Q4 2019 Earnings Call
Thank you for standing by this is the conference operator.
Welcome to the Shopify fourth quarter 2019 financial results Conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions to join the question Q You May Press Star then one on your telephone keypad.
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I would now like to turn the conference back over to Katy Kato Director of Investor Relations. Please go ahead.
Thank you operator, and good morning, everyone. We're glad you can join us for Shopifys fourth quarter and year end 2019 conference call.
We are joined this morning by Toby Luca Shopify, CEO, Harley Finkelstein, our Chief operating officer, and Amy Shapiro, our CFO after prepared remarks, well open it up for your questions.
We will make forward looking statements on our call today that are based on assumptions and therefore subject to risks and uncertainties that could cause actual results to differ materially from those projected.
We undertake no obligation to update these statements except as required by law you can read about these risks and uncertainties in our press release this morning, as well listen our filings with U.S. and Canadian regulators.
Also our commentary today will include adjusted financial measures, which are non-GAAP measures. They should be considered as a supplement to and not as a substitute for GAAP financial measures reconciliations between the two can be found in our earnings press release, which is available on our website and finally note that because we report in US dollars all amounts discussed today, our U.S. dollar.
Unless otherwise indicated that I turn the call over to Harley.
Thanks, Katy and good morning, everyone 2019 was a phenomenal year for shops.
Our merchant base is stronger than ever with more than 1 million merchants using shopify to pursue their passes entrepreneurs.
The mix of merchants outside our core geography is continues to expand hasn't helped more entrepreneurs around the world reach for independence by launching businesses on shopify.
We broke new ground in our journey to make commerce better forever, one by watching the shopify someone network.
We need our largest acquisition to date with six rubber systems to help us transform that someone industry.
And best of all our merchants did great generating more than $61 billion and G. M. B in 2019, an average of more than $1 billion per week last year positioning shopify merchants on an aggregated basis as the second largest ecommerce retailers in the U.S.
These achievements in 2000 19.2, the strong them into Shopifys flywheel as we lowered the barrier to entry to entrepreneurship more people are trying their hand, it starting a business on shopify.
This enable shopify and our expanding ecosystem of partners to keep innovating to help merchants of all sizes, so more and some more efficiently.
This translates into the success that our merchants are seeing today.
Encouraged by this momentum we continue to invest in our merchant success in 2019, strengthening our platform expanding our product offering and further differentiating shopify plus.
Let me highlight some of these enhancements we made in 2019.
In the middle of last year, we introduced shopify capital to non shopify payments merchants, which allowed us to advance more capital to more entrepreneurs.
This helped us advance more than $430 million in 2019 through shopify capital for a cumulative $885 million since inception to help margins for other businesses.
We released a number of new digital marketing features to help rents connect directly with their customers and build lasting relationships. These include shopify email shopify chat and more AD buying tools through partnerships with Facebook and Microsoft helping merchants reached more potential buyers without ever having to leave the platform.
Well digital marketing goes a long way towards helping our merchant somewhere on line, we know that our merchants are selling both online and offline.
We made great progress, helping worked in some more in person with the release of our new retail hardware collection.
The top and ship reader dock and Stan delivers a seamless online and offline shopping experience.
We plan to watch or more intuitive and scalable all new quanta sell software in the coming months further simplifying merchant operations and helping them grow their brick and mortar businesses.
The time saving features we launched last year to help works and some more efficiently include order editing along the way didn't has been that saves merchants time and effort when making changes to customer orders.
Well site on for faster and easier switching between multiple shopify stores.
Or translation, <unk>, which allows merchants to more easily sell in multiple languages.
And shopify paid which continue to help merchants can but sales in 2019 more than 40 million buyers have opted into shopify pay.
Shopify is checking accelerator has been very popular with buyers and facilitated more than one and a half billion dollars of GMP in the fourth quarter and 65% more order volume and the same period in 2018.
Shopify shipping adoption increased to 45% eligible merchants in Q4 up from under 40%. This time last year.
The strong increases in adoption for 2019 reflects the value we bring to merchants pretty competitive rates security where economies of scale to added features they give our merchants more flexibility such as shipping profiles and personal insurance.
Of our announcement last year. The most ambitious was the launch of the Shopify summing up.
The consumer expectations rising for fast and affordable delivery fulfillment poses a challenge to all businesses.
Combining our economies of scale with the automated fulfillment technology from six separate systems, we will enable our merchants to better compete with the largest businesses on the planet well revolutionizing the someone industry as it shifts from pallets to parcels.
Even though we're happy with our initial progress it's important to remember we are in the early stages of a five year plan for the Shopify summing up work.
Our merchants need us to get this right and that will take time, but we're committed to the long term viability of the shot place or something I work.
The progress we made across our platform and products in 2019 contributed to an incredibly successful black Friday cyber Monday sales weekend for our merchants, who generated nearly $3 billion and sales worldwide to over 25 million consumers.
This demonstrates the increasing power of direct to consumer brands around the world.
Not only where our merchant sales outstanding but from a platform standpoint, we reached peak volumes of over one and a half million dollars and sales per minute with no downtime.
Let me take a moment to say how proud we are of our infrastructure and support teams and everyone else that made this holiday selling period in enormous success for our merchants.
Shopify plus merchants experienced the strength of the platform first hand as their sales over the be FCM weekend blew past expectations.
Sales by plus merchants Overby FCM were up significantly over the previous year.
This contributed to a strong fourth quarter for Shopify, plus rounding out a great full year.
Merchants join Shopify, plus because we offer with no. Other platform does a solution that enables brands with increasing complexity to scale and go global in an agile and cost effective matter.
Both traditional and non traditional retailers are embracing our platform.
We make it easier for entrepreneurs within the enterprise to experiment and grow in an ever evolving retail landscape.
We deliver a powerful buying experience through cutting edge features like augmented reality bass uneasy check at an interactive in store experiences.
Notable brands that launched on Shopify plus in Q4 include iconic Houseware brand kitchenaid.
Where brand Toms.
Beach, where apparel fashion brand Panorama Jack.
Canadian retailers abrupt and marks work, whereas.
You asked newspaper publications, the Washington Post and Los Angeles Times.
And global Entertainment Company Cirque Du Soleil.
And of course, more consumer package goods brands, Influencers and celebrities like Sean John and try to Scott.
In 2019, we saw an increasing number of well established brands with higher GMB migrate to the platform many of them come to plus with enterprise level requirements, which plus is increasingly able to solve.
We will continue building out our feature set to help larger volume merchants manage their businesses expand globally and improve efficiencies through automation.
The new Shopify plus experience launching in the coming months will further reduce complexity for these high volume merchants and it has the overall value they receive shopify plus.
Now turning to our partners.
As we grow or international footprint and seek to improve product market fit outside our core geography is developing our partner ecosystem in these countries gross ever more relevant to shopify and our merchants.
More than 24000 partners refer to merchandise shopify over the past 12 months up by more than a third from a year ago with international partners growing as part of this mix.
With the addition of 500 apps tour apps during the fourth quarter. We started 2020 with more than 3700 apps available to help merchants run their businesses.
Building, a commerce operating system that delights millions of merchants across the globe it's hard.
Shopify is great solving hard problems, which is why we take on initiatives like the shopify someone network international expansion and so much more.
We set out on this 100 year journey lessen two decades ago, which means the vast majority of our work lies ahead.
Before I hand, it over to Amy I want to see thank you to our talented and merchant obsessed team, which heads to 2020 more than 5000 strong.
Thank you for working to preserve and to grow entrepreneurship forgiving, our merchant superpowers and for continuing to move the needle towards making commerce better for everyone. We will continue to arm the rebels.
Thanks, Charlie and good morning, everyone. All second Harleys appreciation for all the work the shopify team put into making 2019, such a success, making the right strategic investments is meaningless without strong execution and we did both this past year initiatives, we've invested in over the past few years such as.
Shopify, plus an international expansion contributed to growth across the board.
Revenue growth accelerated in our fourth quarter. The first time since 2015, expanding 47% year over year to $505.2 million.
This acceleration of our topline was entirely driven by Shopifys organic operations as fourth quarter revenue associated with the six river systems acquisition was not material consistent with our guidance.
Subscription solutions revenue increased 37% year over year to $183.2 million.
Monthly recurring revenue grew 32% year over year to $53.9 million, primarily driven by new merchants joining the platform.
Shopify plus continued to increase its contribution to monthly recurring revenue accounting for $14.6 million or 27% compared with 25% of M.R.R. and Q4 2018.
Strong app and Shopify plus platform fee revenues contributed to the five percentage point difference between the growth of subscription revenue and M.R.R.
[noise] merchant solutions revenue grew 53% over the same period in 2000 $18 million to $322 million the acceleration and you're on your growth was driven by continued penetration of shopify payments and by growth of other merchant solutions revenue like capital in shipping on the back of strong GMB expansion.
In which increased 47% you every year to $20.6 billion.
Newly added revenue streams from six river systems, and Shopify fulfillment network also contributed albeit only slightly given the early stages.
[noise] $8.9 billion of GMB was processed and shopify payments in Q4, an increase of 52% versus the comparable quarter last year.
Payments penetration of GMB was 43% versus 41% in Q4, 2018, Shopify plus continued to increase its share of GPV and shopify payments continue to expand internationally.
Adjusted gross profit dollars, which excludes the impact of stock based compensation expense and related payroll taxes as well as the amortization of acquired intangibles grew 44% over last year's fourth quarter to $269.9 million, even after taking into account the acquisition of six.
River systems, our ramp up of investment and Shopify fulfillment network and a greater mix of merchant solutions revenue versus last year.
This reflects strong growth from higher margin revenue streams, like shopify capital and the variable platform fee from Shopify plus merchants.
Adjusted operating income, which excludes the impact of stock based compensation expenses related payroll taxes as well as amortization of acquired intangibles grew 33% in Q4, two approximately $28.4 million or 6% of revenue compared with $21.4 million or six.
Percent of revenue in the fourth quarter of 2018.
Adjusted operating income year over year growth was impacted by the addition of operating expenses related to the six river systems acquisition, and an $8 million nonrecurring indirect tax charge in the fourth quarter of 2019.
Adjusted net income for the quarter grew 70% to $50 million or 43 cents per share compared with $29.4 million or 27 cents per share and last year's fourth quarter.
Finally, our cash cash equivalents and marketable securities balance was approximately $2.5 billion.
As we build shopify to be a company that sees the next century, the north star guiding us their simple delivering a great product to our merchants. This means building a powerful global commerce operating system that lowers the barrier entry to entrepreneurship. So anyone anywhere can start a business arms, our merchants with the tools and came.
Abilities to build a successful business and connects our merchants directly with or buyers, allowing them to build their own brand and develop their own customer relationships.
Today I will update you on the progress of three key investments in 2019 that moved us in the right direction International expansion Shopify fulfillment network and six River systems. All then preview what we're focusing on in 2020.
Starting with international in 2018, we began investing in international expansion and we saw a promising results. Following the translation of the merchant add men and just six languages and other localization efforts our momentum picked up with further investment in 2019 as we continue to win.
Prove product market fit across focus markets.
As our merchant admin now available in 20 languages Shopify payments available in 15 countries and more localized growth marketing and partner development. The results speak for themselves International merchant and GMB growth consistently outpaced that of our established core markets. This past year with.
Both increasing their contribution to overall merchant NGL the mix at the end of 2019 more merchants around the world had launched businesses on Shopify with our international merchant base growing to 29% of our total merchant base up from 24% the prior year.
Turning to Shopify fulfillment network fast and affordable fulfillment is table stakes for the success of our merchants since launching in Q2, we have selectively added dozens of merchants and several partners to our early access program, maintaining our focus on performance quality over scale at this early stage and optimizing for the merchant experience.
We also worked with our warehouse partners to bring more nodes online through the fourth quarter. The busy holiday shopping season was an important test period and the early development of the network and we were happy with its performance through that critical time, particularly through the Black Friday Cyber Monday weekend.
With fewer than 1 million fulfillments since its launch Shopify fulfillment network is still in the early part of the product market fit stage and we're working to ensure performance in merchant experienced before we start to scale, we're off to a good start and most merchant surveyed tell us shopify fulfillment network is a good value for their money and order accuracy rates.
To date remain high this along with the delight merchants have expressed to us about their experience for Shopify fulfillment network are testament to the value out of fulfillment as well as to the quality of our partners Lastly, six river systems got off to a great start as part of Shopify, working with teams across shopify, and especially shopify fulfillment.
Network whenever partners deployed six river systems technology, and a node last month and is already benefiting from the added deficiency and support.
And six river systems operations independent of Shopify fulfillment network continue to grow, adding new products and capabilities to their collaborative warehouse fulfillment solution supporting warehouses through a record peak season.
Adding new customers and locations and booking the most collaborative robots in a quarter ever in Q4.
Now for a preview of 2020, which is clearly a year of heavy investment for us.
Over the past five years, we have greatly expanded shopify by pursuing what we see as an incredibly worthy goal, providing a platform for anyone anywhere to establishing grow new independent businesses as Harley said, we're more than 1 million strong at the close of 2019 1.069 million to.
Precise. This compares with 144000 merchants just five years ago, a compound annual growth rate of 49%.
Our success with merchants has not been by accident, we have demonstrated the ability to allocate capital wisely and execute against ambitious plans to make the shopify platform better bigger more performance and increasingly relevant for merchants of any size. This is how we earned trust and grow wallet share from are expanding merchant base.
[noise] by investing in multiple opportunities so they deliver returns over the near mid and longer term, we've been able to sustain rapid growth well 2020 represents a continuation of this approach. It is also the first full year of our most ambitious investments yet shopify fulfillment network and six river systems, while both have multi.
Your time horizons, they also hold potential for outsized returns.
As we laid out last June we expect the build out a shopify fulfillment network to take five years from the early access program launch in mid 2019 costing approximately $1 billion. Most of this spend is expected to be variable based on the cost to fulfill goods.
We expect to Shopify fulfillment network to be dilutive to 2020, adjusted gross profit given growing but still limited scale in terms of volume while in the product market fit stage.
In 2020, we expect to continue to focus on building the software that connects the network and enables merchants with our partner supplying warehouse capacity in services and outbound transportation, we're directing a small portion of the $1 billion to open a small shop, if I run R&D center in Ottawa, So our pro.
Arctic teams can learn fulfillment first hand, including trailing new warehousing and fulfillment technology.
This R&D center of course includes technology from six River systems, which we expect will prove increasingly valuable to shopify fulfillment network as well as to the dozens of other warehouses that have begun to leverage six river systems technology, we see many similarities between six river systems and Shopify at a similar size.
A dedicated team innovation for meaningful disruption and most importantly, a passion to democratize commerce, albeit on the fulfillment and things.
As such we will continue to invest for growth of six river systems collaborative warehouse fulfillment solutions independently as well as in the integration of this technology into Shopify fulfillment network.
Well six river systems is also expected to be dilutive to adjusted gross profit and 2020, we are motivated by the longer term expected gross margin and the velocity, we expect its technology will add to fulfillments.
Shopify plus an international expansion also merit incremental investment and 2020 as we've seen by the expanding contribution of Shopify, plus the M.R.R. and GMB the demand from larger brands, who want the superpowers needed to thrive in commerce today is enormous.
The complexity needing to be solved for larger merchants is far greater than what most of our merchants phase. So we'll continue to lower complexity for them by investing in areas like automating wrote processes and enhancing wholesale capabilities expansion outside our core geography offers another opportunity that lies ahead.
Ed for Shopify, plus and Twentytwenty.
This past year is proving out the massive opportunity still available outside our core geographies.
The good news is that we're still in the early stages of problem solving for international emergence with true product market fit and focus international regions yet to come.
Because the desire for entrepreneurship is universal and our platform is so approachable opportunity exists in every country around the globe.
So we will increase our investment in 2020, our challenge lies in bringing the full potential of the shopify platform available to everyone.
Which we plan to address in part with the help of local partners.
We will also incrementally invest this year and the shopify platform.
With one of our biggest focus areas being our point of sale offering.
While Pos was historically managed as just another channel since it was first introduced in 2014 direct sales efforts initiated in 2019 have delivered promising early results, including three quarters in a row of accelerating GMB growth. The success alongside the improved product market fit of.
Our Pos technologies for small to medium sized businesses with the upcoming launch of the all new Shopify Pos warrants expanding our go to market strategy and scaling sales activities over the course of 2020 in order to see results in 2021 and beyond.
In addition, we expect to bring more financial solutions to market in 2020 to enable our merchants.
Whether its access to financing or simply better ways to facilitate commerce. We believe we are exceptionally well positioned to add value here.
Finally, we'll increase our investment and the Shopify brand in 2020 building on the foundation, we laid in 2019 and encouraged by the increased awareness of and traffic to Shopify, we're confident increasing brand awareness benefits our ability to inspire entrepreneurs and attract more merchants.
So there you have it it's a long last but a worthwhile set of opportunities to set our sights on building a global commerce operating system that stands the test of time is something very few companies can do well and no company can do it without investing the outsized revenue growth we experience in any one year is the result of calculated.
Investments started years prior but.
Because we're investing to create more value for more merchants and to empower more entrepreneurs around the world. We expect to see strong topline growth as a result.
Given this year's ambitions for the full year 2020, we expect revenue to be in the range of 2.13 billion to $2.16 billion with an adjusted operating loss between $20 million and breakeven, which excludes stock based compensation expenses and related payroll taxes of 300 million.
In dollars and amortization of acquired intangibles of $24 million.
And we expect our capital expenditures to be in the neighborhood of $80 million in 2020, mostly related to the build out of new office space to accommodate our growing workforce and only minimally related to shopify fulfillment network and six river systems.
For the first quarter, we expect revenue to be in the range of 440 million to $446 million with an adjusted operating loss between 30 million and $34 million, which excludes stock based compensation expenses and related payroll taxes of $65 million and amortization of acquired intangibles of six.
Million dollars.
Our first quarter 2020, adjusted operating income expectations reflect the inclusion of the first full quarter of operating results associated with six river systems and the launch of our second major brand campaign in our core geographies. The first campaign of which was in the second quarter of 2019 with that I'll turn the call back to Katie.
Over to our listeners for their question. We've just ask everyone to please limit themselves to one question because our time today with you is limited.
With that operator can we please have our first question.
Certainly.
Our first question comes from Ken Wong of Guggenheim Securities.
Great. Thanks for taking my question.
A lot pack, maybe just starting off with.
[noise] with fiscal 20 revenue outlook I know you guys are taking a more conservative approach to sffed, but in terms of how we think about it.
Any rough guidelines in terms of how much we should be feathering in it.
Yeah, Let me just start kind of overall with with how we're thinking about a 2020 revenue growth.
It's it's really going to be driven by our portfolio of growth initiatives. That's what's expected this sustained strong growth in 2020.
And beyond and keep our our flywheel energized a well into the future and if you're familiar with our flywheel. It has kind of three please pieces.
We're going to continue to grow our merchant base well continue to invest in international expansion as I said, we'll continue to do all the things to attract a larger merchants on the plus side and we're going to invest in our brand to continue to widen the funnel and.
Inspire more entrepreneurs around the globe.
And then moving around the flywheel, we're going to continue to grow our merchant solutions will continue it to expand our more established solutions like shopify payments and Shopify capital and provide new solutions like fulfillment and as I said, some additional financial solutions.
Oh that will introduce.
That empowers our merchants to generate more G.N.V., a and then as their successful and generate more G.N.V. and inspires more entrepreneurship and widens. The category. This is how shopify has always ground, it's consistent with our philosophy of.
Energizing this flywheel.
With respect to specifically to the Shopify fulfillment network.
As we said when we launched it you night in June.
We would be in the product market fit phase during 2020, which means we'll be limiting the scale.
Primarily focusing on the merchant experience and our performance metrics, we will scale fulfillment, but only at the rate that we can maintain a high service level.
So it will contribute.
But it will it will be small during 2020.
Great. Thank you Ken.
Our next question comes from Mark cigarettes of Rosenblatt Securities.
Thank you good morning.
Just a follow on to.
So just curious what.
You learned really from Mt, Holly test run or what.
In terms of plans for 20, and specifically in front of the holiday season I realize you commented on needing to have high higher service levels or meet service requirements, maybe you could quantify that a bit more and then.
Just a separately as it relates to the merchants that you foresee using are utilizing sffed, perhaps some characteristics of plus merchants and non plus merchants that.
Would have a need or use of us with that and perhaps those that may not thank you.
[noise], Hey, there it's hardly I'll take that question. So in terms of and as you had mentioned we currently have dozens of merchants in the sort of this early access phase and really the objective right now is to optimize for experience we want to make sure that they not only are getting value for it but you know eventually they were all going to become the promoters of what we're doing here the service that will provide with us.
And is really.
Divide into four different categories, you have the pick and pack categories. We obviously had package types and kitting Weve storage and then obviously getting it to the end consumer which of the up and transport. So we're trying to optimize all those things and as any.
Said earlier this is really still early days of it.
The today shipping is is available now to certain merchants that obviously depends on them, having enough inventory and being more locations for us but that is already available.
But this is still early innings for us for F and we want to get this we're really rights.
Then we add in the six Rs optimizations, whether it's the automated technology or the optimization of warehouse fulfillment. We think you know and with the Chuck's. We think we can do something really great here, but the the objective here is really.
Has been continues to remain fast and affordable shipping for merchants on the merchant side. Your second part of your question. The the goal here is that whether you're shipping three products of your shipping thousands of products that we will be able to fulfill them for you in a way that allows you to compete with the largest retailers in the world and so.
Yeah as as we mentioned earlier also with the R&D Center in in Ottawa, We don't just want to.
Just want to make plans from for the periphery, we actually want to get into it and really cigarette what we need to do and so the best way for us to do that shelf life always on us to get her hands dirty and get into the trenches and that's the reason why we're doing this R&D center in Iowa.
Great. Thank you Mark.
Our next question comes from Colin Sebastian of Baird.
Great. Thank you.
About shopify, plus specifically the biggest opportunities you see to drive incremental adoption, there and by that I mean, new merchants.
That are viewed as a platform not just growing and supplies and with the new plus experience you talked about I think.
What are some of the specific improvements this upgrade will bring and whether these are opportunities to update pricing as well. Thanks.
Thanks for the question, Yes, I mean pricing is something that we're always concerned we're always taking a look at it it's an ongoing evaluation cigarette if we're providing value to merchant how can probably more value and and is there plus the city of demand in that pricing.
That said in terms of new plus experience, which we announced in June at unite.
That hits a couple different areas first of all.
Oh, we're getting more and more merchants that are coming to us with existing large businesses I mentioned some of those on the call it kitchenaid and Toms and Cirque Du. Soleil. These are these are not new DTC brands. These are established brands that come with a large following and so.
Part of that as they come a new complexities and our roles to figure out how to reduce the complexity and simplify it.
There's some other things that are also that we also need to continue to build on top of which is that some more merchants are now running stores in multiple locations internationally and the ability to run a number of stores from one centralized dashboard, that's something we talked about in June.
That is a big part of what we're trying to give but it also is key to work on things like flow and our b to b product with the acquisition handshake, new checkered capabilities, which probably is important to us as well that are that those are the type of things that we're building on top of Shopify, plus and and I think we're getting to the point, where a lot of merchants are now thinking about it that previously.
Had not thought about shopify plus.
Thanks Collyn.
Our next question comes from Deepak Mathivanan of Barclays.
Thanks for taking the thanks for taking the.
Okay.
It looks like to spend on marketing really.
Accelerated in 29.
That is not on on advertising.
It any new gramlich pharma.
Okay.
Thank you.
In 2019 in terms of marketing spend keep in mind, we we introduce brand spend for the first time, we had even given you. The number we said approximately 30 million a for the first time and in addition, a you know if you're looking.
At the entire sales and marketing line. There was also incremental spend in terms of adding direct sales at plus and Pos and so on the sales and marketing line, we still showed.
Operating leverage in 2019, we actually had operating leverage on the marketing side with respect to mostly like on the personnel headcount side that outweighed that incremental spend that I. Just mentioned, so we're really happy with the overall portfolio of sales and marketing spend.
Hi, Thank you Deepak.
Our next question comes from Gus Papageorgiou of P.I. financial.
Hi, Thanks for taking my question I.
No recognizing it's still early days on us offend, but in a few customers that you had.
Last year can you maybe quantify what you think impacts of US event was to their revenue and do you think that getting it down to two days and deploying getting cheaper rates.
But the impact it had on on their revenue.
Yes, the Tobey its I think it's too early to really tell I mean be we'd be up on a total feedback but.
You know there.
As a business I wanted to in being able to make promises on delivery speed and.
But.
Maybe it's too early to share any kind of real equated to a quite as if takeaways from from this.
Generally be fall into that and that's a fan how oh assumptions, but he has been.
Decided to go in have been holding strong and.
[noise] that you noted the new things could be uncover as you are getting deeper into this and as via understanding more and more.
Detailed pots of oil supply chain.
Exists to get things from factories or way to consumers.
We don't be how do you don't really uncover anything that you didnt takeover they expect.
And if theres a degree venue.
To the to this journey.
It's been.
Do you have an amazing team we've brought in really really really good veterans.
Who have big figs like this before we'll have been incredibly had fall away.
Via building Miss for scale, but you have to start small it's nothing.
It's impossible to bids.
Complicates things that work unless you stop if something very very simple and organically, but it if you build something that tries to social complexity immediately it fails heavy cigar times. So this is.
I'm approach we're taking.
Great. Thank you guys.
Our next question comes from Darren I Die of Roth Capital Partners.
Good morning, Thanks, Jim a question I'm just curious on the non English speaking international merchant base can you talk about what percentage of that is coming from plus and then how fast that grew year on year from 18 to 19. Thanks.
Hey, there entirely here, yes, sometimes international as as we mentioned we grew the mix of international merchants from a 24% of merchant base in 2018% to 29% in 2019.
And so obviously that we're happy with that we'll continue that more languages and obviously have a strong go to market strategies through partners and other areas to acquire new international merchants in terms of the mix. It still is predominantly our core merchant base Shopify plus of course is being introduced into new areas. Some of it is happening organically where merchants and.
You know western European countries are simply coming to us and saying, we want to use plus but I would say that majority of that merchandise is coming from core I would also say that the opportunity remains four plus internationally will be in the future and that's something that we are we've been thinking quite a bit about but the majority is still a court merchant base.
Great. Thanks, Dan.
Our next question comes from John back of Keybanc capital markets.
Thanks for taking the question.
I wanted to ask about a point of sale it seems like an area that you.
Side, one of the areas. He emphasized from that investment point of view. So are you feeling.
Better maybe about the product market fit and as you have all the go to market there do you.
The goal really just pads rate up you know within the existing base or is there.
A longer term goal to really attract.
Brick and mortar first merchants as well.
Yes.
I have a goal is to bids the best point of sale.
Softened wood and then.
If.
All of a bit actually the goal is to bid the best possible Binder said system that shop, if I can.
And then.
Yes.
Merchant steam this valuable in agree with us, but since the one bit would give him and wanted to and that puts us at an adopted. So this is exactly the same with wellness store and except to say whatever you want to have you all but they're very sort of.
You split responsibility, but things with value and then.
If people agree with us they adopt them so.
If you don't really go and say, okay, but you're going to go for this particular market segment for this particular subgroup and for this particular grow afraid to get that particular slice of the market. That's not that's never been booked opinion of shopify and in fact.
Via very strong believe us that.
Every market.
That we can go into and every month. We look at is in terms of total size was incredibly depressed by the low quality office off that exists.
And.
By doing if you do a job as well as they really want like two of them and bucket grow significantly.
That's just what we've observed if our core platform.
And in the <unk> ecommerce.
And.
Potentially color so Oh view this as both as to why you hear us talk so much about.
New entrance to the market so entrepreneurs.
But really via booking value it backwards, it's actually much much harder to build software, but looks really really well for people who are starting out because obviously they have less sophisticated have less time that money to spend.
More talks to do it but the same time and so it's like it puts actually stronger.
Requirements himself.
So point of sale if it's been it has done really well, it's because it's been a really really be a strong year compared you know if you adjust its age too.
And then store, it's it's it's tracking ahead.
Off on them towards growth.
At this particular.
<unk>.
In distance from zero perspective.
But of course I'd also like.
Like Weve, she had a bunch of things, but they're doing.
Yeah, we are launching the new version of it but its.
This is gonna be really really need I think as a as it keeps going some big excited about it.
He has been a as Amy or.
Probably brought up earlier.
To bring in some direct sales, which is the new.
New thing for point of sale. So this is also I think a a good sign that via feeling pretty good up out there about product is and especially would have it product is going.
Great. Thank you Josh our next question comes from Brad Zelnick of Credit Suisse.
Thank you so much in congrats on a fantastic year and all the success.
My question is on the marketing strategy can you maybe give us an update how you're thinking about marketing at this point just given some of the leadership changes you've made more recently thanks.
[noise], Yeah, I mean via the Bucketing has worked really well and it's.
In terms of effectiveness has been good.
But they have BAF and leadership changes because.
This is mostly internal motivated and.
But it's the they've been really comfortable on this the.
[noise] particular programs, we've been running brand has been very successful.
For us.
That's been a new discovery or something that's going to be a part of sacrifice.
Sub for future.
They're going to continue scaling it and building it out.
Okay. Thanks Fred.
Next question comes from Nick kill Feds any of the Mackie research capital.
Great. Thanks, guys I wanted to go back to a shopify b and perhaps how that sort of plays into the flywheel in some of the branding initiatives that you have going on there.
Doesn't make sense from a high level philosophical perspective to maybe think about Shopify bay, becoming something akin to Amazon prime or something along those lines. Thanks guys.
[noise] I mean is suddenly excited about Europe, if I pay but <unk> no such plans right now.
Our next question comes from Eagle, our opinion of Wedbush Securities.
Hey, guys. Thanks for taking the questions. So a question. So what has gone on costs and you've talked on this call about increasing to be able to being able to solve enterprise solutions.
I think historically, we've tried to strike a balance between customizing for what.
More complex enterprise customer would need.
I think even kind of getting.
Certain points, where you would.
Maybe even push.
Really complex enterprise customer off of Shopify, plus and say Shopify plus isn't really the solution for you.
Maybe I'm not characterize and that the right way.
But it does feel like you are.
We continue to move continued.
Building, the enterprise solutions and the complexity around that so I'd love to hear come the philosophy around.
Hi.
What shopify plus could handle for merchants. Thanks.
[laughter] yeah. So thanks. Thanks for the question, you're obviously right there are certain merchants I come to us and we simply say no to and that takes a ton of courage at something the most companies would not do.
But partially it's because we want to work with brands on plus that want to make commerce better forever, one and our thinking about it in a very modern contemporary away, we do not want to be dragged down the complexities of of of legacy systems, where they're going to begin to dictate a roadmap, we're going to begin to pull us into their massive they have internally. The good news is hats.
Because of direct to consumers, becoming such a major part of.
Retail and commerce a lot of this direct to consumer brands were built in the last decade, and they don't have the traditional enterprise complexity in Shopify plus is perfect for them. The other good news is that some of the more legacy brands I mentioned, a couple of them today on the call. They are willing to shed some of their internal legacy systems, because there's not working anymore and so they are beginning to rethink.
How they want to run their retail operations and Shopify plus is a great way for them to do that so.
So you Shopify plus for everyone absolutely not we there are merchants, we see no too.
On an ongoing basis oftentimes they do come back to us and say, okay, well, we actually if we thought this and we're not going to bring all these integrations with us we need to shed some of those because it's making us to slow and we want to compete in a modern retail landscape and that's kind of what we're thinking about it that being said there are certain new functionality and features that Oh well.
Building right now because we realize that as part of the future of commerce things like flow and scripts and checkout capabilities and and be able to run multiple stores from one single dashboard on the international side.
These are things that we're we're working and building and we think that the growth of of plus we're now over 7000, plus merchants names that are coming to US again, our b are wonderful mix of more traditional cpgs, but also very modern brands in some cases that are migrating over some cases, they're migrating from homeware and system and we're really happy where that where that's all.
Right now.
Great. Thanks to go.
Our next question comes from Kevin Christian are at night of paradigm capital.
Hey, good morning, I, just wanted to go back to the strength in international and yet the move in the merchant ticking up their 24% between 9% of the base could you comment on some of the more mature markets and what you might be seeing there in terms of GMV per merchant.
Or you know I'm, just subscription revenue and apt uptake I'm, just trying to get a sense of the at the potential a you know upside from that from international it's very early days and that just thoughts on how things have been progressing and some of the more mature markets.
Thanks. Thanks for the question that International you know has as we mentioned his is doing really well, we will be getting we're adding more and more languages. We now have 20 languages available in the admin and we're continuously adding more of those languages as well, we're introducing new merchant solutions for those new markets, which of course will increase the take rate we have there.
But it's it's impossible to bucket every one of those markets into one single narrative. Each of those markets are very different France is very different than Japan, which is of course different than Germany, and so part of I think sophisticated international strategy in a sophisticated growth plan internationally is to identify what each market.
Needs for product market fit perspective, but also how to having you know what the go to market strategy is there and those are all very very different.
We think that we're able to do that we have teams on the ground lease places that are focused on on on making sure that we are the best product in those markets. We're not there yet everywhere, but we're certainly on our way.
Our next question comes from Thomas Forte of D.A., Davidson and company.
Great. Thanks for taking my question. So the question I had is how should investors think about the potential of the corona virus to disrupt the supply chain for your merchants, who are sourcing out of China [noise].
Thank you.
Yeah, I today, we've not observed immaterial impact on Shopifys overall G.M.B. work.
Usually continuing to monitor the situation and offering guidance or to potentially impacted margins, but we don't have enough information at this time to know what if any impact this might have on supply chains or production velocity.
Great. Thanks.
Our next question comes from Richard Tse of National Bank financial.
Thank you.
Oh, I'm, just kind of curious what's going to the biggest.
Getting your growth.
What do you do deserve mitigate that risk.
[noise] <unk>.
I mean, the biggest obstacle to frost executing our growth plans is finding.
Enough grade engineers to do it all.
This is an engineering limited company like I think that entire vote of the self industry.
So.
Hey look we beat the recruit like I mean, I do but I've talked to.
My Board members for instance, they and I complained that it's really really really hard to higher grade Engineers then they tell you.
But I should cause it up I say of lucky because everyone as it's absolutely impossible. So.
So it sounds like being slightly better shapes, though but.
If this planet has not been educating enough engineered.
Overlap 20 of.
Great.
Our next question.
Comes from Koji Akita of Oppenheimer.
Great. Thanks for taking my questions during the opening commentary when talking about 2020 investments.
The wrote process automation for Shopify, plus really caught my ear sounds like there could be some AI mix within a little bit of RPK involved with that maybe I'm reading too much into it but could you talk a bit more about how you're thinking about wrote process automation the value for merchants, maybe especially with the bigger merchants that are deploying shopify.
Thank you.
Actually my question I mean to be clear, we've been we've been thinking about business up or business optimizations and automation for merchants for for a couple of years now we announce shopify flow and Shopify scripts I think it was two or three nights ago and so we've been we've been thinking about this a lot again one of the things that we want to do is not necessarily yeah.
Is not necessarily import the complexity that these merchants bring that are necessary, but rather help and modernize their own businesses and so there are certain optimization that we will help them with and that's where scripts in flow give them. This incredible amount of flexibility to build new automation practices.
That being said you know often when merchants come to Shopify plus it's part of it's part of a recalibration of what they need to be successful. They often have to rethink what they want to have in terms of the retail opera retail offerings and commerce offerings, and so we often see them coming to us with.
With some idea of what they want to do but if they're coming to plus it means they're looking for something different that the traditional enterprise offerings are not giving them and so it's a great opportunity for us to help them work through that.
Great. Thanks Koji.
Our next question comes from David Hynes of Canaccord Genuity.
Hey, Thanks morning, guys.
So we're hearing a lot more from industry participants around headless commerce and I just want to ask about that as it pertains to.
Plus sales cycles, I assume you're having the same conversations with prospects said. So do you think this is that are actually not the midmarket and enterprise is moving.
To give us a feel for what percent of the plus basis is running had less today and then I guess is there anything additional that shopify needs to do from a product perspective to embrace that evolution.
Yeah. So.
Yeah, there's a lot of talk about had left commerce. It's it's I personally think it's probably amongst like it definitely ranks near the bottom <unk> you know industry bus terms, we've ever invented like I.
I think we should come you should go to what had for the quantum come to us because.
I just.
I think the entire thing is a little bit solely on the premise so.
What it is like if it's a move to try to get ever to get everyone to build though on and so in a completely new wave. If it's it's based on some sound fundamental technical ideas, but.
It's being incredibly oba so it and the if you ask why a couple of times, what do you really here as well what people want to say one half a lot of control over their experience and may want to to be very fast and and so on which is things you honestly you get out of books of shopify to begin with and so.
So if you feel a lot a bit about its about people asking for it to kind of I'm not entirely sure why they're asking for it.
On the technical level, but what do you need to Tim implemented as a good set of front end <unk>, which up if I had been shipping this autumn for bulk since 2008 so.
Its a.
Available, we've always had some people who run their businesses know completely had lifts way and so for all of our cosmos its ready to be used to this particular way.
And we'd see a lot of failed experiments in the space. So.
I.
I don't want to say, it's not going to be affected because in some instances is actually makes a lot of sense in the four customers with certain CMS strategies that are already implemented already scaled that's a wonderful way to use shopify ban and fit it into a lot to eco system, it's a great way to fit it into a you know like other systems like apps and so on.
But its.
The thing that's going to be a bit like a strong fire of a bus to him.
Great. Thanks, David.
Our next question comes from Chris Merwin of Goldman Sachs.
Global so much for taking my question.
Ask about take rate on merchant solutions. It looks like that stepped up about four basis points. This quarter, that's more than than what we've seen in the prior quarters, I guess mix shift as kept that take rate flattish.
Ugly, but did anything change this quarter.
In terms that mix shift or just a higher take rate for one of the component just curious any other color you could add there. Thank you.
Yeah sure Yeah. So mix shift does continue to play a role here and it will continue in 2020 with international growing very rapidly, but what we saw in the fourth quarter was just a continued increase in shopify payments penetration.
That was the biggest contributor to the uptick and take rate, but also a closely followed by the growth of other merchant solutions revenue streams like shipping and capital.
And then we also had a shopify fulfillment network and six river systems contribute although still immaterial given their early stages.
Great. Thank you Chris.
Our next question comes from Todd Coupland of CBC.
Hi, good morning, everyone.
I think you called out revenue acceleration for the first time in several years.
But yet you gave that fairly conservative annual revenue guide.
New decelerating can you just.
Talk us through your thinking on that as we set up for 2020, thanks a lot.
Yeah. So you know we think our guidance at the midpoint at 36% year over year revenue growth for 2020 is is great growth for a company of our size.
Specifically thinking about moving from from Q4 and a 2020 at Q4 was just a spit spectacular quarter. A every part of the business was contributing we had strong merchant growth. We had a significant increase penetration of merchant solutions on the back of.
Stellar GMB growth and a hi seasonal corridor, that's not something that we expect can happen every quarter.
Great. Thank you Todd.
This concludes today's question and answer session as well as today's conference call. You may disconnect. Your lines, thanks for participating and have a pleasant day.
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