observable changes (referred to as the measurement alternative). We also hold investments in convertible notes of private companies which are classified as available-for-sale debt securities, which we have elected to account for under the fair value option. The results from these equity and debt investments may fluctuate from period to period and may cause volatility to our earnings as well as impact comparability of our results from period to period. Other Income Other income consists of the interest income, net transaction gains or losses on foreign currency and interest expense related to the Notes. 51 Table of Contents Results of Operations The following table sets forth a summary of our condensed consolidated statement of operations for the years ended December 31, 2025, 2024 and 2023 For a discussion of the year ended December 31, 2024 compared to the year ended December 31, 2023, please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2024: Years ended December 31, 2025 2024 2023 (in US $ millions, except share and per share amounts) Revenues Subscription solutions 2,752 2,350 1,837 Merchant solutions 8,804 6,530 5,223 11,556 8,880 7,060 Cost of revenues (1)(2) Subscription solutions 520 434 354 Merchant solutions 5,481 3,974 3,191 6,001 4,408 3,545 Gross profit 5,555 4,472 3,515 Operating expenses Sales and marketing (1)(2)(3) 1,663 1,393 1,220 Research and development (1)(2)(3) 1,536 1,367 1,730 General and administrative (1)(3)(4)(5) 471 410 491 Transaction and loan losses 417 227 152 Impairment on sales of Shopify's logistics businesses — — 1,340 Total operating expenses 4,087 3,397 4,933 Income (loss) from operations 1,468 1,075 (1,418) Net (loss) gain on equity and equity method investments (6) (316) 853 1,361 Other income, net 357 300 242 Income before income taxes 1,509 2,228 185 Provision for income taxes (278) (209) (53) Net income 1,231 2,019 132 Net income per share attributable to shareholders: Basic $ 0.95 $ 1.57 $ 0.10 Diluted $ 0.94 $ 1.55 $ 0.10 Shares used to compute net income per share attributable to shareholders: Basic 1,298,955,860 1,289,812,124 1,281,554,559 Diluted 1,304,953,255 1,301,509,980 1,295,511,385 52 Table of Contents (1) Includes stock-based compensation expense and related payroll taxes as follows: Years ended December 31, 2025 2024 2023 (in US $ millions) Cost of revenues 4 4 4 Sales and marketing (a) 48 50 59 Research and development (a) 334 303 497 General and administrative 98 96 76 484 453 636 (a) Includes accelerated stock-based compensation of $5 million and $164 million in sales and marketing and research and development, respectively, during the year ended December 31, 2023. (2) Includes amortization of acquired intangibles as follows: Years ended December 31, 2025 2024 2023 (in US $ millions) Cost of revenues 9 12 35 Sales and marketing — 1 3 Research and development 4 1 — 13 14 38 (3) In the year ended December 31, 2023, we had $148 million of severance related costs associated with the reduction in workforce with $28 million in sales and marketing, $102 million in research and development and $18 million in general and administrative. (4) In the years ended December 31, 2025 and 2023, we had $13 million and $38 million, respectively, of impairment related costs associated with right-of-use assets and leasehold improvements. (5) In the year ended December 31, 2024, we released an accrual for an estimated liability of $55 million associated with a legal matter. (6) Includes the impact of any gains or losses on the embedded derivative on our Notes. Discussion of the Results of Operations Revenues Years ended December 31, 2025 % Change 2024 % Change 2023 (in US $ millions, except percentages) Revenues Subscription solutions 2,752 17 % 2,350 28 % 1,837 Merchant solutions 8,804 35 % 6,530 25 % 5,223 Total revenues 11,556 30 % 8,880 26 % 7,060 Percentage of revenues Subscription solutions 24 % 26 % 26 % Merchant solutions 76 % 74 % 74 % 100 % 100 % 100 % Subscription Solutions Subscription solutions revenues increased for the year ended December 31, 2025 compared to the same period in 2024. The largest component of the year-over-year change was an increase in subscription fees of $360 million driven by an increase in MRR, which was the result of a higher number of merchants using our platform and by a larger percentage of subscriptions coming from higher priced plans, such as Plus. The increase was also driven by higher GMV resulting in an increase in subscription fees from the variable component of certain subscription contracts. 53 Table of Contents Merchant Solutions Merchant solutions revenues increased for the year ended December 31, 2025 compared to the same period in 2024. The largest component of the year-over-year change was an increase in Shopify Payments revenue, driven by an increase in our Shopify Payments penetration rate and an increase in GMV from merchants using our platform. These factors drove $67.2 billion of additional GMV facilitated using Shopify Payments in 2025 compared to the same period in 2024, representing growth of 37% year over year. For the year ended December 31, 2025, the Shopify Payments penetration rate was 65.6%, resulting in GMV of $248.1 billion that was facilitated using Shopify Payments. This compares to a penetration rate of 61.9%, resulting in GMV of $181.0 billion that was facilitated using Shopify Payments in the same period in 2024. As of December 31, 2025 Shopify Payments adoption among our merchants where Shopify Payments is available was as follows: North America, 88%, APAC, 89% and EMEA, 83% (December 31, 2024 - North America, 91%, APAC, 90% and EMEA, 86%). Shopify Payments adoption decreased in 2025 as Shopify Payments expanded into more markets across the world. Shopify Payments penetration remains a better metric for assessing the overall growth of Shopify Payments. Cost of Revenues Years ended December 31, 2025 % Change 2024 % Change 2023 (in US $ millions, except percentages) Cost of revenues Cost of subscription solutions 520 20 % 434 23 % 354 Cost of merchant solutions 5,481 38 % 3,974 25 % 3,191 Total cost of revenues 6,001 36 % 4,408 24 % 3,545 Percentage of revenues Cost of subscription solutions 4 % 5 % 5 % Cost of merchant solutions 47 % 45 % 45 % 51 % 50 % 50 % Cost of Subscription Solutions Cost of subscription solutions increased for the year ended December 31, 2025 compared to the same period in 2024. The increase was driven by an $83 million increase in cloud and infrastructure costs. Cost of Merchant Solutions Cost of merchant solutions increased for the year ended December 31, 2025 compared to the same period in 2024. The increase was driven by higher payment processing fees resulting from an increase in GMV facilitated through Shopify Payments. Gross Profit Years ended December 31, 2025 % Change 2024 % Change 2023 (in US $ millions, except percentages) Gross profit 5,555 24 % 4,472 27 % 3,515 Percentage of total revenues 48 % 50 % 50 % 54 Table of Contents Operating Expenses Sales and Marketing Years ended December 31, 2025 % Change 2024 % Change 2023 (in US $ millions, except percentages) Sales and marketing 1,663 19 % 1,393 14 % 1,220 Percentage of total revenues 14 % 16 % 17 % Sales and marketing expenses increased for the year ended December 31, 2025 compared to the same period in 2024, due to increases of $242 million in overall marketing program spend and $41 million in employee-related costs, offset by a $15 million decrease in payouts related to our affiliate partner programs. Research and Development Years ended December 31, 2025 % Change 2024 % Change 2023 (in US $ millions, except percentages) Research and development 1,536 12 % 1,367 (21) % 1,730 Percentage of total revenues 13 % 15 % 25 % Research and development expenses increased for the year ended December 31, 2025 compared to the same period in 2024, due to increases of $105 million in employee-related costs and $61 million in computer hardware and software costs. General and Administrative Years ended December 31, 2025 % Change 2024 % Change 2023 (in US $ millions, except percentages) General and administrative 471 15 % 410 (16) % 491 Percentage of total revenues 4 % 5 % 7 % General and administrative expenses increased for the year ended December 31, 2025 compared to the same period in 2024, due to a reversal in the second quarter of 2024 of a previously recorded estimated legal liability of $55 million and an increase of $13 million for impairment related costs associated with right-of-use assets and leasehold improvements, offset by a decrease of $17 million in indirect taxes. Transaction and Loan Losses Years ended December 31, 2025 % Change 2024 % Change 2023 (in US $ millions, except percentages) Transaction and loan losses 417 84 % 227 49 % 152 Percentage of total revenues 4 % 3 % 2 % Transaction and loan losses increased for the year ended December 31, 2025 compared to the same period in 2024, due to increases of $124 million in losses related to Shopify Payments driven by an increase in expected losses, higher realized losses in the period, higher GMV processed through Shopify Payments relative to the same period in 2024, and $61 million in losses related to lending services driven by an expansion of our offerings and programs relative to the same period in 2024. 55 Table of Contents Net (loss) gain on equity and equity method investments Years ended December 31, 2025 % Change 2024 % Change 2023 (in US $ millions, except percentages) Net (loss) gain on equity and equity method investments (316) * 853 (37)% 1,361 * Not a meaningful comparison In the year ended December 31, 2025, we had net unrealized loss on equity and other investments of $186 million, which included a $205 million unrealized loss in investments with readily determinable fair values which was the result of changes in share prices from January 1, 2025 to December 31, 2025, $129 million unrealized loss in an investment option, offset by a $171 million unrealized gain on investments without readily determinable fair values which was the result of an observable price change. Additionally, we recognized a loss of $123 million on the embedded derivative held prior to the settlement of the Notes, a net loss of $40 million on our equity method investment, offset by a realized gain of $33 million from the deemed sale of equity and other investments. In the year ended December 31, 2024, we had net unrealized income on equity and other investments of $1.0 billion, of which $823 million was in investments with readily determinable fair values and was the result of changes in share prices from December 31, 2023 to December 31, 2024, $82 million in unrealized gain related to our investment option in Klaviyo and $89 million of unrealized gains offset by $14 million in unrealized losses and impairments related to investments without readily determinable fair values. Additionally, we had a net loss of $138 million on our equity method investment. Other income, net Years ended December 31, 2025 % Change 2024 % Change 2023 (in US $ millions, except percentages) Other income, net 357 19% 300 24% 242 In the year ended December 31, 2025, other income, net was driven by interest income of $331 million recognized on marketable securities compared to interest income of $308 million recognized on marketable securities for the same period in 2024 and net gain on foreign exchange of $26 million compared to $8 million net loss on foreign exchange for the same period in 2024. Provision for Income Taxes Years ended December 31, 2025 % Change 2024 % Change 2023 (in US $ millions, except percentages) Provision for Income taxes (278) 33% (209) * (53) * Not a meaningful comparison In the year ended December 31, 2025, we had a provision for income taxes of $278 million on account of earnings, offset by unrealized losses on the company's equity and other investments. In the year ended December 31, 2024, we had a provision for income taxes of $209 million on account of earnings and unrealized gains on the Company's equity and other investments, net of an offset to the reversal of valuation allowance. During the year ended December 31, 2024, there were significant unrealized gains on the Company's equity and other investments resulting in a deferred tax expense. As a result, a portion of the valuation allowance was reversed which partially offset the deferred tax expense in the current year. In addition, during the year ended December 31, 2024, the Company performed a U.S. state tax sourcing analysis that resulted in a change to our U.S. state tax apportionment. This also resulted in a reduction in deferred tax assets, including unused non-capital tax losses, that were fully offset by a valuation allowance. 56 Table of Contents Summary of Quarterly Results The following table sets forth selected quarterly results of operations data for each of the eight quarters ended December 31, 2025. The information for each of these quarters has been derived from unaudited consolidated financial statements that were prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflects all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the results of operations for these periods in accordance with U.S. GAAP. This data should be read in conjunction with our unaudited consolidated financial statements and audited consolidated financial statements and related notes for the relevant period. These quarterly operating results are not necessarily indicative of our operating results for a full year or any future periods. Three months ended Dec 31, 2025 Sep 30, 2025 Jun 30, 2025 Mar 31, 2025 Dec 31, 2024 Sep 30, 2024 Jun 30, 2024 Mar 31, 2024 (in US $ millions, except per share data) Revenues Subscription solutions 777 699 656 620 666 610 563 511 Merchant solutions 2,895 2,145 2,024 1,740 2,146 1,552 1,482 1,350 3,672 2,844 2,680 2,360 2,812 2,162 2,045 1,861 Cost of revenues (1)(2) Subscription solutions 148 128 121 123 134 108 97 95 Merchant solutions 1,831 1,325 1,257 1,068 1,326 936 903 809 1,979 1,453 1,378 1,191 1,460 1,044 1,000 904 Gross profit 1,693 1,391 1,302 1,169 1,352 1,118 1,045 957 Operating expenses Sales and marketing (1)(2) 433 410 415 405 348 331 353 361 Research and development (1)(2) 390 375 394 377 351 332 349 335 General and administrative (1)(3)(4) 125 115 122 109 112 114 60 124 Transaction and loan losses 114 148 80 75 76 58 42 51 Total operating expenses 1,062 1,048 1,011 966 887 835 804 871 Income from operations 631 343 291 203 465 283 241 86 Net gain (loss) on equity and equity method investments (5) 182 (112) 658 (1,044) 906 484 (120) (417) Other income, net 79 77 130 71 50 93 82 75 Income (loss) before income taxes 892 308 1,079 (770) 1,421 860 203 (256) (Provision for) recovery of income taxes (149) (44) (173) 88 (128) (32) (32) (17) Net income (loss) 743 264 906 (682) 1,293 828 171 (273) Net income (loss) per share attributable to shareholders: Basic $ 0.57 $ 0.20 $ 0.70 $ (0.53) $ 1.00 $ 0.64 $ 0.13 $ (0.21) Diluted $ 0.57 $ 0.20 $ 0.69 $ (0.53) $ 0.99 $ 0.64 $ 0.13 $ (0.21) (1) Includes stock-based compensation expense and related payroll taxes as follows: Three months ended Dec 31, 2025 Sep 30, 2025 Jun 30, 2025 Mar 31, 2025 Dec 31, 2024 Sep 30, 2024 Jun 30, 2024 Mar 31, 2024 (in US $ millions) Cost of revenues 1 1 1 1 — — 3 1 Sales and marketing 10 13 12 13 13 15 10 12 Research and development 87 78 85 84 81 77 73 72 General and administrative 27 24 22 25 24 23 23 26 125 116 120 123 118 115 109 111 57 Table of Contents (2) Includes amortization of acquired intangibles as follows: Three months ended Dec 31, 2025 Sep 30, 2025 Jun 30, 2025 Mar 31, 2025 Dec 31, 2024 Sep 30, 2024 Jun 30, 2024 Mar 31, 2024 (in US $ millions) Cost of revenues 3 2 2 2 1 3 4 4 Sales and marketing — — — — 1 — — — Research and development 1 1 1 1 — 1 — — 4 3 3 3 2 4 4 4 (3) In the second quarter of 2024, we released an accrual for an estimated liability of $55 million associated with a legal matter. (4) Includes impairment related costs associated with right-of-use assets and leasehold improvements of $3 million in the third quarter of 2025 and $10 million in the second quarter of 2025. (5) Includes loss on embedded derivative held to settle the Notes, initially with a $29 million unrealized loss during the third quarter of 2025, which then resulted in a $123 million realized loss during the fourth quarter of 2025. We believe that year-over-year comparisons are more meaningful than our sequential results due to seasonality in our business. While we believe that this seasonality has affected and will continue to affect our quarterly results, our rapid growth has partially masked seasonal trends to date. Our merchant solutions revenues are directionally correlated with our merchants' GMV. Our merchants' GMV typically increases during the fourth-quarter holiday season. As a result, we have historically generated higher merchant solutions revenues in our fourth quarter than in other quarters. As a result of the growth of our merchant solutions offerings, we believe that our business may become more seasonal in the future, and that historical patterns in our business may not be a reliable indicator of our future performance. Quarterly Revenue and Gross Margin Trends Historically, revenues experienced a seasonal decrease in our first quarter as consumers typically reduce their spending following the holiday season resulting in a seasonal decrease in GMV per merchant, which was not completely offset by Shopify Payments penetration and MRR growth. Subsequently, revenues have increased in each of the next three quarters as a result of merchant, MRR and overall GMV growth. Our merchants have processed additional GMV during the fourth-quarter holiday seasons, and as a result we have generated higher subscription solutions and merchant solutions revenues in our fourth quarters compared to other quarters. Due to the continued growth of our merchant solutions offerings, we believe that our business may become more seasonal in the future. Our gross margin is generally driven by the mix between our higher margin subscription solutions revenue and lower margin merchant solutions revenue. While our total revenues have increased in recent periods, the mix has shifted towards merchant solutions revenue, most notably in the fourth quarter due to higher order volumes facilitated during the holiday season and the resulting Shopify Payments revenue during this period. We expect this overall trend to continue over time. In connection with expanding our operations internationally, we anticipate a growing proportion of our revenues and cost of sales transactions to be incurred in foreign currencies as compared to USD due to increased Shopify Payments, Shopify Capital, subscriptions and other billings in select countries in local currency. Fluctuations in foreign currencies relative to the USD may impact identified quarterly and yearly trends. Quarterly Operating Expenses Trends Excluding the items outlined in the tables above, operating expenses have increased in connection with revenue and operations growth. We note a significant portion of our operating expenses are incurred in foreign currencies which may impact the comparability of our quarterly and yearly trends. Quarterly Gain (Loss) on Equity and Equity Method Investments and Other Income Trends Historically, there have been no consistent trends associated with gain (loss) on equity and equity method investments and other income as changes are impacted by fluctuations in the fair value of our equity investments in public companies with readily determinable fair values, observable changes or impairments associated with our equity investments in private companies without readily determinable 58 Table of Contents fair values, changes in our equity method investment based on our share of income and loss, including amortization of the basis difference, changes in the fair value of our investments in convertible notes of private companies, changes in the fair value of the embedded derivative held to settle the Notes, foreign exchange rates and interest rates. The results from these changes may fluctuate from period to period and may cause volatility to our earnings as well as impact comparability of our results from period to period. Key Balance Sheet Information December 31, 2025 2024 (in US $ millions) Cash, cash equivalents and marketable securities (1) 5,778 5,479 Total assets 15,189 13,924 Total liabilities 1,716 2,366 Total non-current liabilities 324 410 (1) Excludes $975 million and $709 million of marketable securities classified in "Long-term Investments" as of December 31, 2025 and 2024, respectively. Total net assets increased $1.9 billion as of December 31, 2025 compared to December 31, 2024, due to the increase of $1.3 billion in total assets and the decrease of $650 million in total liabilities. The increase in net assets is primarily due to the cash provided by operating activities of $2.0 billion, a net increase in marketable securities and long-term investments of $518 million, and an increase in loans and merchant cash advances, net of $560 million, offset by the settlement of the Notes for $1.0 billion in cash. The following table presents the total value of the Company's cash and cash equivalents, marketable securities, long-term investments, equity and other investments and equity method investments by the assets' underlying geographic location: December 31, 2025 2024 (in US $ millions, except percentages) United States 10,077 84 % 8,999 78 % Israel 899 8 % 1,310 11 % Canada 660 6 % 992 9 % Rest of World 301 3 % 176 2 % 11,937 100 % 11,477 100 % Liquidity and Capital Resources We generate liquidity through operating cash flows and the proceeds from the exercise of stock options. Shopify maintains a short-form base shelf prospectus with the securities commissions in each of the provinces and territories of Canada, except Quebec, and a corresponding shelf registration statement on Form F-10 with the U.S. SEC. This allows us to offer Class A subordinate voting shares, preferred shares, debt securities, warrants, subscription receipts, units, or any combination thereof, from time to time during the 25-month period that the shelf prospectus is effective. The type of securities and the specific terms thereof will be determined at the time of any offering and will be described in the applicable prospectus supplement to be filed separately with Canadian securities regulators and the SEC. Our principal cash requirements are for working capital and ongoing operations. Excluding current deferred revenue, working capital as of December 31, 2025 was $7.2 billion. Given the ongoing cash generated from operations and our existing cash and cash equivalents, we believe there is sufficient liquidity to meet our current and planned financial obligations over the next 12 months and into the foreseeable future. Our future cash requirements will depend on many factors, including but not limited to our growth rate, subscription renewal activity, the timing and extent of spending to support development of our platform, the expansion of sales and marketing activities, the macroeconomic 59 Table of Contents conditions and overall levels of consumer spending on goods and potential strategic investments and acquisitions activity. Although we currently are not a party to any material undisclosed agreement and do not have any understanding with any third parties with respect to potential material investments in, or material acquisitions of, businesses or technologies, we may enter into these types of arrangements in the future, which could also require us to seek additional equity or debt financing. Additional funds may not be available on terms favorable to us or at all. Cash, Cash Equivalents and Marketable Securities Cash, cash equivalents and marketable securities increased by $299 million to $5.8 billion as of December 31, 2025 from $5.5 billion as of December 31, 2024, primarily as a result of cash provided by our operations and proceeds from the exercise of stock options, partially offset by the settlement of the Notes, the purchase and origination of loans, net of repayments, and the purchase of equity and other investments. Cash equivalents and marketable securities include money market funds, term deposits, U.S. federal bonds and agency securities and corporate bonds and commercial paper, all maturing within 12 months from December 31, 2025. The following table summarizes our total cash, cash equivalents and marketable securities as well as our operating, investing and financing activities for the years ended December 31, 2025, 2024 and 2023: Years ended December 31, 2025 2024 2023 (in US $ millions) Cash, cash equivalents and marketable securities (end of year) 5,778 5,479 5,008 Net cash provided by (used in): Operating activities 2,033 1,616 944 Investing activities (1,190) (1,586) (1,244) Financing activities (811) 61 60 Effect of foreign exchange on cash and cash equivalents 15 (6) 4 Net increase (decrease) in cash and cash equivalents 47 85 (236) Increase in marketable securities (1) 252 386 191 Net increase (decrease) in cash, cash equivalents and marketable securities 299 471 (45) (1) Excludes $975 million, $709 million and $115 million of marketable securities classified in "Long-term Investments" as of December 31, 2025, 2024 and 2023, respectively. Cash Flows From Operating Activities Our largest source of operating cash is from merchant solutions. Within merchant solutions, the largest source of cash flows are Shopify Payments processing fee arrangements, which are received on a daily basis as transactions are processed. We also generate cash flows from our subscription solutions with subscription revenues. These payments are typically paid to us at the beginning of the applicable subscription period, except for our Shopify Plus merchants who typically pay us at the end of their monthly billing cycle. Our primary uses of cash from operating activities are for third-party payment processing fees, employee-related expenditures, marketing programs and outsourced hosting costs. For the year ended December 31, 2025, net cash provided by operating activities was primarily the result of operating income, once adjusted for non-cash items, slightly offset by change in working capital resulting in a use of cash due to an increase in non-cash working capital. 60 Table of Contents Cash Flows From Investing Activities Net cash used in investing activities in the year ended December 31, 2025 was driven by $579 million used for purchases and originations of loans, net of repayments and sales, $488 million used in purchases of marketable securities, net of maturities, $99 million used to purchase equity and other investments, $56 million used in acquisitions of businesses, net of cash acquired and $26 million used to purchase property and equipment, offset by $58 million other cash flows provided by investing activities. Cash Flows From Financing Activities Net cash used in financing activities in the year ended December 31, 2025 was driven by $1.0 billion to settle the Notes and the embedded derivative, offset by $232 million provided by proceeds from the issuance of Class A subordinate voting shares and Class B restricted voting shares as a result of stock options exercises. In February 2026, the Company's Board of Directors authorized a share repurchase program permitting the repurchase of up to $2 billion of the Company's Class A subordinate shares, provided that the number of Class A subordinate voting shares repurchased does not exceed 5% of the Company's issued and outstanding Class A subordinate voting shares. The share repurchase program has no fixed expiration and the actual timing, number and value of Class A subordinate voting shares repurchased will depend on a variety of factors, including price, business and market conditions, applicable legal requirements and alternative investment opportunities. Contractual Obligations Our principal commitments consist of obligations under our operating leases for office, warehouse and commercial space. The following table summarizes our contractual obligations as of December 31, 2025: Payments Due by Period Less Than 1 Year 1 to 3 Years 3 to 5 Years More Than 5 Years Total (in US $ millions) Operating lease and unconditional purchase obligations (1) 229 150 75 166 620 (1) Consists of payment obligations under our office and commercial space leases as well as other unconditional purchase obligations. Litigation and Loss Contingencies During the year ended December 31, 2024, the Company reversed the previously recorded liability of $55 million within "General and administrative" in the consolidated statement of operations and comprehensive income, as a loss contingency was no longer considered probable. The initial recognition of the liability in 2022 related to a jury in the U.S. District Court for the District of Delaware returning a verdict finding that the Company infringed three web technology patents owned by Express Mobile, Inc.. The Company filed a post-trial motion for judgment as a matter of law. In the year ended December 31, 2024, the court granted that motion, vacating the jury verdict in its entirety and mooting the plaintiff's motion for pre- and post-judgment interest. In 2025, the U.S. Court of Appeals dismissed Express Mobile's appeal and affirmed there was no infringement by the Company. We are not aware of any other litigation matters or loss contingencies that would be expected to have a material adverse effect on the business, consolidated financial position, results of operations or cash flows. Off-Balance Sheet Arrangements In connection with the sales of our logistics businesses in the second quarter of 2023, we retained our guarantee of certain leases. We also entered into an indemnification agreement that governs the liability obligations of the purchaser in connection with these guarantees. These arrangements, and our 61 Table of Contents obligations arising from such arrangements, are not expected to have a material impact on the current or future financial performance or financial condition of the Company. Critical Accounting Policies and Estimates We prepare our consolidated financial statements in accordance with U.S. GAAP. In the preparation of these consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we re-evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as significant accounting policies and estimates, which we discuss below and in further detail in Note 3 - Significant Accounting Policies of our audited consolidated financial statements for the year ended December 31, 2025 included in Item 15 this Annual Report on Form 10-K. Revenue Recognition For revenue streams that involve another party that contributes to providing a specified service to a customer, the Company determines whether it is the principal or an agent. In these instances, the Company determines whether it has promised to provide the specified service itself (as principal) or to arrange for the specified service to be provided by another party (as an agent). This determination depends on the facts and circumstances of each arrangement and, in some instances, involves significant judgment. The Company recognizes revenue from certain services, such as the sale of shipping labels, the sale of apps, the sale of themes, card services and installments services, on a net basis as the Company is the agent in the arrangement with customers. All other revenue is reported on a gross basis, as the Company has determined it is the principal in the respective arrangements. Equity and Other Investments The Company evaluates each investment to determine if the investment is a variable interest entity and, if so, whether the Company is the primary beneficiary of the variable interest entity. As of December 31, 2025 and 2024, there were no variable interest entities required to be consolidated in the Company’s consolidated financial statements. The Company also assesses each investment to determine its classification based on fair value measurements and other factors, which then are classified as equity and other investments with readily determinable fair values, equity and other investments without readily determinable fair values and equity and other investments under the equity method of accounting. Equity and other investments in private companies without readily determinable fair values are carried at cost less impairments, with subsequent adjustments for observable changes (referred to as the measurement alternative). Estimates and judgments are involved in applying the measurement alternative associated with equity and other investments without readily determinable fair values by developing certain key assumptions, including revenue growth rates and revenue multiples based on market comparables. The Company also holds investments in convertible notes of private companies which are classified as available-for-sale debt securities, for which the Company has elected to account for under the fair value option. The investments are carried at fair value at each balance sheet date and any movements in the fair values are classified as "Other income, net" in the consolidated statements of operations and comprehensive income. The Company evaluates each investment to determine if the investment should be accounted for as an equity method investment based upon equity ownership, significant influence and ongoing involvement in the investee, including factors such as representation on the investee's Board of Directors. Investments that qualify for the equity method of accounting treatment are carried at the Company’s investment amounts and adjusted each period for the Company’s share of the investee’s income or loss and amortization of the basis difference, which is the difference between the fair value of our investment in the company and the underlying equity in the net assets of the investee. 62 Table of Contents The Company assesses its equity and other investments in private companies and equity method investment for impairment through analyzing market conditions, business results and other qualitative measures that indicate that the carrying amount of the investment may be impaired, and the decline in value below the carrying amount is determined to be other than temporary. Loss Contingencies The Company records accruals for loss contingencies when losses are probable and reasonably estimable. The Company evaluates developments in legal matters that could affect the amount of liability that has been previously accrued and makes adjustments as appropriate. Significant judgment is required to determine both probability and the estimated amount of a loss or potential loss. The Company may be unable to reasonably estimate the reasonably possible loss or range of loss for a particular legal contingency for various reasons, including, among others, because: (i) the damages sought are indeterminate; (ii) the proceedings are in the relatively early stages; (iii) there is uncertainty as to the outcome of pending proceedings (including motions and appeals); (iv) there is uncertainty as to the likelihood of settlement and the outcome of any negotiations with respect thereto; (v) there remain significant factual issues to be determined or resolved; (vi) the relevant law is unsettled; or (vii) the proceedings involve novel or untested legal theories. In such instances, there may be considerable uncertainty regarding the ultimate resolution of such matters, including the likelihood or magnitude of a possible eventual loss, if any. Income Taxes Income tax expense includes domestic and foreign income taxes. Deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are more likely than not to be realized. The Company considers many factors when assessing the likelihood of future realization of our deferred tax assets, including its recent cumulative loss experience and expectations of future earnings, capital gains and investment in the applicable jurisdiction, the carry-forward periods available to it for tax reporting purposes and other relevant factors. The Company evaluates tax positions taken or expected to be taken in the course of preparing tax returns to determine whether the tax positions have met a “more-likely-than-not” threshold of being sustained by the applicable tax authority. The Company is subject to review and audit by tax authorities around the world, which may lead to adjustments to our tax liabilities. Significant judgment is required in assessing our tax positions. Tax benefits related to tax positions not deemed to meet the “more-likely-than-not” threshold are not permitted to be recognized in the consolidated financial statements. The Company's accounting policy is to recognize interest and penalties related to uncertain tax positions as a component of income tax expense.