Q1 2020 Earnings Call
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 humor Press Star then one on your telephone keypad.
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I would now like to turn the conference over to Kt, Kate <unk> Director of Investor Relations. Please go ahead.
Thank you operator, and good morning, everyone. We hope everyone, it's keeping well during this on certain time.
They are joined this morning by Toby like Shopify, CEO, Harley Finkelstein, our chief operating officer, and any Shapiro our CFO.
Each of us to styling and safely for now.
After some brief prepared remarks that really and Amy you go up that up for questions.
Well not just changed my call in February one thing that happens to sit requirement laying out that we may make forward looking statements on our call today, which are based on assumptions.
That's true 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 your press release.
Filings you asked the Canadian regulators.
So what that adjusted financial measures, we speak to today, our non-GAAP measures, which are not a substitute for GAAP measures reconciliations between that you can be found in our earnings press release, and finally see reporting U.S. dollar. So all amounts discussed today or in U.S. dollar 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 my 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 sad and operational during the cobot 19 pandemic.
We are incredibly grateful for their tireless service of these Harris.
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 starting at 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 emerged will continue.
I'll be covering three areas today Shopifys response to coated.
Our merchants have been fairing and the world. We think is emerging on the other side of this.
Our highest priority as the cobot situation unfolded, what's the health and safety of our in place.
In late February we directed the entire shopify team to cancel nonessential 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 supporting our office spaces are contributing in other ways, many supporting initiatives that directly impact our merchants.
No one has been furloughed due to <unk>.
Our merchants on the other had had been far more impacted so we acted quickly.
Any 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 should 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 are 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 made 200 million additional dollars available for Shopify capital to extension merchants for whom working capital will make a difference and expanded the availability of capital beyond the U.S. to the UK into Canada.
We were all that shop like email to all our merchants to help them reach out and build trust with their buyers during these uncertain dime.
We're making this feature available at no charge until October 1st.
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 increasing online store creation, some of which are established retailers.
It is still too early in the macro environment, it's too uncertain to make predictions about how successful these new stores will be.
Merchants can be assured and we're doing everything we can right now to getting the tools they need to succeed.
Merchants will continue to need our help we plan to continue our efforts to innovate and develop more packaways to support them. After all small businesses are a vital part the economic and social fabric of our society and support the livelihoods of many people on our communities.
So what are we seeing the platform and among our merchants first and foremost we are seeing them find ways to operate under today's constraints or creativity grit and determination.
Their stories have been incredibly inspiring from pivots by Taylor's and distilleries, now, making face masks and hand, Sanitizers 24 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 stood stores are showing up.
In April Heinz sign off the Shopify, plus and launch seven days later, while chocolate maker Lynn.
Launch in just five days.
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 faced 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 and April 24th relative to the six weeks lead.
Yup.
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 product to that's temporary others like distance learning and the growth of Omni channel Commerce are likely to persist. This postcode world is what we're 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 for me.
It is true today as it was a decade ago.
While we're 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 makes 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 here. It is hi, thanks for calling Shopify is retail support I. Just appreciate you guys answering the phone this is like.
Real time here [laughter] total.
Hi, Kevin had been working on to watch online store 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 no upcoming to pick up the vegetables on the farm of which we hope to do Presales online yeah, absolutely I can currently right now.
Because it's important for shop I don't think we are.
So [laughter] I almost <unk>.
[laughter] website.
So.
No not really helping people [laughter], it's really important.
Thanks, Charlie So it 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're 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 to make commerce better for everyone in 2020, <unk> and beyond.
Shopifys momentum in 2019 continued into our first quarter turning in a strong January and February prior to head winds appearing in March as a result of coal bed I'll start by reviewing first quarter results highlighting any cobot 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 merchants joining the platform.
Your your M.R.R. 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 emergent AD and an up tick in subscription cancellations and merchants downgrading to lower price subscription plans in March largely due to co bed.
Shopify plus continued to increase its contribution to Amar, our accounting for $15.3 million or 28% compared with 26% of them are are in Q1 of 2019.
Strong app in Shopify plus platform fee revenues contributed to the approximate nine percentage point difference between the growth of subscription revenue and Amar.
Merchant solutions revenue grew 57% to $282.4 million in Q1 2020 compared to the same period in 2019.
You're on your growth was driven primarily by Shopify payments followed by growth of other merchant solutions revenue like capital in shipping on the back of strong G.M.B. 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 G.N.B.
This was partially offset by a decrease in brick and mortar sales given closures related to cope.
$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 its share of GPV and shopify payments continue to expand internationally.
If I capital had a notable milestone in Q1, surpassing $1 billion in 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 focus 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 ACA.
Addition of six river systems, our ramp up of investment in Shopify fulfillment network and a greater mix of merchant solutions revenue versus last year.
This reflects strong growth from higher emerging revenue stream like the variable platform be from shopify, plus merchants efficiencies and 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 of 2020 compared to adjusted operating income 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.
Typically 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 bed.
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 are we learned so far.
First the shift from offline to online commerce is accelerating.
More entrepreneurs than ever before 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 merchant moving online and the extension of our free trial on standard plans to 90 days, providing a healthy back.
Once of existing businesses and new entrepreneurs setting up shop.
While our free trial extension will likely further pressure M or our growth in our second quarter, we expect new business creation to offset this overtime.
Second consumers are part of that 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 are there a central products, such as toilet paper and baby products as well as work from home fitness entertain.
Hey, Matt and leisure and hobby products also trended upward, reflecting the extended shelter in place directed 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, shopify 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.
Action online shopping experiences from browsing to check out.
Adding essential tools and capabilities for merchants like payments and Fulfillments 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 thing to help our merchant succeed and those things are even more important now given co bed.
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 plan.
Starting with Shopify fulfillment network, which remains a top priority now more than ever timely and affordable fulfillment is important for our merchant 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 into.
21.
Demand continued to ramp in Q1, Shopifys fulfillment network had its highest number of merchant signings in the quarter since inception, and we sold more volume in the first quarter 2020, then the fourth quarter of 2019. During this time, we're working with our warehouse partners to help ensure the safety and health evolve.
Our house employees, our partners warehouse operations managed to improve service levels for Q4, despite the challenging circumstances presented by coal bed, while our transportation partners have also been working diligently to meet agreed upon service level. They too are pressured which is impacting the reliability of some deliveries.
Some merchants have also seen delays in receiving inventory due to increased complications and cross border import logistics.
As we expand the number of merchants were onboarding, 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, releasing several enhancements in Q1 that strengthen its warehouse fulfillment solution.
With 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 merchant benefit from all of the Super powers that Shopify plus has to offer.
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 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 markets, but faster.
And our focus regions. This includes helping businesses to get up and running as easily on 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 UK in 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 it business and so weve.
Worked with partners, while taking measures to control losses amidst our expansion. This meant leveraging our dynamic machine learning model and adapting terms. So we're 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 distance ignore. 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 shop.
By Pos our intuitive point of sale software 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, but not an in depth Kobin response resource center, where merchants can get to help they need now. This includes tutorial such as how to start selling gift card.
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 early years is it bootstrap start up that had become core to our culture.
The first lesson as 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 or brand campaign, we have reduced other marketing activities canceling most company event.
Plan 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, whose circumstances have changed well try to build their livelihood and then 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 rate decisions quickly to help our merchants.
We will get through that and we've been working hard to ensure that as many merchants as possible do as well and emerged from it better suited for multichannel commerce, we have a business model that puts merchant first a fundamental strength as the world Retools 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 finally, we have a long established and trusted network of partners working as hard as we are just support margins now.
Shopify has always been accompany of people that drive on change and embrace hard problems. We're 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.
Thanks, Amy and were glad everyone could join US. 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 and the about 30 minutes that we had last.
And with that I'll 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 questions. You 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 hands that before pressing any keys.
To withdraw your question. Please press Star then too we'll pause 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 you have a very unique view into whats happening across the economy broadly 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.
The mezzanine and Conversely, the most pessimism thanks.
Hi, Brad This is Amy I hope you're well.
We take that one so you know 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 kinda 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 Dustin.
<unk> 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 where 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.
The head win.
Our obviously the uncertainty a co that and how it plays out Oh, how it impacts the economy and unemployment in particular, the impacting businesses in consumer spending a it isn't I know in the further we go out and time and then you agree that offline to online continues.
To offset those economic headwinds.
It is uncertain.
I 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 most merchant or you know in <unk> in a recovering economy or we think that plays well broadly.
And we expect all of our merchants will benefit from the new purchasing habits and norms. It started during these walked out.
And the L. shaped recovery that we're looking at there's a pretty sharp downturn in the in the next couple of quarters, followed by a much slower recovery while into 2020.
In that case, it probably means that co bed 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 I, well continue to increases as a percentage of our or G.M.B.
So.
We stepped back and and none of these economic scenarios.
It's great from an overall perspective, but we do think that shop, and buy tailwinds will benefit us and and any economic scenario I just want to add that where we're well capitalized whether any of these economic scenarios with a strong balance sheet and we will continue doing BAF a in there.
As 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 clubs. 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 advanced.
So to the primary shopify skew or shopify too to basic thank you.
Hey, Ken it's hardly 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 Linde chocolates.
Literally go from contract signing two full launch of their direct to consumer store.
In seven days and five days, respectively. We're also seeing the grocery category again, a vertical that shopify plus is not traditionally seen become a real thing in Canada, we're seeing some of our largest grocery chains like loblaws into Farmboy sub stores.
On Shopify plus so we're excited by that obviously, we also have changed our focus from a sort of focusing on upgrades on shopify plus to more helping I'm getting more large merchants online in our core geographies 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 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 downgrade in some come up as well as they figure out what they need and tried to trim some cost, but generally we're we're pleased overseeing and after taking a personal level. These brands that had been after for years to join Shopify and joined Shopify plus.
Told me 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 a wholesale businesses to direct consumer businesses and moved from businesses that traditionally our only brick and mortar to being born at brick and click sort of model. So I'm pleased to out to see that we think.
That will continue.
Yeah. 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 [noise] safe and healthy.
Thanks for the details on the puts and takes on the adjustments to the operating plan.
Is there anyway 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 and how do you see shopify plus one differently today than than you did just a few months ago. Thank you.
Oh I'll start that one off line, but the first part about the quantifying the puts and takes.
You know we tried to provide some overview in the earlier remarks in and I'll 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 it is that any spend to is not impactful productive irrelevant and this time period like our brand spend a that we would spend that span a that those expenditures for the remainder of this year and redeploy.
Boy that money into more useful unproductive areas like the 90 day free trial.
Which we're seeing great benefits from as I said, we've seen 62% increase and store creation on on the platform.
So that's largely how we're doing it how how's that actually comes out quantitatively work work, we're not going up to provide guidance, but you should know that we are a mirror scrutinizing our spend.
Very heavily and moving it in the direction, where it can be impactful.
On the film it not work Harley Toby I know you know, we think it's increasingly more important than the second cogan validated a this direction now I'll, let them comment more.
Yes, thanks hardly here, yes, so as Amy said I think that 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 Estefan was already building.
Urgently, which we don't necessarily you don't slowdown at Shopify, but we will continue to develop Arkansas me now work over the planned five your timeline, we are making really good progress we are still getting access, but we are expanding the number of onboarded merchants, we've expanded to Canada. So a lot of ing some Canadian merchants and also some some product enhancements have rolled out so things like March.
And on boarding experience is getting better platinum resiliency is getting better, but I think our our decision to move into assets and is it feels like the right one now more than ever.
Great. Thanks Collyn.
Our next question comes from Gus Papageorgiou of P.I. financial Please go ahead.
Thanks for taking my question congrats on great quarter.
In a 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 is going to get harder or stuff like augmented and virtual reality technologies get embedded into the ecommerce experience.
Do you think the current situation has made at larger established brands reconsider.
There are strategy of hosting their own sites, and maybe saying we don't introduce anymore.
Shop, I can do a better that we can.
Have you seen that at all or or or Nada.
Yeah, I think I think that's exactly what we see I.
I I really believe have been it comes to retail industry.
Maybe it's not 10, yes, but it's a look like.
Just jumped a lot of yes in the future.
What's really important part about this is.
I think it's really both for everyone to try to use so that's what's 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 really liking. This back then but now it seems vale.
Oh, not appropriate anymore to what I expect this particular category or software.
So that's a business.
I'm really.
Really hard to explain.
A bit Rob I.
That exists on the Internet.
Well.
People tend to sort of intuitive to tell that the product it's 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 oh.
One of my Chief Oh, I'm, sorry, so far it's obvious then to.
So if I said something about.
<unk> launch in 2006 to never make it not fit into the crime tight so that's actually not significantly how to Japan, and Mike My and my child.
And.
Again I think.
Like the massive jump ahead right now.
Everyone now has circa 2020 quality salsa and a basi 20, foodie books, so everyone suffixes, contentiousness getting better requirements and like needs by the customers.
And so everyone has to make up this gap by behalf to this is.
Why do you see shopify shipping all off right now I have intentionally off the company. They Williams crisis to like to lead all I'd like to see balance and read derive from as far as new reality I thought the company to a lower its annual them, except the quality BAW to shipping because something has become variable because it's only.
25000 today, so that become a.
Launch things and so via tried to move ahead, because as is massive vacuum.
That exists in the gaps to compared to a quality, especially you see this or oncocyte pickup.
And.
Like this.
Speaking from perspective, I think well one company, that's actually had a 2020 quantity solution for where we tested in the market I don't think anyone really had so that gap just got significantly bigger for.
Many companies to test always set on Saturday I would take itself and I think that's driving up more adoption right because I mean, sometimes very good like 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 it fits exceptionally well and some of things in a press release, you might have seen I like the like based on our particular viewing and about a retail was 70% of every telesats Mcmanus disappear over the the businesses a reassessment <unk> ready vis a online show at the same time.
Mastery of place up 94% off that says through online channel now imagine vaccines that exists with all the businesses that the only available to read so like this it's known huge driver opportunity for a challenger brands, it's an imperative that the and the people on prepared a jump into this hotel.
So I think.
He has also been factset going on right now that I've actually that's kind of on talking to stand. It's it's 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's a which.
A lot of people from.
Gross almost all the way to.
Fortune 50 companies find utility and missing the boat.
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 you are ones that are coming from competitive platforms, particularly when it comes a larger merchants you know this might be more applicable to surprise part a co bid, 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 actual 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 is 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.
[noise] proportional value from and a lot of the enterprise ecommerce platforms. Certainly 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 would be maybe waiting until things become a little bit more normal before they make those migrations, but generally a lot.
So we're seeing whether its CPG brands for the first time, whether its consumer or its grocery or its things like liquor companies are or tobacco companies that were seeing a it's just we're not they just weren't selling before instead the 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 is Toby.
Pointed out that a lot of people after this ah things get a little bit more normal.
People will re look whether or not they're getting bank for bought 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 might even of Barclays. Please go ahead.
Great. Thanks for taking the question guys Amy can you.
There are some of the free trials other 90 day free trials in one Q, there's a lot of moving pieces, obviously 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.
Oh, Yeah, I adore announced yet when well terminate the free trial.
Sure.
Really excited about the results that were saying a with new store creation, 62% or over the last six weeks versus the prior six weeks I want to emphasize what what new store creation 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 know that is a mix of those new store creation, they're both established businesses and new entrepreneurs.
And the reason why we know there's a healthy mix of established businesses as a percentage of those merchants selling in their first week on the platform, it's higher than it is a typically been historically.
Oh, no new store creation, because they don't count as merchant, we're not building 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 bugs that might be some.
And that you're merchants would be looking forward to help them out. Thanks.
Yeah.
Thanks, I'll take that.
So yeah shop is.
<unk>.
Maybe quickly.
The wind behind chopped up as TV increase right like about that that's the goal. So we launched it also if I look at discovery feature.
This is actually a good example of what I mentioned earlier than I said that they need to.
Redirect all plans and.
Auto it's a product like something like the local discovery feature in shops, I think the launch partly because we have successfully.
No what all of anywhere except in quality, but to launch something so the way this book because.
Shop is a very valuable.
Piece of software, but I'll explain a little but the reason for why why the access but local discovery feature but something that came out of a heck days at the cog right. After the call that thing sockets, Bobby just cost anti company Hey, everyone.
Make an experiment based on what you think would be had put right now to our customer and be launched looking discovery features as part of shop, because no because it's the picardy ready, but but because it's actually having right now and it is happening right now people are getting sat swings is awesome. So.
That's the that's Oh.
What this about people run more experiment, but the goal is it is to deepen relationships with 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 some of products.
That's a product mindset and I like especially to read hockey were things from first principles.
It is a.
A funny world in which we separated out the Pensacola roas as a in in the immigrant of retail the way they did.
I would.
So I think I want him I would like to though to meet the person who would argue events from scratch, we should design, but it'd comments and such away I mean, obviously websites and then you purchase something embedded says like after you and your entire address and a credit card from scratch every time, you end up than other beauty of if your phone.
Your Ben Oh, Thank you page I'd point, you hope to get an email at some point in which came out maybe than they were too late to answer the second code, which points you can pay spot and one of six logistics provide us usually getting like phase populated data about where you packets might be a shouting style.
The process and mystery venture off randomly at the door and.
Anything wrong with that you're going have to like go find one up or CMS again, and you sort of know about getting after I'd like it like it's.
Thanks.
This is all poorly towards [laughter] and as a volume rebate anyone's came about this because its organically grew like this so shop is it but what you're trying to do as the once an end to end experience that's good but they you.
And to access the brand for any Shadow you want and then you'd go the process of getting this product is actually something that's delightful novo. They you know act as wed horizon.
The across its often to active but brand going back and potentially purchasing some all purchases repurchasing staples, we just received.
It's something about just kind of a same process. So that's a utility by show up in some of its body combined a couple of things so.
But.
And.
This is of course, that's going to be a good amount of brokerage is going to go into that this is an important projects an ambitious project, but it's also been really really important notwithstanding I think if I would want us that.
But call it is lifetime customer value increase.
So how about that.
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 Jim be could you maybe share what the mix of discretionary versus nondiscretionary categories.
Thanks.
Yeah on the on the ramp of April G.M.B., Let me just give you.
Or some thoughts on that.
We did see or an increase shift from offline to online and a lot of that was bad great food beverage.
Home office home Gen, a increasing as a percentage of the mix in April.
As we said apparel had softened in March but it did recover by the end of March so even in April.
Apparently job was back to its normal levels. So you saw the combination of all of those things hit in April.
And also just I'd add and just to give you a little bit more information to.
The G.N.B. acceleration that we saw on April due to all those verticals and doing well was broad based from a geographic regional perspective across the globe.
Great. Thank you Dan.
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 that went 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 10 X. engineers. Thanks.
Yeah. So we are expanding again you'd be oh, yeah, <unk> behalf economic models that like any.
Talk tovey, but to be very realistic, but again I think one thing that's absolutely true as.
But.
So in fiber products, it's better into their growth that's going to be American yeah. After the crisis, although I have a long that's what's going to be than before.
So far has like always prefer us hiring.
[laughter] kinds of people have high potential who can become the appendix engineers to is due to yeah.
When do you have some get passive elements I figure core competency over.
A company, but yes BV of unlocking about interest we're bringing in great people, who are belief in the mission and.
Yeah, you're going to expand.
Yes, I have no not much has to say I guess, it's it's a.
So far is limited by Vermont off a kind of people be needs to offer to at this company.
This may get easier to find them now.
And I would be okay greatness Cox already.
Great. Thanks, Nick you.
Our next question comes from Josh back of Keybanc. Please go ahead.
Thanks for the question and Oh girl doing well I just wanted to ask a little bit about the subscription cancellations 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.
That would start to escalate it was mostly a low GMB merchant 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 cost downgrades that we saw in March or those.
Slowed considerably into April.
Very helpful. Thank you might think its cash.
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 <unk> the revenue growth or GMB growth look like for merchants that had been on the platform for 12 months or longer I know that was I think.
21% in 2019, I'm curious how that cohort is looking.
So far maybe in the April period.
Yeah, GMB 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 that's about Shopify Pos in the new launch in [noise], because especially around.
Oh Pos pro.
It's got talked about timing around launches right now and how to help us customers. So first wants 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, then any way to help kind of frame the of the amount of merchants.
I have that also do have a physical physical I know, it's I think you follow that with the second.
Second ice the sales channel, but maybe the stores per average source promotion or any kind of way to help frame, but as soon as the new software it rolls out mix.
I mean quickly about a point of sale product.
I'm really excited about the new point of sale product I think it's it's a great example of.
I think on previous one was.
I'm basically [noise].
I can I pad version of a.
Traditional put aside system I think.
There's nothing terribly wrong with it I think that's just.
But as a local maxima product category, but I think everyone, but stuck on that I think you can make.
That's a global Maximova tie a if you build something directly for the timing of I've ever been running a little bit of out of time here for like.
I think.
How can I ask this question divest.
Thanks, I mean, but timing question is is it probably eases onsite like right now the great time to change quite a system because you don't have people in the stores [laughter] <unk>. This this is the perfect time to bring back out into the places, but I'm trying on what your life would be like if.
Having a single retail system, that's connected between all the waste your time.
Selling and especially with viewpoint of say I know you can run all these cross channel.
Systems like pick up in store and Cherry pick ups and.
That's gonna be a lot more view about tooling curbside pickup.
And a lot more local things.
But temp is a little but then sort of I guess final words here because.
Timing.
Oh picking up you see more <unk>, Oh go up and anything else is like.
Sales to within 25 commit us quite like this is ray you can really see every one of us already familiar with.
E Commerce and really seamlessly got vent into like you started using the channel then the sort of more familiar tenants, but to stop the I'm not available and just so 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 given the size of Shopify.
I think we need to.
Really really really really really need to be in multiple channels across these cost reductions the im not really see bath pick up at all.
Yes.
Consumer confidence back I could but people are still spending and I think but industry looks at that data time poppy because there's a lot of existing reporting about looking at like for retail industry by just looking at the all offline, but and then making assumptions about the you customer I think they need to stop that I think.
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 falloff you need to adjust different digitization.
On the metrics and okay.
And yes, well. Thank you for thanks for joining I'm sure you like you'll see a lot of things shipping from Shopify again.
These people the uptimes slightly embarrassed by the banks is shipping I think about as a sign of stress <unk>, because that's exactly but when things will be shipped all the things like the shipping they'll be irritated [laughter] improves the take our mission incredibly seamlessly with shopifys banded together like crazy because.
You see our job as tried to make it so that more smbs and we would survive because shopify exists. That's that's the role he picked fall assessment that Sophia study, although a time I'll try to make come true.
Thanks for joining us 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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