Q2 2020 Shopify Inc Earnings Call
Thank you for standing by this is the conference operator.
Welcome to the Shopify second quarter 2020 financial results Conference call. As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation there'll be an opportunity to ask questions.
He joined the question Q you May Press Star then one on your telephone keypad.
So do you need assistance during the conference call you may signal, an operator by pressing star and zero.
I would now like to turn the conference over to Katie Kato Director of Investor Relations. Please go ahead.
Thank you operator, and good morning, everyone. We're joined this morning. They told me like cash Shopify, CEO, Harley Finkelstein, our chief operating officer, and any Shapiro hours CFL each of US is dialing in from our home.
After some brief prepared remarks, they hardly any evil open it up for your question.
We hope you enjoy the on hold music created by Shopify its own internal talent now for something slightly more scared by our legal department title Riskiness, Yes.
We will make forward looking statements on our call today that are based on assumptions and therefore subject to risks and uncertainties that could cause actual results to differ materially from those projected we undertake no obligation to update these statements except as required by law.
Can read about these risks and uncertainties in our press release. This morning is balance in our filings U.S. and Canadian regulators.
No that the adjusted financial measures, we speak to today, our non-GAAP financial measures, which are not a substitute for GAAP financial measures reconciliations between the two can be found in our earnings press release, and finally, we reported U.S. dollar. So all amounts discussed today are in U.S. dollar unless otherwise.
I've indicated with that I turn the call over to Harley.
Good morning, everyone and thank you for joining US today, we hope that you were all keeping safe and healthy.
Over the past few months, we've seen the cobot 19 pandemic fundamentally ship the weight businesses and consumers interact.
It is catalyze E commerce, introducing major changes in buyer behavior and pulling forward what retail would look like in 2030 2020.
Many merchants were caught off guard and we knew that shopify immediate access to help them survive.
So from late March through the second quarter, we dialed up urgency to enable independent businesses to adapt and compete in this new reality.
This urgency helped more merchants not just survive, but thrive in a period of major upheaval.
I cannot mccullough time in our history when we've shipped so many features in such a short period of time, helping so many merchants recover and many others reached new levels of success.
As a result huge huge N.V. growth accelerated to its highest level since before our 2015, IPO driving shopifys cumulative GMB to over $200 billion.
So we're still not shopify, so why don't have times, what they did in Q4 of last year, the seasonally strongest quarter beer and that number of stores is growing all the time.
This tells me that were on the right track I made the right decisions really independently.
The successor merchants were seeing motivates us to push even harder.
Q2, Shopify hosted its first spiritual company that shopify reunite which attracted more than 50000 viewers far more than would have been able to reach with our annual in person to that.
Our new product and feature announcements span the online store multichannel capabilities retail shipping and finance all geared towards helping merchants navigate and quickly adapt to a rapidly changing commerce landscape.
I want to highlight a few of these features and then I'll provide an update on our merchants are responding in the current environment, our progress the shopify plus and our partner ecosystem.
We shipped expressing a free theme designed to get any business online quickly such as restaurants and cafes. We also introduced on like tipping to support the food and services industries and businesses offering local delivery.
We introduced natively integrated channels from Facebook shops, Walmart dot com and pinch rest, enabling our merchants to sell in more places where they are buyers are driving new traffic to their stores.
As code research and these are retail merchants are focused on protecting their customers and employees by leveraging safe distance technologies, such as contact us payments.
After introducing the new tappin chip hardware the U.S. last year, we rolled it out in Canada. Following the global launch of are all new point of sale software in early may.
Together, our point of sale offering is a powerful product that provide the seamless omni channel experience for both the merchant and the buyer.
The shift online commerce is redefining the role of the physical store and many retailers are re imagining their stores to serve as order fulfillment centers to meet digital demand.
So we enhanced our curbside pickup at our local delivery capabilities to give merchants more control of their retail operations by driving last fall execution.
We also announced two financial services products since launching the U.S. later this year.
Hi balance and shopping installments.
We're introducing shopify balance to further level, the playing field, giving our merchants access to their cash faster and providing critical money management tools to effectively manage their business.
Through our no fee business account merchants will be able to understand cash flows tracking expenses and pay bills.
This will also receive a physical or virtual card, which will help them access their own sales revenue faster than before.
And get rewards like cash back and discounts that will help more of our merchants reinvest in our future.
Our upcoming by now pay later product choppy installments will that merchants give buyers more options by paying an installment with no interests and no fees.
Working through a partner affirm we will offer a product that can help merchants to sell more by increasing card size and sales conversion rates.
Shop installments will be integrated into our accelerated checkup shopping which offers four times faster checkout and close at two times higher conversion than regular checkered options, providing a frictionless experience for murchison their buyers.
Since its launch shopping has facilitated cumulative GMB of more than $11 billion.
Entrepreneurs have proven time, and again that the resilient and resourceful and here's how merchants are tackling their challenges head on in the midst of the cobot 19 pandemic.
First our merchants are creating new buyer opportunities.
39% of brick and mortar merchants in our English speaking geography is adopted some form of local in store curbside pickup delivery solutions in Q2 that is up from 26% in early may to meet increasing local demand.
Merchants also some more local customers shopping at their stores with the percentage of local customers per shop, again, increasing quarter over quarter.
Merchants also grew their multi channel presence over the second quarter with a greater proportion of merchants installing two or more channels in an effort to reach broader audiences.
And more merchants are leveraging merchant solutions as they seek to reduce friction while growing their businesses.
More merchant access capital quickly Q2, as number of U.S. merchants, except in capital Rose and we offer financing for the first time to merchants in the UK and Canada, where we lost Shopify capital in March and April respectively.
Cumulative funding across all three countries reached $1.2 billion at the end of June.
More merchants also you shopify shipping as new users fulfilled their very first orders on the platform and we expanded our offerings to Australia.
Adoption increased to 49% of eligible merchants in the U.S. and Canada in Q2 up from 42% in the same quarter last year.
And third our merchants access new opportunities to strengthen customer relationships and loyalty.
Merchants leverage tools like shopify email and the shop to deepen merchant relationships as buyers and increased customer lifetime value.
Over 150 million emails have now been sent through email campaigns since shop, but email logic in Q1.
Shopify, plus merchants experienced an exceptionally strong second quarter.
More brands joined Shopify, plus this quarter than ever before as merchants from lower level plans grow their sales and upgrade and more large brands seek the scale their businesses in an agile and cost effective manner.
This is especially critical right now as digital commerce accelerates and an uncertain macroeconomic environment persists.
The Optionality that shopify plus offers from speed to market to cost and the ability to experiment and act like an entrepreneur is resonating heavily with enterprise all emergence encouraging them to rethink their channel strategies and accelerate the timelines towards digital transformation.
In our second quarter brands from different verticals launch stores on Shopify, plus including the legendary by company Saturn 18, 95 Schwinn.
Beach, where a company Hurley and Westar apparel brand Stetson.
Canadian grocery store Farmboy.
UK food and drink CPG princes.
Chocolate Bar company sneakers, and the major beer company, Molson Coors and many more brands across a range of products and industries.
Q2, we also rolled out the new Shopify, plus admin, a revamped backend for merchants to manage their organizations, including multiple stores analytics staff accounts user permissions and automation tools like shopify flow all in one place.
Our partner ecosystem continues to work hard for merchants with over 30000 partners, referring immersed in the shopify over the last 12 months.
Speed creativity and cost effectiveness, our top of mind for our partners as they help merchants move online and optimize their stores in the shifting landscape.
Partners had been going above and beyond getting work out the door faster than we previously seen with a number of stores created in three days or less increasing by 123% in Q2 versus Q1.
There are also supporting our merchants in a variety of ways, helping them find quick wins, they will make a difference there business now like running content marketing and social media on their behalf.
The versatility and dedication of our partners truly highlights the strength and quality of the shopify ecosystem.
Technology has democratize entrepreneurship and everyone's ability to build a successful business.
The acceleration digital commerce as push this opportunity Ford and opportunity. That's shopify has been building towards for over 15 years.
With the ongoing cobot 19 pandemic. They continued uncertainty in our macroeconomic environment and the growing momentum in the fight for quality shopifys role to level, the playing field for all entrepreneurs has never been more clear.
Our mission has always been to make commerce better for everyone and shopify is working harder than ever to pull entrepreneurs forward into the future that as emerging.
And with that I'll hand, it over to Amy.
Thanks, Charlie we're focused on improving the commerce experience for everyone and that mission starts with helping our merchants. We are on the side of entrepreneurs, whether they are just starting out or our large an established what's important to US is building the best Commerce operating system that will help them succeed in any way.
Retail environment, especially the one presented in todays tough circumstances, and when merchant succeed shopify succeed as evidenced by our merchant sales and our results in Q2.
Revenue almost doubled in our second quarter to $714.3 million up 97% over the same period last year, largely driven by our acceleration and success based merchant solutions revenue and to a lesser extent I subscription solutions revenue.
Subscription solutions revenue increased 28% year over year to $196.4 million monthly recurring revenue grew 21% year over year to $57 million, primarily driven by new merchants, joining the platform while growth in the quarter was impacted by the 90 day free trial on standard plans offered from March 21.
Through may 31st and I are ended the quarter higher than in Q1 benefiting from the highest ever number of merchants joining shopify plus. Additionally, we benefited from standard merchants in the 90 day extended free trial March cohorts as well as though isn't the regular 14 day free trial June cohorts converting.
In the latter half of June it is important to note that the 90 day clock is still ticking for those who signed up for the 90 day trial in April and May with any standard merchant conversions from those trial cohorts benefit in Q3.
Shopify plus continued to increase its contribution to M.R.R. accounting for $16.6 million or 29% compared with 26% of EMR in Q2, 2019 strong App Shopify plus platform fee and themes revenue related to the 71% year over year increase in new store creation.
In Q2 contributed to the approximate seven percentage point difference between the growth of subscription revenue an EMR our.
Merchant solutions revenue grew 148% to $517.9 million in Q2 compared to the same period. In 2019. This is the third quarter in a row of acceleration and a growth rate we have not seen since before our IPO driven primarily by shopify payments followed by growth in other merchant solutions right.
The new like capital shipping and transaction fees.
All of these were driven by the spike in GMP, which increased 119% year over year to $30.1 billion as well as by increased adoption of these solutions by merchants and growth in partner referral revenue.
Even excluding GMB from new stores created on the extended free trial GMB per merchant increased in Q2 as merchants of all sizes and across all geographies benefited from the tailwinds of the shift to online commerce.
$13.4 billion of GMB was processed on shopify payments in Q2, an increase of 132% versus the comparable quarter last year payments penetration of GMP was 45% versus 42% last quarter as well as in Q2 2019 penetration levels reached new highs across our merchants.
Men's as new merchants, joining the platform opted to you shopify payments and Shopify, plus an international margins expanded their share of GPV.
Demand for Shopify capital was strong in Q2 with merchants, receiving $153 million and funding across the U.S., the UK and Canada. This represents a 65% increase in funding over the second quarter of 2019, while maintaining loss ratios in line with historical periods access to capital is even tougher into.
Like these which makes it even more important to continue lowering this barrier by making it quick and easy some merchants can focus on growing their business.
Adjusted gross profit dollars, 84% over last year's second quarter to $381.4 million, which reflects the significantly greater mix of merchant solutions revenue versus last year. The impact of the 90 day free trial, which reduce subscription revenue without a corresponding decrease in related cost of revenues the access.
One of six river systems in Q4 last year, and our ramp up of investment and Shopify fulfillment network.
Adjusted operating income was $113.7 million in the second quarter compared to adjusted operating income of $6.4 million in the second quarter 2019, adjusted operating income in Q2 2020 reflects our strong revenue performance in the quarter and excludes a onetime impairment charge at 31.
$1.6 million, resulting from our decision announced in May 2022 work remotely permanently will go into this in more detail in a few minutes.
Adjusted net income for the quarter was $129.4 million or one dollar and five cents per share compared with $10.7 million or 10 cents per share and last year's second quarter. Note. This is based on diluted shares outstanding due to the GAAP profit recorded in Q2.
Finally, our cash cash equivalents and marketable securities balance was $4 billion on June 30, it strengthened by the capital we raised in our second quarter are healthy balance sheet gives us greater optionality that we believe increases our competitive advantage to retain his financial flexibility. We began the process to renew our shelf prospectus.
Yesterday evening, we consider this to be ordinary course of business given the pending expiry of our current shelf.
Our strong track record of capital allocation is reflected in the investments we've made in our platform and the resulting successes of our merchants before providing an update on key investment areas I will provide an overview of our decision to work digital by default related financial implications in Q2 unexpected impact for the rest of 2020.
We are making changes to how and where we work to keep our employees safe and healthy to create opportunities for existing and future talent and to continue effectively solving critical problems for our merchants will be keeping our office is closed for the remainder of 2020 redesigning our spaces for a new future and reducing our office footprint.
This means that most of our employees will work remotely on a permanent basis and leverage our office spaces. When it makes sense. This also represents an opportunity for shopify to open up and further diversify our talent pool unconstrained by physical location, while our offices, where a special part of the Shopify experience our culture is not defined by it.
It is defined by our employees the values intrinsic to shopify and our alignment with our mission to make commerce better for everyone.
Our Q2 2020 results include $37.1 million of incremental expenses related to these facilities changes reflected in two areas first we're exiting some of our secondary offices in major cities for which we took at 31.6 million dollar impairment charge in Q2 related to write abuse assets and leasehold.
Improvements.
Impairment charge in Q2 is recorded in general and administrative expenses and excluded from adjusted operating income given its onetime nature.
Second for offices, we are keeping and retrofitting, we're accelerating depreciation on $40.5 million of leasehold improvement over a two to three year period. The impact in Q2 was an incremental increase in expense of $5.5 million accelerated depreciation is allocated across cost of revenue and operating expenses.
Q2 and is included in adjusted operating income given its recurring nature. We don't currently expect to make any further material office footprint changes for the remainder of 2020 now turning to our key investment areas as we discussed on our first quarter earnings call, our key investments coming into 2020 like Shopify fulfillment network.
We are validated by merchant needs that were escalated by coated and we made adjustments to our plans to quickly deliver on features that would help our merchants adapt and try both now during co bed and over the long term overtime, we believe that actively managing a portfolio of growth investments with different return time horizons is necessary for.
Continued growth.
Our key investments fall into three categories core expansion and ambition, which include near medium and longer term initiatives respectively.
The core bucket includes merchants and products that shopify has invested in for a few years and continues to build such as our platform Shopify, plus and merchant solutions like shopify payments, including Multicurrency in other payment related products Shopify capital and Shopify shipping investments in core generally have strong returns today.
That help us reinvest to build for the long term a great example is our newly released Shopify, plus Adnan, which is resonating with merchants of scale with early merchant feedback highlighting increased operating efficiencies and the ability to rapidly expand into new geographies.
Our expansion initiatives, which include international growth and retail Pos we expect will deliver over the medium and into the long term continued investments to help international merchants get up and running as easily on mobile as on desktop enhance their cross border selling capabilities and make the platform more intuitive on a regional basis should all.
Well continue progress like we saw on Q2, where international merchants led the pack in year over year GMP growth.
For retail merchants, we will continue building out retail inventory and fulfillment capabilities, helping them adapt to a retail landscape. It delivers a seamless commerce experience bridging online and offline. We're on the right track is Q twos, our Pos GMP start to recover healthy adoption of our all new Pos software.
Stain levels of used at the local features we rolled out over the past few months and increasing hardware sales in the U.S. in Canada.
Finally, our success to date would not be possible without investing for the out years, which are represented by ambition initiatives. These represent bold initiatives that will power the flywheel longer term these investments which are in their earlier stages take time to scale, but are expected to become game changers for shopify and our merchants. They include.
Shopify fulfillment network six river systems, Shopify balance shop, Brad wholesale b to B and more.
We announced shopify fulfillment network just over a year ago and although we are still early in our planned five year build we're pleased with the progress we've made so far in developing the technology, our partner network and the merchant experience in Q2, we enrolled more merchants an increase opponent volumes by two and a half times over Q1.
As existing merchants fulfilled more orders and new merchants brought on new volume. Our focus this year remains on building product market fit automating and improving merchant onboarding experiences and working with our partners to develop a strong network of notes, we want to ensure that the foundation of our fulfillment network is strong and the merchant experiences outstand.
Earnings before entering the scale phase towards the end of next year or soon after we believe six river systems will be helpful. Here as throughput rates have increased approaching two times previous levels, where we've integrated six river systems technology. So we anticipate other notes will benefit as they adopted as well its value.
Question as a flexible easy to implement warehouse fulfillment solution is resonating right now and adding momentum as both existing and new customers begin to prepare for the busy holiday selling season.
Wrapping up we believe the covert pandemic is permanently accelerated the growth of online commerce changing the retail landscape forever Shopifys task is to help our merchants adapt and succeed and the world that emerges by investing in and building a global commerce operating system that evolves with their journey as the macro environment technology.
And consumer behaviors change.
We will continue to help entrepreneurs power through these difficult time and positioning themselves for longer term success.
Due to the continued lack of visibility into the coming months given co bid and macroeconomic uncertainties, we're not providing guidance for our third quarter or the full year. We continue to closely monitor the factors impacting our business to act nimbly and quickly serve our merchants needs our merchant first mission and business model together with our strong balance sheet our.
Disciplined approach to capital allocation and rich partner ecosystem physician shopify to capture what we believe as a tremendous opportunity to improve lives around the world by helping more people reach for independence with that I'll turn the call back the Katie.
Thanks Amy.
Before handing it back to the operator, I'll remind everyone to please limit yourselves to just one question. This way, we again hopefully get to everybody and everybody, we'll get a chance to ask a question on our call today, and so with that I will hand, it back to area, who will begin polling for questions.
Thank you we will now begin the question and answer session to join the question Q 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 will pause for a moment as colors join the queue.
Our first question comes from Thomas Forte of D.A. Davidson. Please go ahead.
Great. Thanks for taking my question Toby Harley.
Katy Hope you are all well so I've a question for Toby.
As of Amazon Facebook and Google are expected to testify today before a house Judiciary Committee examining antitrust concerns. There's companies are strategic partners and also your competitors for example, Amazon called out Shopifys, a competitor and its pre release opening remarks, Tobey I want you to comments I was curious on your input.
Occasions to shopify. Thank you.
Yeah, thanks them.
Yes, I think.
I mean look review of really focused on.
Our mission, which is to make almost better for everyone.
The.
Our corpus was doesn't directly compete with that of the if anyone with them and via partner the Autocam and.
So I think.
Oh, Thank you have a particular inside a beyond.
Just.
Fellow travel that's innovative technology and so those.
I have been interesting incidental to see how it goes.
Great. Thanks, Tom.
Next question please.
Our next question comes from Brad Zelnick of Credit Suisse. Please go ahead.
Brad Zelnick your line is lives.
Our next question comes from Ken Wong of Guggenheim Securities.
Please go ahead.
Great. Thanks for taking my question I'm prepared remarks, you guys mentioned and GMP decelerate in June and July.
Given the magnitude of how you guys outperformed this quarter can you give us a rough sense, what that step down in June and July look like so we can let it flow some of that models with such there's no guidance.
Ah, yes, we're not going to provide guidance on the degree of deceleration, we're not giving guidance for the third quarter or the full year because of the uncertainties related to cover the macro environment.
When one month and ER in our third quarter may not be representative of the full quarter. So for that reason, we're not providing guidance.
Great. Thank you Ken next question please.
Our next question comes from Matt Pfau of William Blair. Please go ahead.
Hey, guys. Thanks for taking my question.
You've made several recent announcements would you discuss about increasing your merchants ability to sell over multiple channels and specifically I'm thinking about the Walmart and Facebooks announcements. So clearly these are beneficial for your customers, but maybe you could just digging a little bit more on the benefit here to shopify is that just sort of from.
They are differentiating the shopify platform or are you able to monetize the transactions that are processed over these other channels.
Thanks for the question on that it's hardly here. So look in terms of our channel strategy, which we've been working on now for years. The idea is we think the future of commerce and retail is going to be everywhere and the shopify plays a more central role in the lives of of more than a million merchants on our platform, we need to be the retail operating system, which means we need to make it easier for them.
Do you sell anywhere where potential customers, maybe whether that's on a place like interest or social media platform or marketplace like Walmart, but all feeds back in one centralized place where they can manage the entirety of their business and so as new potential opportunities arise new channels. We think it's our responsibility to make sure that we make it easy for merchants to sell there and.
Put it all through that shopify operating that that retail operating system and so you'll see more of those come up but we've been doing this for a long time and.
The neat part I think about the shop by offering is that.
Before Shopify you had to have 20 different tabs open to manage a multi channel omnichannel business now you've dealt you can do everything from Shopify, which makes us further being the heart of their business, which is important to us.
Great. Thank you Matt next question please.
Our next question comes from Citi Pin Gray of Mizuho. Please go ahead.
Thanks for taking my question.
During this time, you'll see the basic necessities like you said that bridges and tobacco us Spike in terms of demand I'm wondering do you shed what percent of though the GMB that you present.
Yeah, we don't break out our GMP to that level, we did see food beverage and tobacco increase as a percentage of our mix and the second quarter, but we also saw mainstays and.
Apparel accessories and cosmetics.
Recover through the quarter. So the GMB growth was really a mix of.
All categories on consumer verticals.
Great. Thank you so can you.
Next question please.
Our next question comes from Colin Sebastian of Baird. Please go ahead.
Hi, good morning, and thanks for taking my question, perhaps a bigger picture question for Toby or Harley.
You have access.
Such a tremendous amount of data around E commerce and transactions.
Lots of potential there to capture insights from this data if you could talk about the bigger opportunities from that data, including on the consumer facing side of the business and whether you're still confident that the underlying technology stack used by shopify is adequate to manage the increasing complexity. Thank you.
Yeah. Thank you.
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You're right and as much as.
One piece of a possible off data that sub if I didn't have insight into is.
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Entrepreneurship and a small this information would.
Act or look like and doing a pandemic [laughter]. So thats the pictures filling it said and.
Of local cost as the early so it remains to be seem to be if you had some minor data from the last one if and as a crisis, but of course that played out very very very differently.
So.
Well I mean, but the way of you're thinking about data if that's what what we really want to do as had.
Merchants. So if has held their own data give them the insights from Oh, we have their own says patterns had them that they own decision, making on on business expansion.
On the on a macro aggregated level.
In a.
How business is up fast growing you know what maybe the next step might be for football them actions that are looking for next steps to expand that business against that backdrop of different economic environments, and and states industries and so im. So all of this is an official this is all that on.
Oh, probably bleeding edge spread like we view, they're good at getting leverage from the latest technology. So that like on day to day, one minute maid technology decisions I feel very seriously.
The telephone if they have a modern stack and in a lot and what an approach and that sort of a call valuable engineering Sobi, we feel very vague.
And I know, a technological foundations and being able to.
The latest technology industry has created and come up there.
To make a constant if everyone that's kind of sort of overall in place.
Thanks, calling for your question next question. Please our next question comes from Gus Papageorgiou of P.I. financial. Please go ahead.
Thanks for taking my question Congrats on great quarter, Amy I'm wondering if you get just give us some color on if you look at the GMB growth.
Sequentially.
Much of the or I guess year over year, how much of that was kind of from your base of customers growing their sales organically due to increased.
Sales occurring on E commerce platforms, and how much of it was from adding new customers.
He kind of central to give us would be helpful.
Yeah.
Let me just start by saying that the GMB growth overall was really driven by the sudden shift in consumer spend from offline to online driven by cobot on so what we saw was GMP per merchant increased significantly quarter over quarter in year over year as our merchants benefited from that tail.
When but we also saw more merchants a new stores joining the platform during Q2.
And so.
We know that a higher percentage than normal were established businesses rushing online shopify plus had a record quarter of that adds a new stores joining on the 90 day free trial for standard plans there was a healthy mix of.
Established businesses.
Rushing online so it really was a combination of those two and again I'd also like to just emphasize how broad based the GMB growth was across all merchant segments in all geographies and across all consumer verticals.
Great Great. Thank you got.
Our next question comes from Eagle erroneous of Wedbush Securities. Please go ahead.
Hey, good morning, guys. Thanks for taking the question I want to as.
The Pos and you noted in the release that.
Getting back in February levels, which I thought was.
Surprising if not interesting.
Retail in the U.S., that's where it was in February so can talk a little bit about what that means for for Shopifys taking share.
Your customers with their omni channel presence more.
More more on client.
To drive stronger.
In store growth and have Pos.
Okay outperformed overall retail what would what are you seeing there that's getting getting your Pos.
I had a retail overall thanks.
Thanks for the the question Yeah, I think we've entered on a on our last earnings call that we did see Pos GMB decline between March March 13th in April 24th relative to the comparable six week period.
But that we also saw that those physical retail merchants managed to replace about 94% of those that loss GMB through online stores over that same period. So we were pleased to see the resiliency. There. We are now beginning to see more brick and mortar stores, we opened up not just in the U.S., but but around the world and so we are starting to see more of that retail JV come back that said one thing that has.
Happened through this whole process and through the crisis is that.
Now, we're seeing our physical retail.
Merchants.
Look at multichannel a much different way. So for example, a 26% of a brick and mortar Mckinsey English speaking countries are now using some foreigner form of local in store or curbside pickup and delivery options, that's compared to like 2% at the end of February So we are seeing.
This new.
As physical retail reopens up the business model for those physical retailers are also contemplating.
A new type of resilient model, which allows them to sell online and offline and then we continue to roll like great. New features for point of sale things like stat permissions retail level reporting and so the point of sale product the physical retail product just keeps getting better and better but certainly we are seeing more GMP flow back through physical retail.
Than we did and beginning of the pandemic.
Thanks again.
Next question comes from Darren Aftahi of Roth Capital Partners. Please go ahead.
Yes. Thanks for taking my question of the will of course mood for Amy. So is it kind of think longer term with the work from home.
And appreciate the impairment cost savings you kind of detail, but as you think about things like travel spend marketing et cetera, like how does the PML kind of benefit.
Or not what other puts and takes longer term or we just reinvest those those dollars you saved and other category you go forward. Thanks.
Yeah.
Longer term, yeah, we would expect to save some amount of money, obviously on the office footprint itself right.
Most of those benefits were not going to see a until a couple of years out.
But that would be one benefit I travel spend yes would would decline we've seen that happened as we've been working remotely through co bed. So we would expect that would continue however, we would redeploy some of those savings back into helping our employees work from home.
Effectively in their homes set ups and helping them make sure that they have great internet connections and and things like that so it'll be a little bit more like a shifting of expenses overtime.
Great. Thank you Darren next question. Please our next question comes from Deepak Mathivanan of Barclays. Please go ahead.
Great. Thanks, guys for thing the question hardly can you give us some color on how much and started generating growth. During this call. Good period are there any channels, where you know much and so seeing the biggest success clearly there is a big online demand generation.
I mean shifted the online jobs from a consumer standpoint. So I was wondering whether you know margins are using any specific channel that seeing better success now. Thank you.
Thanks for the question, it's important I understand that because we have such a broad range of merchants on our platform and I mentioned some of them. This morning brands like Snickers in AAA and cores Molson Coors, but also a million over a million small businesses not every channel is appropriate for every particular merchant and so the onus is on shopify to make sure that we have all the right.
Channels for any particular merchants businesses.
Particular type of product that would sell really well on Walmart dot com may not sell as well and pentrust are on Instagram or Facebook and so that I think is the one of the nice.
One of the advantages of the Shopify platform is that regardless and despite whatever you are selling there is likely the rate appropriate channel for you now of course, the most important and the most impactful channel is the online store followed by the physical retail shop I point of sale, but after that we see merchant Southern cross a whole variety of channels, which is why we have to keep adding these channels overtime.
Okay. Thanks, Deepak next question please.
Next question comes from Brian Peterson of Raymond James. Please go ahead.
Hi, everyone. Thanks for taking the questions. So I wanted to hit on the strength that you saw in Shopify plus I'm curious has there been any change in terms of the net new logos that you're adding and I know a one of your competitors as a product that's going end of life I'm curious if that's going to capital. So thank you.
Thanks for that question. So we are seeing an acceleration of companies Replatforming off legacy platforms, we did see not for awhile, but it but that acceleration has continued we're also seeing digital transformation generally is pushing larger retailers to look at partners, who are nimble who are flexible who are certainly cost effective and and that's offset shopify plus offer.
For the larger brands.
Legacy platforms, we're never meant to change quickly and frankly retailers need that right now and so what we're seeing in terms of the types of customers that are dominating our plus pipeline. Its digital natives that continue to choose plus the scale globally large cpgs that are rushing to go direct to consumer and we are the preferred choice because they don't have fasick and logic spare.
I met with US and then more traditional retailers looking to transform their companies are choosing us to do that as well. So that's the reason why seeing brands like Hurley, and schwinn and sneakers and Molson Coors and.
Just to pull the farmers market all your shopify.
It's there's there's not one type of particular merchant, we're kind of seeing the.
We're seeing the acceleration happened across a bunch of different categories and from a bunch of different.
Three platforms.
Great. Thanks, Brian next question please.
Our next question comes from Josh back of Keybanc. Please go ahead.
Thank you for taking my question. Thank you everyone is a is doing well.
As good a bigger picture bigger picture question about what's happening with the acceleration of E. Commerce. I think you had commented that 2030 is maybe be pulled ahead a decade and then you also had the comment that you expect this trend to persist so I'd love to hear a little bit more because.
We have such great visibility it puts unique view about why you know you view. This this trend is durable because I just think that such an important investor question would love to hear a little more color on that topic.
Yeah gladly. So my comment was I mean that came up at this question a little bit more from a product perspective, and from a financial perspective or from a from a from a market mix perspective, and I said that 2030 as couldn't put forward in 2020.
What's the sort of demand is like.
Anyone who's ever used like software that was written 10 15 years ago realizes that they had it doesn't fit into the current times anymore, because it's that on a fairly outdated assumptions could know five technology moves.
I think in in retail the old finding us from one day to have an NAV of software that's feels like a deck at all it's because of assumptions have been like tungsten tobacco and reassembled based on based on Covanta like an obvious example of this is the.
Massive in quake a rise of.
Autos place, if and 25 miles.
Two local stores and local pick up and upset pickup not is going up as it had to be.
Two it by technology.
Which we've done I think fairly quickly and BCBS as big effective.
On a platform.
But zooming out.
The things happened at the same time right like this so there's a lot of businesses, who just local stores and.
That's the only way that connect us to vote global foot off premise and one set in place orders came along they realize that the only way for them to access the customer base was no no longer functioning.
And then I've a fruit in some cases for community efforts the traffic is going to quote fixed we've observed.
And sometimes but they all went adaptability they set up online channels.
And from Pelican environments that that they have still open for business and and then sort of made may do however, they could and that I think book surprisingly well for for for a lot of entrepreneurs.
And so as more and more local businesses.
Came online local stores came online.
I think one thing that's as.
What's surprising to a lot of people, but actually seemed.
I I think we've had in total bets on this is that.
The demand for being able to buy from us.
More diverse group of mixes.
Actually there, but the supply wasn't it's I mean, it's Dave a rare that there's such a discrepancy between supply demand, but reasonable to supply didn't come online is because of receive complexity and just because of inertia right. So why go online why set up and like White Sands. Your point of sale system for something integrated and you on that so light right I try switching gears.
So besides the business is sort of bookings.
And so.
Corporate and.
Has accelerated this thing this was already going on people notice that they did well as to how do you already mentioned.
You are seeing strength into point of sale.
A channel but of course, we also know from the macro numbers that small business happen going out of business like that there has there have been closures if.
This is not I can save us for sure, but like anecdotally the businesses that fit the that adoptable switch to shopify or started online stores or have been on top of the point of San added the on an unsettled successfully.
Which is our slice of the retail base that actually done okay and may have.
In some growth because of the business that Ben as adoptable have maybe not made it outside optimists I'd say soda.
And so.
I think a lot of.
Ideas that they are floating around a lot of things that people are saying in the industry have gotten validated.
In this.
Great experiment and test, but they all went through in this industry.
And now that there's a significant more supply for a follow up off of merchants out there and that more buyers have for familiarity off or buying from merchants directly and.
Also the awareness of what that does have a local economies and that this value and supporting local businesses, if especially if you want them to stick around.
All these things kind of mixed together into one Vic like average number of percentage mix and.
Thats I think just a good deal higher than.
The E commerce numbers before so.
Yes, there's been some acceleration is gonna be very hard to see if I I don't I mean, I don't think be can discern from our slice of the market's exactly what these numbers are just because.
I I think that dealing now on shopify, that's just the they adaptable and they get the based Pacific slice off of a retail industry and.
But I think we've had a lot and so that's that's that's critical for business and I think about spicy silicon numbers to be able way, though.
Great. Thank you for your question Josh next question. Please.
Our next question comes from some of its Amana of Jefferies. Please go ahead.
Hi, good morning, Thanks for taking my question.
I mean, maybe this one's for you so Jim view as.
It was about 50% higher than than Fourq, you and you know, but I'm curious that platform and other revenue I didn't quite spike the way than it normally does it from Threeq to Fourq use I was curious if there is either a mix shift in where the GM view is generated whether it was more of the nonplussed customers or if there.
There's a reason why we didn't see as much of a platform be overages in Twoq you in how we should think about that maybe going forward.
I mean, we still saw healthy increase platform fee.
Revenue, so I I'm not sure I would I wouldn't read anything into that or in terms of next but I think it's it's largely because GMP was just so broad based and again the highest grower in the category was international.
A year over year, and so that does have a a lower mix of you know it's more standard merchants, but.
It was broad based and we still saw healthy increase and the platform fee for plus customers.
Also just keep in mind, sometimes the platform fee for plus is impacted by certain merchants, who are having flash sales, which may skew any given quarter.
Great. Thanks Tonight.
Sure. Our next question please.
Our next question comes from Brad Zelnick of Credit Suisse. Please go ahead.
Great can you guys hear me now.
Hello, Yes.
Well I hear you fine thanks for slips excellent. Thanks for getting me back in and congrats on all the success I wanted to ask about GMP trends specifically for those merchants located in countries that are using social distancing measures or they don't decelerating faster or at similar rates to other area.
It is like the U.S.
Yeah, I think it's it's really early to tell that right now I mean, we are seeing certainly as Amy just mentioned GMB growth in terms of.
The growth percentage was highest internationally, but we're also doing a lot internationally for those merchants I'm trying to find product market fit there, but I wouldn't necessarily say that we are seeing anything that is notable yet at this point other we monitor pretty closely.
And buckets that I really I'm done that.
Going back to normal what sort of markets that kind of when hit as badly rights or they could just its.
It's really really hot to technologies.
These numbers.
Great. Thank you Brad.
Our next question comes from Chris Merwin of Goldman Sachs. Please go ahead.
Thanks very much for taking my question can you talk at all about the early impact that assets that is out on the merchant and customer satisfaction or order volume I think you also mentioned that asset then would be reaching scale phase at the end of next year. So does that mean, well I guess will that included just partners or would you need to build out some of your own capacity.
At that point just curious what the current plans are thank you.
I can take the the capacity question and the and the plans we're still on the same five year plan that we announced.
Last year at unite.
Where we will build the shopify fulfillment network over a five year period will be in product market fit phase in 2020 and into 2021 or what's the expectation of entering the scale phase at at the end of 2021 or soon thereafter, which is about the midpoint of the five year.
Belt and that is absolutely consistent with what we said last year.
That plan that we announced last year had us mostly working with partners to add nodes to the shopify fulfillment network. We have the seven up and running that we said, we would have up and running and we plan to add additional partner nodes. This year.
We're not going to say, how many or where I preannounce it but we're continuing down that path working with partners because it's been working well, we said that we would continue down that path as long as they could meet our capacity and quality needs and so far as they are a we did we.
Open the ability to build a few warehouses ourselves we do have it a test data facility in Ottawa.
But in the plan and the billion dollars, which was mostly variable spend to fulfill goods. There was some fixed costs allocated to a couple of warehouses. So that we could build and test and learn in the event that we do decide to build warehouses, but right now we're on the same plan that we that we've been on.
Thank you Chris next question please.
Our next question comes from Walter Pritchard of Citi. Please go ahead.
Hi, actually related question to that one that you just had there so about 4 billion in cash on the balance sheet with recent financing. We obviously know about the fulfill plans that requires some capital and you've got products like the.
The shock capital product can you help us understand how you're thinking about that cash you have as needed to run some of those businesses that are more capital intensive versus.
M&A potential with capital you've raised versus just sort of having raised opportunistically to to have some of some cushion. Thanks.
Yeah, we've been pretty consistent in saying that that the 4 billion in cash is to increase our flexibility and optionality, whether it be a bill partner or buy in order to accelerate our product road map and so.
We continue to just want the maximum out of flexibility a and I think this actually might be a good place for me to address the shelf.
Renewal that that we did I did address it in my remarks, but I think publicly I've seen some headlines that werent correct.
I just want to emphasize that the self registration our shelf registration was due to expire in September.
They're only good for for 25 bonds.
We did decide to renew a little early so that we could do it in conjunction with this earnings call, which is consistent with how we've done it in the past.
And and we had to put a fixed dollar amount on the shelf under Canadian regulations, which is different from the U.S., where seasoned issuers do not have to put a dollar amount in the dollar amount just makes sense for flexibility we absolutely consider the.
It's just normal ordinary course of business.
And.
You know wouldn't read anything more into it than that.
Thanks.
Okay. Thank you.
Thank you.
I think that type of one of my question.
Our last question comes from Tim Willi of Wells Fargo. Please go ahead.
Oh, Thank you and good morning, everybody.
The question about the restaurant.
Nicole its obviously change dramatically in the last several months to really be Tom.
Commerce, and omni channel industry, probably much more show than it's ever been so I'm just sort of curious on your.
Expected, how you think about that verticals as a new opportunity to may be developed product sales channels to be much more visible.
And the bigger part of that industry than maybe you otherwise would have had that yes. This crisis had not occurred thanks.
Thanks for that question.
Okay. I mean, we've been very clear that our focus is on retail and particularly physical goods. The restaurant thing is not historically has not been in our and our focus although we did feel that when cobot first hit there was a way for us to to help restaurants by doing things like turning them into retailers, whether they're selling meal kits or they're selling some sort of physical.
Product and so we did create a theme that allow them to very quickly set up a very a beautiful online store and allow them to start making some cash flow during a very difficult time, but in terms of our focus on on a restaurants as as a new vertical that is not somebody that we're currently looking at right now, but if they do turn into retailers of some of them have or wind stores as others have leased.
Certainly can help them.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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