Q4 2019 Earnings Call
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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. She joined the question Q You May Press Star then one on your telephone keypad.
Should you need assistance during the conference call you may signal, an operator by pressing star in zero.
I would now like to turn the conference back over to Katy Qaeda 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 yearend 2019 conference call.
We're joined this morning by Toby Luca Shopifys, CEO, Harley Finkelstein, our Chief operating officer, and Amy Shapiro, our CFO. After prepared remarks, we will 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 as in our filings with U.S. and Canadian regulators.
Also our commentary today will include adjusted financial measures, which are non-GAAP measures you 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 reports and U.S. dollars all amounts discussed today or in U.S. dollars.
Unless otherwise indicated with 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 from outside our core geography is continues to expand as we helped more entrepreneurs around the world reach for independence by launching businesses on shops.
We broke new ground in our journey to me Commerce better forever, one by launching the shopify someone at work.
Looking at our largest acquisition to date with six river systems to help us transform the someone industry.
And best of all our merchants degrees generating more than $61 billion in GMB in 2019, an average of more than $1 billion per week last year and 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 momentum shop place flywheel.
As we lower the barrier to entry to entrepreneurship more people are trying their hand, it starting business on shopify.
This enables shopify and are 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 2018.
In the middle of last year, we introduced shopify capital to non shopify payment 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 grow their businesses.
We released a number of new digital marketing features to help brands 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 Merck 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 launch a more intuitive and scalable all new point of sale 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 merchant some more efficiently include order editing a long awaited enhancement that saves merchants time and effort when making changes to customer orders.
We will sign on for faster and easier switching between multiple shopify stores.
Translation, Apiay, which allows merchants to more easily sell in multiple languages.
And Shopify paid which continued to help merchants convert sales in 2019 more than 40 million buyers have opted into shopify pay.
Shopifys checkered accelerator has been very popular with buyers and facilitated more than one of the half billion dollars of GMP in the fourth quarter and 65% more order volume in the same period in 2018.
Shopify shipping adoption increased to 45% of eligible merchants in Q4 up from under 40%. This time last year.
The strong increase in adoption through 2019 reflects the value we bring to merchants from competitive rates security were economies of scale to added features they give our merchants more flexibility such as shipping profiles and personal insurance.
Of all are announcements last year. The most ambitious was the launch of the Shopify summing up work.
With consumer expectations rising for fast and affordable delivery to film and poses a challenge to all businesses.
Combining our economies of scale with the automated fulfillment technology from six river systems, we will enable our merchants to better compete with the largest businesses on the planet, while revolutionizing the someone industry as it shifts from pallets to parcels.
Even though we are happy with our initial progress it's important to remember that we are in the early stages of a five year plan for the Shopifys if someone network.
Our merchants need us to get this right and I will take time, but we're committed to the long term viability of the shop places on the network.
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 in 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 emerges.
Shopify plus merchants experienced the strength of the platform first hand as their sales over the be FCM weaken 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 joined 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 manner.
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, helping deliver a powerful buying experience through cutting edge features like augmented reality fast and easy checkup and interactive in store experiences.
Notable brands that launched on Shopify plus in Q4 include iconic houseware Bran kitchenaid.
Footwear brand Toms.
Beach, where apparel fashion brand Panama Jack.
Canadian retailers Umbra and marks work warehouse.
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 enhance the overall value they receive from Shopify plus.
Now turning to our partners.
As we grow or international footprint and seek to improve product market fit outside our core geographies 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 to our App store in 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 is 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 say, thank you to our talented and merchant obsessed team, which heads into 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 I'll 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 EMR.
Merchant solutions revenue grew 53% over the same period in 2000 $18 million to $322 million the acceleration in year on year 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 Gmbh.
Spansion, which increased 47% year over 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.
$8.9 billion of Janvey was processed and shopify payments in Q4, an increase of 52% versus the comparable quarter last year.
Payments penetration of Janvey was 43% versus 41% in Q4 2018, as 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 amortization of acquired intangibles grew 44% over last year's fourth quarter to $269.9 million, even after taking into account the acquisition.
One of six river systems, our ramp up of investment and Shopifys 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 feed from Shopify plus merchants.
Adjusted operating income, which excludes the impact of stock based compensation expense and related payroll taxes as well as amortization of acquired intangibles.
33% in Q4, two approximately $28.4 million or 6% of revenue compared with $21.4 million or 6% 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.
Capabilities to build a successful business and connects our merchants directly with their 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 promising results. Following the translation of the merchant admin and just six languages and other localization efforts.
Our momentum picked up with further investment in 2019, as we continued to improve product market fit across focused markets.
With 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 Summit network fastened 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 who are early access program, maintaining our focus on performance quality over scale at this early stage and optimizing for the merchant experience.
As.
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 in 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 rate.
Rates to date remain high this along with the delight merchants have expressed to us about their experience with Shopifys 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 Shopifys that's.
Element network, one of our partners deployed six river systems technology, and a node last month and is already benefiting from the added efficiency and support.
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 did.
The 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 our expanding merchant base.
By investing in multiple opportunities so they deliver returns over the near mid and longer term, we've been able to sustain rapid growth. While 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 holds 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.
Got it 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 in 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 in 2020, as we've seen by the expanding contribution of Shopify, plus the EMR 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 geographies 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 margins was 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.
Well 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 at 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 shops by 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 list, 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.
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 in 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 6 million.
$1, 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.
Silver 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.
Yes, a lot to impact maybe just starting off with <unk>.
With fiscal 20 revenue outlook I know you guys are taking a more conservative approach and but in terms of how we think about it.
Got any any rough guidelines in terms of how much we should be feathering in into our estimates.
[laughter], 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 with expected to sustain strong growth in 2020 and beyond and keep our our flywheel energized Ah 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 well 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 margin 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 fulfillments, 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.
As a follow on to.
Yes, I'm just curious what.
You learned really from that Holly tests run or what.
I mean in terms of of plans for 20, and specifically in front of the holiday season, and 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 separately as it relates to the merchants that you foresee using are utilizing sffed, perhaps some characteristics of plus merchants and not plus merchants that.
Would have a need or use of us with that and perhaps those that that may not thank you.
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 its 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 venture. They were also 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 Amy.
Said earlier this is really still early days of it.
The today shipping is is available now to certain merchants. It obviously depends on them, having enough inventory and being where it locations for us but that is already available. But this is still early innings for us for Esa fan we want to get this really rights.
Then we can we add in the six or us optimizations, whether it's the automated technology or the optimization of warehouse fulfillment we think.
And with the Chuck's, we think we can do something really great here, but the the objective here is really.
Has been an continues 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 or you're 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.
As as we mentioned early 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 want to ask about Shopify, plus specifically the biggest opportunities you see to drive incremental adoption, there and by that I mean, you merchants.
Our new to the platform not just growing into plus 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 Yeah, I mean pricing is something that we're always concerned we're always taking a look at it it's an ongoing evaluation to figure out if we're providing value to merchant how can probably more value and and is there a 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 of different areas first of all.
[noise], a 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 Tom's answer facilities or these are not new DTC brands. These are established brands that come with a large following so.
Part of that as they come a new complexities and our role is to figure out how to reduce that 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 somewhere merchants are now running stores in multiple locations internationally and the ability to run a number of stores for one centralized dashboard something we talked about in June.
And that is a big part of what we're trying to give but it also is can you to work on things like flow and our b to b product with the acquisition of handshake, new checkered capabilities, which are obviously 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.
We 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.
Oh, okay.
It looks like this spend on marketing really.
Accelerated 29, the majority of that is not on on advertising related it any new roundly pharma.
The third last year.
Thank you.
And Tony 19 in terms of marketing spend keep in mind, we we introduced brand spend for the first time, we had even given you. The number we said approximately 30 million a for the first time a and in addition.
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 a 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.
Right. Thank you to pack.
Our next question comes from Gus Puds Euro of P.I. financial.
Hi, Thanks for taking my question I.
No recognizing it's still early days on assessed and but in the few customers that you had last.
Last year can you maybe quantify what do you think impact of this event was to their revenue and do you think that getting it down to two days and deploying getting cheaper rates.
Much of an impact it had on on their revenue.
Yes, the Tobey its I think it's too early to really tell I mean be rebif on an anecdotal feedback that you know there.
As a business is one thats in being able to make promises on delivery speed and.
But.
Be a it's too early to share any kind of real quality acquisitive takeaways from from this.
Generally if you fall into that and that's it then our.
Assumptions that the who when they decide to go in have been holding strong and.
[noise] that.
The new things could be uncover as you are getting deeper into this and as via understanding more and more.
Detailed pod for for oil supply chain, but that exists to get things from factories or way to consumers.
We don't be how we don't really uncover anything that we didn't particularly expect.
And if theres a degree venue.
To the to this journey and.
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 helpful away.
Via building this fourth scale, but do you have to start small it's nothing.
It's impossible to build a complex things that work unless you stop is something very very simple and then organically billeted. If you build something that tries to slow for complexity immediately say of heavy snow time. So this is the 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 for your last question I'm, just curious on the non English speaking or international a merchant base can you talk about what percentage of that is going from plus and then how fast that grew year on year from 18 to 19. Thanks.
Hi, there entirely here, yes, sometimes international as a as we mentioned we grew the the mix of international merchants from a 24% of merchant base and into the 18% to 29% in 2019, a and so obviously that we're happy with that we'll continue to add more languages, and obviously have a strong go to market strategies through part.
Ers and other areas to acquire new international merchants in terms of the mix. It still is predominately a core merchant base Shopify plus of course is being introduced into new areas. Some of that 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 the majority of that merchant mix 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 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 jobs back of Keybanc capital markets.
Thanks for taking the question Keith I wanted to ask about a point of sale. It seems like an area that you.
Size one of the areas Deemphasized from the 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.
Is the goal really just you had free up you know within the existing base or is there.
The longer term goal to really attract.
Brick and mortar first merchants as well.
Yeah [laughter].
The goal is to bid for the best point of sale.
Softened would spend than if.
I will have a bit actually regardless the bid would best possible going to said system that shop, if I can.
And then.
Yes.
Merchants team this valuable in agree with us, but this is the one which would give him and wanted to end the purchasing adopted. So this is exactly the same with wellness store and except to say whatever you want every other channel it would be a very sort of.
The split the responsibility lead but the thing for value and then.
If people agree if they adopt them so.
If you don't really go and say okay. They are you going to go for this particular market segment of this particular subgroup and for this particular grow afraid to get that particular slice of the market. That's not that's never been but hoping you know shopify and in fact.
Via via their strong leave us that.
Every market that we can go into a and every month. We look at is in terms of total size is incredibly depressed by the low quality office off that exists.
And by doing if you do a job as well as they were the ones like two of them a market grows significantly that's just what we've observed the FFO a core platform bone and Vodafone ecommerce.
And.
But potentially colors or overview business, both as to why you hear us talk so much about.
New entrance to markets entrepreneurs.
But really via booking value 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 over this time that money to spend.
More talks to do over the same time and so it's like it puts actually stronger.
Requirements himself to.
So point of sale as 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 to borderlands two it's it's it's tracking ahead of.
On the in store growth.
At this particular.
In distance from years zero prospectus.
But of course I'd also like.
Like we've seen it a bunch of things, but they're doing.
Via via launching a new version of it is.
This is gonna be really really need I think as a as it keeps going someday excited about it.
You have been a as Amy or.
How do you brought up earlier.
Well to bring in some or direct sales, which is also a new.
New thing for point of sale. So this is also I think a a good sign that the via feeling pretty good up out there that product is especially whatever 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 the good.
That they have they have been leadership changes because the this is mostly into an though are motivated and.
But it's the they've been really comfortable on this the.
<unk> programs, we've been running brand has been very successful.
That's been a new discovery or something that's going to be a part of so because.
Sub for future and they're going to continue scaling it and building it out.
Okay. Thanks, Fred our next question comes from they 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 you know high level philosophical perspective to maybe think about Shopify bay, becoming something akin to Amazon prime or something along those lines. Thanks guys.
[noise] [noise] any visibility excited about Europe, if I pay but there are no such plans right now.
Our next question comes from Eagle are in any of Wedbush Securities.
Hey, guys. Thanks for taking my question. So a question Oh, well has gone on costs and you talked on this call about increasing to be able to being able to solve enterprise solutions I'm thinking historically, we've tried to strike a balance between.
Customizing for what.
More complex enterprise customer would need.
And I think even kind of getting.
To certain points, where you would maybe even push.
Complex enterprise customer off of Shopify pause and say Shopify plus isn't really solution for you.
Maybe I'm not characterize not the right way.
That's true, but those feel like you are.
I need to move continued.
Building, the enterprise solutions and the complexity around that so love to hear come the philosophy around.
So that the high end of what Shopify plus.
[laughter], yes. Thanks. Thanks for the question you're absolutely right. There are certain merchants that 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 because we want to work with brands on plus that want to make commerce better for everyone and our thinking about it in a very modern.
Contemporary away, we do not want to be dragged down the complexities of of legacy systems, where they're going to begin to dictate a roadmap we're going to begin to pull us into their method. They have internally. The good news is huts because direct to consumers, becoming such a major part of of retail and commerce a lot of his direct to consumer brands a were.
Built in the last decade, and they don't have the traditional enterprise complexity and 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 no working anymore and so they are beginning to rethink how they want to run their retail operations and Shopify plus is it.
Great way for them to do that so you shopify plus for everyone absolutely not we there are merchants, we see no two.
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 where we're thinking about it that being said there are certain new functionality and features that oh.
We're 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 plus we're now over 7000, plus merchants names that are coming to US again, our beat our 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 out.
Right now.
Great. Thanks ago. Our next question comes from Kevin Christian are at night of paradigm capital.
Hey, good morning, I, just want to go back to the S strengthen international and yet the move India, you know merchant ticking up their 24% to 29% of the base could you comment on some of the more mature markets, a and what you might be seeing there in terms of GMV per merchant or a you I'm just subscription revenue and.
Apps uptake I'm, just trying to get a sense of the at the potential a you know upside from a from international it's very early days and that just thoughts on how things have been progressing and some of the more mature markets [noise].
Thanks. Thanks for the question that I mean international you know as we mentioned his is doing really well, we will be getting we're adding more and more languages. We now 20 language is available in the AD man, what 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 a sophisticated international strategy in a sophisticated growth plan internationally is trying to identify what each market.
Needs for a 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.
<unk>.
Yeah, I today, we've not observed immaterial impact on Shopifys overall G.N.V. work.
Obviously, 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, Tom.
Our next question comes from Richard Tse of National Bank financial.
Yes. Thank you.
Oh, I'm, just kind of curious what's going to the biggest.
Getting your growth plan, what do you do deserve mitigate that risk.
[noise] I mean, the biggest obstacle to foster executing our growth plans is finding.
Enough grade engineers to do at all.
There was an engineering limited company like I think then tyo vote of the self industry.
So.
Hey look we beat the recruit like I mean, I do but I talked to.
My Board members for instance, they.
Complained that it's really really really hard to higher grade engineers, then they tell you.
But I should go to that but they've lucky because I know what else would absolutely impossible. So it sounds like being slightly better shapes, though but.
It was playing it has not been educating enough engineered overlap twentyth.
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 or 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 Virgin, maybe especially with the a bigger merchants that are deploying shopify plus.
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 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 optimizations that we will help them with and that's where scripts and flow give them. This incredible amount of flexibility to build new automation Pratt.
This is that being said you know often when merchants come to shopify plus it's part of its 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 in Congress offerings, and so we often see them I'm coming to us with.
With with some idea of what they want to do but if they're coming to plus it means that are 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.
Right. 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 Rod had less 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. So to 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 POS base 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.
[laughter] Yeah, there's a lot of talk about had lift commerce. It's it's I personally think of 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 be.
You should go to what had for the continent Calamos because I just.
I think the entire thing is it a little bit so they 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 on a completely new wave as it's it's based on some sound fundamental technical ideas, but it's it's being incredibly over so it and the if you ask why a couple of times.
You will hear is what people want to say one half a lot of control over their experience and we wanted to be very fast and and so on which is things you honestly you get out of books are certified to begin with and so.
So do you feel a lot a bit about it but 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 him implemented is a good set of front and <unk>, which shopifys been shipping this out of a book since 2008 so its.
Available, we've always had some people who run their businesses and no completely headless 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 it's in some instances is actually makes a lot of sense a 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 lotta 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 us draw fire of Oh for close to them.
Great. Thanks, David.
Our next question comes from Chris Merwin of Goldman Sachs.
Oh, thanks, so much for taking my question.
Ask about take rate a merchant solutions it looks like that stepped up about four basis points. This quarter, that's more than what we've seen in the prior quarters.
It's mixed shift as kept that take rate flattish ugly, but did anything change. This quarter, you know and terms that mix shift or just a higher take rate for one of the company 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 I 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 Cubs from Todd Coupland of CBC.
Hi, good morning, everyone.
I think you called out revenue acceleration for the first time in several years.
Well, Yeah, you gave it fairly conservative annual revenue guide.
New decelerating can you just a talk us through your thinking on that as we set up for 2020, thanks a lot.
Yeah. So a you know we think our guidance at the midpoint of 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 increased penetration of merchant solutions on the back of.
Dollar G.N.V. 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.
[noise].