Q1 2020 Earnings Call
[music].
Thank you for standing by this is the conference operator.
Welcome to the Shopify Inc. first quarter 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 over to Kt Kato Director of Investor Relations. Please go ahead.
Thank you operator, and good morning, everyone. We hope everyone is keeping well during this uncertain time.
We're joined this morning by Toby LICA Shopify, CEO, Harley Finkelstein, our Chief operating officer, and Amy Shapiro our CFO.
Each of US is dialing in safely from our holidays.
After some brief prepared remarks that Hurley and Amy evil open it up for questions.
Well not just changed my call in February one thing that happened since the requirements of playing out that we may make forward looking statements on our call today, which are based on assumptions as such as subject to risks and uncertainties that could cause actual results could differ materially from those projects that we undertake no obligation to update these statements except as required.
By law you can read about these risks and uncertainties in your press release in our filings you asking Canadian regulators.
With that adjusted financial measures, we speak to today, our non-GAAP measures, which are not a substitute for GAAP measures reconciliations between the two can be found in our earnings press release, and finally, you report in U.S. dollar. So all amounts discussed today or in US dollars unless we tell you other ways with that I turn the call over to Harley.
[music].
Good morning, everyone and thank you for joining us today.
Before moving ahead I want to express or gratitude on behalf the entire team and shopify to the frontline workers, who are in the trenches for medical professionals to Foodstar workers to those in our partners warehouses or keeping the rest of a safe and said an operational during the cobot 19 pandemic.
We are incredibly grateful for the tireless service of these heroes.
Typically take this time every three months to review what we saw in the quarter today I'll keep that commentary to a minimum since January February so much different business environment than we have today.
Instead, well use most of my remarks, this morning to catch up everyone on what we've done what we've seen in March and April.
The shock to the economy, so setting that patterns in March and April may not be predictive of the rest of year. However, we do have reason to believe that some of the patterns that emerge will continue.
I'll be covering three areas today Shopifys response to coated.
Our merchants have been fairing and the world. We think is emergence on the other side of this.
Our highest priority as the cobot situation unfolded was the health and safety of our employees.
In late February we directed the entire shopify team to cancel non essential travel and by mid March our entire workforce was working from home.
We are fortunate to have already been well outfitted for collaboration at a distance. So this shift was minimally disruptive to most employees day to day.
Others, whose primary work supported our office spaces are contributing in other ways, many supporting initiatives that directly impact our merchants.
No one has been furloughed due to coated.
Our merchants on other hand had been far more impacted so we acted quickly.
In the early days the pandemic are guiding principle with the same as always put merchants first we prioritize efforts to give existing merchants the tools they need to survive and help get offline business is online fast.
We launched a continuously updated resource center for merchants with tutorials and links to apply for government provided funding.
We rolled out in store and curbside pickup for users of our point of sale product and showed merchants how to set up local delivery options.
We made gift cards available on all of our plans.
And with more than $1 million and gift cards sold since making this change merchants are accessing a much needed cash quickly during this disruption.
Most of these have triggered more local activity, including various communities setting up online sales to spur local commerce and more than a quarter ever brick and mortar merchants in English speaking geographies are now using in store pickup and local delivery.
We may 200 million additional dollars available through shopify capital to extend to merchants for whom working capital will make a difference and expanded the availability of capital beyond the U.S. to the UK and to Canada.
We were all that shopify email to all our merchants to help them reach out and build trust with their buyers. During these uncertain time.
We're making this feature available at no charge until October Onest.
And we made our standard plans free to new users for three months.
Brick and mortar only retailers have lost their omni channel the street.
If these businesses are going to survive its mission critical to get online and we're giving them more time to do exactly that.
This changes also helpful to anyone finding themselves with more free time or wanting to generate supplemental income we've seen a notable increase in online store creation, some of which are established retailers.
It is still too early in the macro environment is too uncertain to make predictions about how successful these new stores will be but merchants can be assured that we're doing everything we can right now to give them the tools they need to succeed.
Merchants will continue to need our help and we plan to continue our efforts to innovate and develop more packaways to support them.
After all small businesses are a vital part that the economic and social fabric of our society and support the livelihoods of many people on our communities.
So what do we see on the platform and among our merchants first and foremost we are seeing them find ways to operate under today's constraints through creativity grit and determination.
Their stories have been incredibly inspiring from pivots by Taylor's and distilleries, now, making face masks and hand, sanitizers between 84 year old grandmother in Italy, Who's taken her pass to making course online to replace the in person experience. She was offering to tourists before the pandemic.
Merchants are eager to mobilize implementing discount codes at levels, usually seen during the holiday shopping season.
On Shopify plus verticals, we've never seen before like food stores are showing up.
In April Heinz sign on to Shopify, plus and launch seven days later, while chocolate maker Linde.
Launch in just five days.
This pandemic is forcing all kinds of merchants to rethink how they sell things and shopify plus offers larger merchants the ability to move fast while managing costs, especially important at a time when economics are pressured.
We are seeing our partners around the world step up in a phenomenal way, even as many of them face hurdles themselves being entrepreneurs and small businesses. Our partners are getting stores up and running significantly faster with the number of stores created in three days or less increasing by 85% between March 13th in April 24th relative to the six weeks.
Leading up.
Our partners are advocating for merchants and offering discounted in free services and they're working hand in hand with other partners to solve problems for both businesses and for their communities.
Some of these trends like productivity or temporary others like distance learning and the growth of omni channel commerce are likely to persist. This postcode world is what we are building for and we have shifted accordingly Shopify is world view has not changed our conviction that merchants need to be able to sell to their buyers wherever they may be ER.
Means is true today as it was a decade ago.
While we are uncertain about what is coming in the months ahead shopify is uniquely positioned to help improve the economic lives of our merchants in this difficult environment and in a retail landscape that is accelerating its shift online.
And what is easily the greatest humanitarian crisis in a generation with adverse effects that will last for the foreseeable future. It is important that we all keep building towards solutions.
All of these shifts make shopify, which was already a good fit for modern commerce, and even better fit for the world that emerges on the other side of this.
Before I hand off to Amy we wanted to share in exchange with a merchant that illustrates just how critical it is especially right now to make commerce better for everyone. In this case, it's a farmer.
It is hi, thank you for calling Shopify is retail support I. Just appreciate you guys answering the phone this is like.
Real time here [laughter] total.
This upside can have been working on to launch on landstar for selling local vegetables and flowers. We're just barely able to do this and then that's I'm trying to grow all this stuff. However, there is interest now coming to pick up the vegetables on the farm.
Which we hope to do Presales online, yes, absolutely.
All right now because it's important for Shopify I don't think we'd have a far.
So.
Yes, I almost done so though because.
Your website.
So.
You should know they're really helping people.
It's really.
Important.
Thanks, Charlie There was a great reminder of why we all come to work every day.
I want to echo our commitment to our merchants, we are 100% behind them and doing everything we can to help them through this tough time.
We believe we are well positioned to help margins now and into the future as it has become increasingly important for merchants of all sizes to sell online and to have better options for getting their goods to buyers.
We are on that path already and will continue to invest may commerce better for everyone in 2020 and beyond.
Shopifys momentum in 2019 continued into our first quarter turning in a strong January and February prior to headwinds appearing in March as a result of co bed.
I'll start by reviewing first quarter results highlighting any coated impact.
Revenue grew 47% in our first quarter to $470 million subscription solutions revenue increased 34% year over year to $187.6 million.
Monthly recurring revenue grew 25% year over year to $55.4 million, primarily driven by new merchant joining the platform.
Year over year EMR, our growth was impacted by several factors, including Shopifys removal of thousands of stores from the platform due to violations of our acceptable use policy.
Lighter international merchant AD and an uptick in subscription cancellations and merchant downgrading to lower price subscription plan in March largely due to co bed.
Shopify plus continued to increase its contribution to EMR accounting for $15.3 million or 28% compared with 26% of them are in Q1 2019.
Long App in Shopify plus platform fee revenues contributed to the approximate nine percentage point difference between the growth of subscription revenue and EMR.
Merchant solutions revenue grew 57% to $282.4 million in Q1 2020 compare to the same period in 2019.
Year on year growth with different primarily by Shopify payments, followed by growth of other merchant solutions revenue like capital in shipping on the back of strong GMB expansion, which increased 46% year over year to $17.4 billion.
Strong January and February merchant sales further boosted by elevated buying in March driven by coal bed of food and other essential and items, such as home office and Jim equipment contributed to Q1 Janvey.
This was partially offset by a decrease in brick and mortar sale given closures related to co bed.
$7.3 billion of GMB was processed on shopify payments in Q1, an increase of 51% versus the comparable quarter last year.
Payments penetration of GMB was 42% versus 41% in Q1 2019, as Shopify plus continued to increase the cherub GPV and shopify payments continue to expand internationally.
If I capital had a notable milestone in Q1, surpassing $1 billion and cumulative capital advance since we launched this product in 2016 offering our merchant the fast and convenient way to secure capital, especially in times like these helps them focused on what really matters growing their business.
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 first quarter to $263.8 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 stream like the variable platform fee from shopify, plus merchants efficiencies in hosting costs and improve payment margins.
Adjusted operating loss, which excludes the impact of stock based compensation expense related payroll taxes as well as amortization of acquired intangibles was $7.3 million in the first quarter 2020 compared to adjusted operating income as zero point $3 million in the first quarter.
2019, the loss in Q1 2020 was the result of our first full quarter of operating expenses associated with six River systems acquisition significantly more brand spend in the first quarter, a 2020 relative to the same period, a year ago and a year over year increase in the allowance for potential losses.
Related to shopify payments and Shopify capital due to the potential impact of co bid.
Adjusted net income for the quarter was $22.3 million or 19 cents per share compared with $7.1 million or six cents per share in last year's first quarter.
Finally, our cash cash equivalents in marketable securities balance was $2.36 billion on March 31st.
Because cobot impact presented itself first in March with respect to our result, we want to share in March and April merchant and business insights that drove our immediate merchant response that Harley described and then are expected to have implications on commerce, both short and in some cases long term.
So what do we learned so far.
First the shift from offline to online commerce is accelerating.
More entrepreneurs than ever before a trying out shopify with new store creations on our platform growing 62% between March 13th in April 24th compared to the six weeks prior supported by brick and mortar merchants moving online and the extension of our free trial on standard plans to 90 days, providing a healthy.
Balance of existing businesses, and new entrepreneurs setting up shop.
While our free trial extension will likely further pressure EMR our growth in our second quarter, we expect new business creation to offset this overtime.
Second consumers are a part of this shift to online and they are broadening their online shopping activities. The number of consumers, making a purchase for the first time from any shopify merchant grew 8% between March 13th and April 24th compared with the previous six weeks.
Over that same period, the number of consumers purchasing from a shopify merchants they never shopped at before grew by 45% over the six weeks leading up.
As more consumers shop on more of our merchant stores, we're helping consumers more easily discover new brands and products such as through our shop App and we're also enhancing capabilities to get products for merchants to buyers both locally and beyond.
Third newer product categories are growing as a part of our mix we have seen a lift in GMB in the food beverage and tobacco category, which more than doubled between March 13th in April 24th over the prior six week period other essential products, such as toilet paper in baby products as well as work from home fitness entertain.
Hey, Matt and leisure and hobby product also trended upward, reflecting the extended shelter in place directives, while we saw an initial softening in apparel and accessories. This category has recovered since the last week of March.
The World we live in today is very different from when we reported our fourth quarter results on February 12, what does not change however, shopifys mission to make commerce better for everyone. This north star has guided our decision making over the years to invest in the right initiatives such as building resilient platform infrastructure for low.
Friction online shopping experiences from browsing to checkout.
Adding essential tools and capabilities for merchants like payments and fulfillment and lowering the barrier to starting a business. This strong foundation has allowed us to move with speed and agility to adapt to current circumstances and empower our merchants to do the same.
We have historically worked on the right things to help our merchant succeed and those things are even more important now given Cove Ed.
Now, it's a matter of turning the dial up or down in various areas based on immediate needs I'll walk through each of our initial 2020 investment areas and address how we are adjusting our plans.
Starting with Shopifys fulfillment network, which remains a top priority now more than ever timely and affordable fulfillment is important for our merchants and their buyers.
We intend to continue developing our fulfillment network over our plan to five your timeline focusing on achieving product market fit before entering our scale phase in 2021.
Demand continued to ramp in Q1 as Shopifys fulfillment network had its highest number of merchant signings in a quarter since inception, and we fulfilled more volume in the first quarter 2020 than the fourth quarter of 2019.
During this time, we're working with our warehouse partners to help ensure the safety and health of all warehouse employees. Our partners warehouse operations managed to improve service levels from Q4, despite the challenging circumstances presented by Cove, Ed while our transportation partners have also been working diligently to meet agreed upon service level.
Now they too are pressured which is impacting the reliability of some deliveries.
I'm merchants have also seen delays in receiving inventory due to increased complications in cross border import logistics.
As we expand the number of merchants were onboard and we're putting in place the systems and tools that will support a much larger operation and the future.
Six River systems collaborative warehouse automation technology is helping to boost the speed and reliability of Shopify fulfillment network. The leasing several enhancements in Q1 that strengthen its warehouse fulfillment solution.
<unk> increased workspace capacity expanded safety compliance and an improved user interface.
Chuck robots are now bigger stronger and easier to use allowing operators to maximize utilization.
Moving to Shopify plus in this pressure environment large volume merchants are coming to shopify, plus looking for cost effective commerce solutions that work well over multiple channels.
So for the remainder of 2020, we're shifting our resources to help more merchants benefit from all of the superpowers that shopify plus has to offer in our core geography and delaying some of our original planned investment in international expansion.
We'll also continue to focus on the product expanding use cases for our work automation tools shopify flow improving business analytics and continuing to develop our wholesale capabilities.
And we'll also make some adjustments to our international expansion outside of Shopify plus.
As the ongoing global pandemic impacts the livelihoods of billions the need for a low touch way to exchange goods and services is more apparent than ever we plan to pause certain expansion activities to get to true product market fit faster in our focus region. This includes helping businesses to get up and running as easily on <unk>.
Mobile as on desktop and to expand selling opportunities beyond their borders.
We're redirecting our investments in the Shopify platform to fast track what merchants need now the most pressing of these is capital which is why we expanded to the you can Canada within weeks of stay at home measures being put in place extending working capital rapidly and responsibly can make a life saving difference to a business and so we were.
With partners, while taking measures to control losses amidst our expansion. This meant leveraging our dynamic machine learning model and adapting terms. So we are helping as many merchants as possible, while keeping losses at a prudent level.
And as we announced in March we expedited delivery and curbside pickup features on our point of sale product. So merchants could continue operating under social distancing norm. This is only one example of how POS is pivoting for a period, where less commerce is happening in person and earlier. This week, we shift the all new.
Shopify Pos our intuitive point of sale software is that offers our retail merchants, a unified commerce experience bridging online and offline, helping them to adapt to a retail landscape that we expect will look different than before.
Finally, the Shopify brand campaign has been suspended in order to free up resources for other initiatives many of which I just laid out that are more directly impactful near term.
In a matter of days, our marketing team and others on up an in depth coated response resource center, where merchants can get to help they need now this includes tutorials such as how to start selling gift cards.
Where to access government backed assistance programs and community forums, where merchants can share their experiences and learn from each other.
We're not sure what the remainder of 2020 looks like nobody is and while Shopify was a very different company when the last extended financial shock occurred in 2008 in 2009.
We took lessons from that period as well as from our early years is it bootstrap startup that have become core to our culture.
The first lesson is we cannot help any merchant anywhere if we're not in good financial help ourselves as noted we've already begun to adjust our spend to focus on what is most critical for our merchant at this time. In addition to pausing our brand campaign, we have reduced other marketing activities canceling most company events.
Planned for the next several months and leveraging in house creative solutions instead of external resources. We have also actioned initiatives to achieve hosting and other efficiencies and there are additional measures. We can take in the event of an extended recession that allow us to continue delivering what merchants need in challenging times.
The second lesson is that many people who circumstances have changed we'll try to build their livelihood and in altered world and helping them do this is exactly what shopify was built for.
The increased uncertainty in the macroeconomic environment makes it difficult to predict how the near term through 2020 will shape up which is why we're not providing an outlook for our second quarter or the full year.
We will continue to closely monitor the factors impacting your business to make great decisions quickly to help our merchant.
We will get through that and we've been working hard to ensure that as many merchants as possible do as well and emerge from it better suited for multichannel commerce.
We have a business model that puts merchants first a fundamental strength as the world re tools for lower touch commerce, we have a healthy debt free balance sheet and a strong cash position and a proven disciplined capital allocation approach to ensure we can operate effectively even through what may be an extended recession and final.
We we have a long established and trusted network of partners working as hard as we are to support merchants now as Shopify has always been accompany of people that thrive on change and embrace hard problems. We are meeting. This challenge had on ready to learn from this collective experience and emerge from it better with that I'll turn the call back to Katie.
Okay. Thanks, Amy and were glad everyone could join at this morning to talked about Shopify is always we are asking you to limit yourself to one question to everyone can get a chance to ask a question in the about 30 minutes that we have left and with that.
I will turn it over to the operator to begin polling for questions.
Thank you we will now begin the question and answer session to join the question do you May Press Star then one on your telephone keypad, you'll hear a tone acknowledging your request. If you are using a speakerphone. Please pick up your handset before pressing any keys.
To withdraw your question. Please press Star then too little Pos for a moment as colors during the Q.
Our first question comes from Brad Zelnick of Credit Suisse. Please go ahead.
Great. Thank you so much for taking the question.
Listen I appreciate the lack of visibility and why you're not providing guidance, but but you have a very unique view into whats happening across the economy Vera Bradley and as you think about your own long range plans, what underlying assumptions, you're making about the shape of economic recovery from here and what data points within your business give you the most.
Optimism and Conversely, the most pessimism thanks.
Hi, Brad This is Amy I hope, you're well, let me take that one so.
The way that that we're sort of looking at the is there's just there's a set of tailwinds and headwinds and right now those those tailwinds are far outweigh.
The headwinds for Shopify, and let me just kind of review each one of those and then I can go into the economic scenarios that were looking at so with respect to the tailwind you know we said in the remarks earlier there has been this accelerated shift from offline to online.
Multi channel a commerce is increasingly important to reach a existing and new buyers and direct to consumer is critically important to our merchants to have that direct relationship and control their own destiny with.
Finding buyers, we expect you know new norms and trends will benefit shopify under different economic scenarios and.
There's also what I call the multiphase will likely help us multi channel or multi vertical and we're in multiple geographies. Those are all playing to our benefit also the diversity of our merchant base.
Has been helping and we'll continue to how we're not dependent on any one merchant.
And lastly, I think our agility speed and balance sheet strength are all helping us in this environment.
Headwinds are obviously, the uncertainty as co that and how it plays out.
How it impacts the economy and unemployment in particular or the impact of businesses in consumer spending.
Isn't on known the further we go out and time and the degree that offline to online continues to offset those economic headwinds.
It is uncertain.
Like most companies were looking at both the U shape.
Recovery and an l. shaped recovery the U shape is a pretty significant downturn in the economy over the next couple of quarters, followed by a faster recovery.
In that case, that's really good for for most Norton.
On a recovering economy, we think that plays well broadly.
And we expect all of our merchants will benefit from the new purchasing habits and norms. We started during these locked out.
And the L. shaped recovery that we're looking at Ah Theres, a pretty sharp downturn in the in the next couple of quarters, followed by a much slower recovery well into 2020.
In that case, it probably means that cove. It is continuing to raise its ugly head.
Online remains incredibly critical to merchants and we expect those merchants who are selling nondiscretionary items I'm on the platform like food beverage health care items will continue to increase as a as a percentage of our or G.M.B.
So.
Step back and none of these economic scenarios.
It's great from an overall perspective, but we do think that Shopifys tailwinds will benefit us and any economic scenario I just want to add that where we're well capitalized to whether any of these economic scenarios with a strong balance sheet and we will continue to invest.
And those key areas that will benefit our merchants and help us come out on the other side stronger.
Thanks, Brad.
Our next question comes from Ken Wong of Guggenheim Securities. Please go ahead.
Great. Thanks for all you guys are doing for merchants and thanks for taking my question.
So I wanted to touch on a point you guys made earlier on just new types of merchants coming into the plus franchise also see it a little bit of merchants downgrading from plus just wondering if that was doing that positive I'm kind of how you expect that trend to continue and then any downgrading from the other skews like advice.
Chance to <unk> to the primary shopify skew or shopify too to basic thank you.
[noise], Hey, Ken its Harley I'll take that call.
So yeah, we certainly are seeing new types of merchants verticals.
Yeah, we had sort of mentioned that we're seeing brands that traditionally had not gone direct to consumer we mentioned Heinz and Lynn chocolates.
Literally go from contract signing two full launch of their direct to consumer store.
Seven days in five days, respectively. We're also seeing the grocery category again, a vertical that shopify plus has not traditionally seen become a real thing in Canada, we're seeing some of our largest grocery chains like Loblaws in farm voice up stores.
On Shopify plus so we're excited by that obviously, we also have changed our focus from.
Sort of focusing on upgrades on shopify, plus two more helping.
Getting more large merchants online in our core geography is faster and so we've sort of pivoted our sales team for the time being to focus on getting brand new merchants on and then in terms of a downgrade question. Certainly we are seeing downgrades are happening, but what's more what's most important is that they're staying on shopify.
And the Rightsizing their businesses and some of those downgrades of actually already re upgraded back to plus and so we expect to see some downgraded some come up as well as they figure out what they need and try to trim some cost but generally we're we're pleased what we're seeing and after taking a personal level. These are brands that I've been after for years to join Shopify and joined Shopify plus the told me.
And that eventually they'll do it there now doing it and so in many ways. What the situation is doing is Ics, it's accelerating the catalyst for people to move from.
Also businesses to drive consumer businesses and move from businesses that traditionally our only brick and mortar to being Warner brick and click sort of model. So I'm pleased to see that and we think that will continue.
Thank you Ken.
Our next question comes from Colin Sebastian of Baird. Please go ahead.
Great. Thanks, and good morning, and hope you guys are all safe and healthy.
Thanks for the details on the puts and takes on the adjustments to the operating plan.
Is there any way to help us quantify the overall impact of those on the level of investment spending for this year and more specifically on the fulfillment service I think based on what we've heard from from other E commerce platforms and marketplaces.
This may be the single biggest pain point for many merchants right now and it sounds like there isn't really any change in your timeline for for rolling out These services, but but is that correct and then how do you see shopify fulfillment differently today than than you did just a few months ago.
I'll start that when offline, but the first part about the quantifying the puts and takes.
You know we tried to provide some overview in the earlier remarks ill just speak generally to how we're thinking about our spend right now we've done an extensive analysis of our overall spend.
And what we decided is that any spend that is not impactful productive irrelevant and this time period like our brand spend.
We would spend that span a that those expenditures for the remainder of this year and redeploy that money into more useful and productive areas like the 90 day free trial, which we're seeing great benefits from as I said, we've seen.
62% increase and [noise].
Store creation on on the platform.
So that's largely how we're doing it how how's that actually comes out quantitatively, where we're not going to provide guidance, but you should know that we are we're scrutinizing our spend.
Very heavily and moving it in the direction, where it can be impactful.
On the fulfillment network early Toby.
I know you know we think it's increasingly more important than that's a encoded validated this direction now I'll, let them comment more.
Yes, Thanks, Harley here, yes, so as Amy said I think Thats, certainly validates the decision to expand into Fulfillments. It seems like now more than ever.
Timely and affordable fulfillment is really important for our merchants and their buyers, especially as some of the incumbent delivery networks are straining under heavy volumes.
SSN was already building urgently, we don't necessarily slowdown at shopify, but we will continue to develop Arkansas mynetwork over the plan five your timeline, we are making really good progress we're still getting access, but we are expanding the number of onboarded merchants, we've expanded to Canada. So allotting some Canadian merchants and also some some product enhanced.
We have rolled out so things like merchant Onboarding experience is getting better platinum resiliency is getting better, but I think our our decision to move into SSN is it feels like the right one now more than ever.
Great. Thanks Colin.
Our next question comes from Gus Papageorgiou of P.I. financial Please go ahead.
Thanks, Thanks for taking my question congrats on great quarter.
Recent interview Toby you said that the recent crisis is pulling 2030 into 2020 in terms of online commerce.
One of the trends I expect to see is that I don't think that.
Ecommerce is going to get easier I think it's going to get harder or stuff like augmented and virtual reality technologies get embedded into the E commerce experience.
Thanks for current situation has made in larger established brands reconsider.
Our strategy of hosting their own sites and maybe say, we don't introduced anymore.
Shop, I can do a better than we can.
Have you seen that at all or or or not.
Yeah, I think I think that's exactly what we see I.
I I really believe us it's going to comes to retail industry.
Maybe it's not 10, yes, but it sounds like.
Just jumped a lot of here in the future.
One.
Really important part about this is.
I think it's really book.
Everyone to try to use so that was released in 2010 without any updating and patches.
One of us kind of experience as they say, hey, I remember using us and I remember we didn't see liking this.
Thanks, Ben but now it seems vale.
It's hard not to procure it anymore to whatever expect of his particular category or software.
So vis a vis a vis.
I'm really.
Really how to explain.
A bit rod that exists on the internet.
Where people tend to sort of intuitive to tell that the products kind of made for the current times or not and if it fits into current times and use a set of capabilities that people make assumptions about.
One of our chief.
So five others than to because from Pfizer software that first launch in 2006 to never make it not fit into the current highest axiom up significantly how to drop them and Mike Mike and myself.
And.
Again that I think.
Like the massive jump ahead right now.
Everyone now has talked about 2020 quantities delta in a basically 20 foodie books, so everyone for fiscal Tenuousness getting the requirements and.
Like needs by the customer.
And so everyone has to make up is go by behalf to this.
Why you see shopify shipping all off right now I.
I have intensely off the company.
The EMS crisis to like to lead all outlets as it stands and read derive from pharma as new reality I thought the company too.
Loa its annual except the quality BAW to shipping because something has become variable because it's only 25 plus and today.
So thank you Ken.
Launch things and so via trying to move ahead, because this is massive vacuum.
That exists in the gap to combat the quantity, especially you see this or oncocyte pickup.
And.
Like this.
Speaking from prospective off I think one company, that's actually had a 2020 quantity solution for where we tested in the market I don't think anyone really have so that gap to scott's significantly bigger for.
Many companies to test always set on Sallie I will take itself and I think that's driving.
A lot more adoption right, because I mean tough I say good.
I guess as could be massively better if suddenly spent almost every other month meeting I have about some way how we can make it significantly better.
But I think all things considered it looks really well if successfully well and some of things in the press release, you might have seen like that the like based on our particular view and innovative retail was 70% of retail sounds like my disappear.
Business as a result of a ready vis a omnichannel at the same time.
Mastergear place up 94% off that fast food online channel now it matches the vacuums that exists with all the businesses that the only available to retail like this is known huge driver opportunity for content brands.
An imperative that the other people on purpose a jump into this opportunity so I think.
There's also some effects that are going on right now that I've ever that's coming on to understand it's no way easy to kind of.
I understand what exactly.
The cause and effect here like this is an open like a big complex chaotic system right now.
That.
Yes.
A lot of people from.
Growth almost all the way to.
Fortune 50 companies find utility and just any rebound.
Great. Thank you guys.
Our next question comes from Richard Tse of National Bank Financial. Please go ahead.
Yes. Thank you I was wondering if you could give us a sense of Ah your wins that are coming from competitive platforms, particularly when it comes a little larger merchants you know this might be more applicable to surprise part a cobot, but maybe give some context on that thank you.
Hi, Richard I hardly hear the truth is a lot of the in my commentary earlier I talked about new verticals coming to shopify for the most part they're not actually Replatforming. These are net new direct to consumer business models. So either in the case Heinz ketchup. They just never sold Heinz ketchup directly to the consumer.
Before so these are not necessarily migrations and that being said one of the things that cobot as has obviously done is for small companies, but also for large companies is look at their cost base and figure out where are they spending on things that they're not deriving.
Proportional value from and a lot of the enterprise ecommerce platforms certainly.
They are something that people are we looking.
Now that being said because time is of the essence right now and sometimes replatforming. It does take some time.
They may be waiting until things become a little bit more normal before they make those migrations, but generally.
A lot of the new verticals were seeing whether its.
CPG brands for the first on whether its consumer or its grocery or its things like liquor companies or our tobacco companies that were seeing a it's just we're not they just weren't selling before instead migrations are not necessarily the thing that's driving this it's a lot of net new net new merchants coming to the platform that said I do suspect Toby pointed out that a lot of people. After this.
Things get a little bit more normal.
People will re look whether or not they're getting bank for buck from their existing software providers, particularly the more legacy enterprise players and realizing that one it's too expensive into they're not getting the flexibility that require.
Great. Thanks, Richard.
Our next question comes from Deepak not even of Barclays. Please go ahead.
Great. Thanks for taking the question guys Amy can you.
All right from the free trials, another 90 day free trials in one Q, there's a lot of moving pieces, obviously and I am I wrong, but it sounds like this is a trend which will continue into Twoq you asked about how should we think about the impact on to give thank you.
Yeah. So 90 day free trial, let me let me just I give you a quick overview I'd started at the latter part of March and is ongoing we've not made a decision.
Yeah, I adore announced yet when will terminate the free trial we're.
Really excited about the results that were saying with new store creation, 62% or over the last six weeks versus the prior six weeks I want to emphasize what what new store creations means a their potential merchants that have come to the platform a there.
We're setting up a store they've given us their billing information, but we are not billing them, yet so we don't count them as a merchant.
We noted that in the mix of those new store creation, they're both established businesses and new entrepreneurs.
But in the reason why we know there's a healthy mix of established businesses as a percentage of those merchants are selling in their first week on the platform, it's higher than it is a typically been historically.
Those new store creation, because they don't count as a merchant were not believing that they don't count towards EMR. Our show as I said in my earlier remarks, EMR and the second quarter will be impacted by this 90 day free trial, but we expect the benefit.
From that 90 day free trial to materialize in the third quarter.
Thank you Deepak.
Our next question comes from Matt Pfau of William Blair. Please go ahead.
Hey, guys. Thanks for taking my question just wanted to ask on the shop App. It seems like you're starting to dip your toe in the water here with demand generation or or demand aggregation have you thought more about going into this space, especially as perhaps consumer discretionary spending becomes more challenging over the coming bunks it might be some.
In that you're merchants would be looking forward to help them out. Thanks.
Yes.
So I'll take that.
So yes drop off is.
Yes.
Maybe quickly.
The wind behind shelf of as.
Ed TV increase right like rough that's the goal so be lost it all tools if I look at discovery feature.
This is actually a good example of what I meant earlier than I said that the too.
Redirect our plans and.
Auto it's a product like something like the local discovery feature in shops, LTV launched partly because we have successfully.
No what on anywhere except to quality button lost something so the way this focus.
Shop is a very valuable.
Piece of software, but I'll explain a little but the reason for why what exists but local discovery feature of on something that came out of a heck days at the color right. After the call that thing sockets that just Austin type company Hey, everyone.
Making experiments based on what you think would be had put right now to our customer and be launched local discovery features as part of Shaw because not the costs, particularly the ready if it but because it's actually happening right now and it is having right now people are going fast works is awesome. So.
That's the that's Oh.
What this about vivo run more experiment, but the goal is it is to deepen relationships of brands you already up buying from and that's that's particularly like it but that's like our take on this particular product.
It is funny. When then again I come from these leasing from a product that's a product mindset and I'd like especially to we'd argue things from first principles.
Okay.
It is a.
A funny word in which we.
Separated out the particular roas in.
In in moved into a good retail the way we did I would Chuck I would him I would like to know the person who would argue event from scratch, we should design, but it took almost in such a way that may all these best sites and then you purchase something embedded says like off to you and your entire.
I address and credit card from scratch every time, you end up than other James if your funds you Ben.
Okay. Thank you pace at which point you hope to get an email at some point in which came out maybe than they were too late to its affecting code, which points can pace that in one of six logistics providers.
Are you getting like phase populated data about where you package might be.
Saudis tie us with process and mystery eventual aggressively at the door and.
If anything wrong with that you're going have to like go find one of course, even if again and you sort of know about getting after I'd like like it's.
Thanks.
This is all poorly tools.
And as a volume rebate anyone's came about this because this organically grew that grows so shop is.
But when you're trying to do as the month end to end experience. That's good but they are you.
Back to the for brand for any channel you on and then it goes the process of getting this product because actually something thats delightful and novo. They you know the packages where horizon.
The process of the active but brand going back and potentially purchasing some all purchase repurchase.
So staples, we just received.
It's something about just kind of a same process. So thats.
But the utility by sharpened service by combining a couple of things Uh huh.
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And.
This is of course, there that's going to be a good amount of brokerage is going to go into this is an important projects an ambitious project, but it's also been really really important notwithstanding I think if I want to assess.
The goal is lifetime customer value increase.
So.
Yes.
Great. Thank you Matt.
Our next question comes from Darren Aftahi of Roth Capital Partners. Please go ahead.
Hey, guys actually my question just on the ramp you talked about in store openings and comments around acceleration of April GMB could you maybe share what the mix of discretionary versus nondiscretionary categories.
Thanks.
Yeah on the on the ramp of of April G.M.B., Let me just give via some thoughts on that.
We did see.
An increase shift from offline to online and a lot of that was bad great food beverage.
I'm home office home Jan.
Increasing as a percentage of the mix in April.
As we said apparel has softened in March but it did recover by the end of March So even in April apparel was was back to its normal levels. So we saw the combination of all of those things hit in April.
And also just I'll add and just to give you a little bit more information too.
The G.N.V. acceleration that we saw on April due to all those verticals.
Doing well was broad based from a geographic regional perspective across the globe.
Great. Thank you Darrin.
Our next question comes from Mikael fill Danny of Mackie Research capital. Please go ahead.
Great. Thanks, guys with all these changes I was wondering if you can maybe give us some color about how you're thinking about talent acquisition, especially with all the challenges and the feedback ecosystem in California right. Now how are you thinking about maybe going after some of those that Pfenex engineers. Thanks.
Yes.
Expanding again.
Oh, Yeah, VVA behalf economic models fab.
Thanks Amy.
Talk Toby we want to be very realistic, but again I think one thing that's absolutely true.
That.
Chuck cyber products, it's better internal growth, that's going to be American yes. After the crisis, although I have a long as is going to be than before.
So far has like always prefer those hiring.
Kind of so people have high potential who can become the.
And next and yes, it's easier to us yeah.
And then do you have some get best divestments I figure core competency over.
Well, if a company, but yes, you have unlocking about interest to bring in great people who are.
Leasing Commission and.
So you're going to expend.
Yes, I have no nothing like it has to say I guess if its a.
So first limited's five amount of.
Yes people be needs to offer.
The company.
This may get easier to find them now.
And that would be okay, great is oh, sorry.
Great. Thanks, Nicole.
Our next question comes from Josh back of Keybanc. Please go ahead.
Thanks for the question and a drill doing well I just wanted to ask a little bit about the subscription cancellation you provided some color there.
As you went into April did you see stabilization there are there any certain.
Verticals just any other color there you could provide would be much appreciated.
Yes, as we as we said we did see cancellations and kind of mid March.
Oh it started to escalate it was mostly low GMB merchants are due to co bed as we moved into April.
Subscription or moved back to more normal levels from what we've seen historically.
And also to talk a little bit more about the class downgrades that we saw in March or those.
Slowed considerably into April.
Very helpful. Thank you might think attached.
Our next question comes from Samad Samana of Jefferies. Please go ahead.
Hi, good morning, and thanks for taking my question Amy I know you guys don't normally provide this data point outside of the annual filing, but just given the unique circumstances that there might be helpful. But how does the revenue growth or GMB growth look like for merchants that have been on the platform for 12 months or longer I know that was I think too.
21% in 2019, I'm curious how that cohort is looking so far maybe in the April period.
Yeah, G.N.B. per merchant, especially those who had been on the platform for a longer period of time has continued to increase a year over year.
Oh, we don't give out the exact percentage other than annually, but are we did see those merchants who are successful on the platform I continue to grow their GMB.
Great. Thank you.
Our final question comes from you grow Rooney of Wedbush Securities. Please go ahead.
You guys. Thanks for fitting me in once asked about Shopify, Pos and the new launch and because especially around.
Oh Pls pro.
He's got pumped about timing around launches right now and how to help us customers. So first wanted to just.
Got the thought process behind launching it now while most of physical retail is actually shut down and how you how you see that helping merchants to bring merchants onto the platform whether that's in the physical retail or bring them on on E commerce than at any way to help kind of frame.
You have them out of merchants you have that also do have the physical physical I know, it's I think you followed that with the second.
Second eyes, the sales channel, but maybe the stores per average source promotion or any kind of way to help frame bad as well as the new software rolls out next.
I mean quickly about a point of sale product.
I'm really excited about the new upon a separate I think it's it's a great example of.
Like I think you know previous one was.
I'm basically.
Hi, good I pad version of.
Traditional products that system I think.
There's nothing terribly wrong with that I think that's just.
That is a local maxima product category.
Everyone from stuck on I think you can make.
Yes, globalluxe amount as higher if you add something directly for the terminals I've ever running a little bit of time here for like.
I think.
Okay Office Christian divest.
Thanks, I mean, both timing question as you probably need to talk about like right now the great time to change process. Because you don't have people are your stores. [laughter] ahead. This. This is this is the perfect time to bring back out into the slate and trying on what your life would be like if.
Having a single retail system, that's connected between all the waste your time, you're selling and especially with new point of sale now you can run all these cross channel.
Systems slight pickup in store and central pickups and.
That's going to be a lot more of your bodes tooling costs I pick up.
And a lot more local things.
But to TEP is a little bit than sort of I guess final rose here because.
Finally.
Oh thing that we've seen more to go up in anything as is like.
Sales to within 25 kilometers quite like this is ray you can really see every one of us already familiar.
The E commerce really seamlessly.
And into like you started using the channel and sort of more familiar tenants, but just not be not available and just the industry wide I think.
At least with our from our data from our vantage points now we have a little bit, but our customers might be a little bit more change adaptable across most of them sort of the NOL, although it should converge upon the mean at this point looks like shopify.
I think we need to think you really really really really really need to be in multiple channels across these cost actions, we have not really see that pickup adult.
Okay.
Consumer confidence back like a but people are still spending and I think when industry looks at that data time, partly because there's a lot of existing reporting about looking at like for retail industry by just looking at the all offline goods and then making assumptions about equally well I think we need to stop that I thought.
Hi, this is.
Sort of like the situation of trying to look at.
TV ratings during the rise of streaming and everyone got caught a little bit confused about how people actually spent the time thoughtful phone lobbying to adjust the for this realization.
On the metrics okay.
And Ah yes. Thank you for thanks for joining I'm sure like you'll see a lot of things shipping from Shopify again.
If you will be uptime slightly embarrassed by banks is shipping I think about as a sign of stress.
Because that's exactly but when you think sufficient all the things like the shipping will be potatoes.
Improves the take our mission incredibly seamlessly with Shopifys banded together like Crazy because you see our job has tried to make it so that more smbs in other words survive because shopify exists. That's that's a little picked for fast enough for this study all over time.
To make that's come true.
Thanks for joining a follow quarterly call.
This concludes today's conference call you may disconnect your lines, thanks for participating and have a pleasant day.
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