Q3 2020 Shopify Inc Earnings Call
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Six O one operator by pressing Star N zero I would now like to turn the conference over to Katie Qaeda director of Investor Relations. Please go ahead.
Thank you operator, and good morning, everyone. We are joined this morning by Toby lewd cast Shopify C O hardly think I'll screen shop, Besides president and Amy Shapiro hour CFO. After some brief prepared remarks by Harley and Amy We will open it up for your questions.
We will make forward looking statements on a call today that are based on assumptions and therefore subject to risks and uncertainties that could cause actual results to differ materially from those projected.
We undertake no obligation to update these statements except as required by law you can read about these risks and uncertainties in our press release. This morning, as well as in our filings with U S and Canadian regulators Nope that'd be adjusted financial measures. We speak to today are non-GAAP measures, which are not a substitute forget financial measures reconciliations between the two can be found in Ah.
Earnings Press release, and finally, we report in U S. Dollars. So all amounts discussed today are in U S dollars, unless otherwise indicated with that I turn the call over to Harley.
Thanks, Katie good morning, everyone. We can can you just see incredible demand as a decisive shift digital commerce persisted and our third quarter and more entrepreneurs than ever before turn to shopify to start to run and should grow their businesses make.
Making commerce better for everyone. Just what we do and Shopify is achieving this by lowering the barrier to entry to entrepreneurship.
Last quarter I outlined several initiatives shift help merchants of depth quickly too rapidly changing retail environment triggered by covid getting them online fast and building resilience into their businesses at a really challenging time.
We believe these changes in the landscape will endure as consumers new shopping behavior stick and becomes a new normal.
Shopify has always taken and always will take a merchant first approach.
This year this translated to an increased urgency around helping entrepreneurs to get online fast and start selling easily to get discovered have to get their products to buyers.
Today I'll talk about how our efforts are paying off for emergency and for Shopify.
In Q3, a record number of merchants became paid subscribers to shopify, even excluding merchants, who converted following the and their 90 day extended free trial.
The extended free trial made it easier for new source to get online fast and make sales, enabling many of these entrepreneurs to generate cash while they're physical stores were shut down at the onset of the pandemic.
Somebody's businesses made their first online sales faster and typical entrepreneurs coming online for the first time proving up the power of Omnichannel commerce for brick and mortar retailers.
Fast transitions like this contributed to shop with ice tremendous G. M V performance, which increased 109% over the same quarter last year.
Not only did we help merchants to get up and running quickly will give them more tools to get them discovered by new buyers shipping native sales channels to integrations like there's some shops, Walmart and pinterest.
It's early days, but given the traffic to these venues from browsers and buyers merchants are well positioned to benefit increase number of eyeballs on their brand and their products.
Sales channels will continue to expand his ticktock will be testing with a limited number of shop that merchants features that make it easy for them to sell organically directly from their videos and a profile pages channels are supplemented by are expanding marketing capabilities that helped drive traffic to a merchant stores opening up there by our universe with features like ticked off for business and strengthening really.
Asian chips with existing buyers.
He's a repurchase by fans that emotion has already won over is critical.
Researchers found that 80% of the businesses future profits come from buyers they've sold to before.
Merchants are increasingly leveraging how easy we make it for them to re markets by using tools a shop with my email through which merchants of sent 500 million email through email campaigns since launching the product and the first quarter. This year.
After getting online and getting discovered versus need to get their products to buyers step one is helping buyers checkered quickly and easily lucky to them flexible payment options, both benefits shown to improve sounds conversion.
Providing an amazing shopping experience through fast and easy checkup is exactly with Sharpei R accelerated checkup does.
Sharpei has experienced phenomenal growth since its launch three years ago, facilitating over $14 billion and G. M V with more than 60 million buyers opted in at the end of Q3 fulfilling.
Facilitating more shopify, Jim V, then Apple pay Google pay and Amazon pay combined.
Not only the shopping offer frictionless checkup, but it enables buyers to offset the carbon emissions produced by their deliveries.
We started rolling out or buy now pay later product shopping installments in the U S and Q3.
Shopping installments, let's merchants give buyers more options by paying in installments with no interest and no fees.
Installment products are gaining in popularity as consumers look for alternative payment methods to credit cards.
In addition to improving sales conversion businesses offering bye now pay later options have seen higher card sizes and an increase in repeat customers.
Sharpei is also integrated into the shop at a personal shopping at that helps merchants deepened the relationships with existing buyers through a fantastic shopping experience that includes a smooth path to check a product recommendations from the merchants they love and order tracking so buyers can keep up to date on delivery status.
The shop at has reached nearly 10 million monthly active users with thousands of merchants leveraging the built in features just strengthened their relationship with buyers and increased customer lifetime value.
Getting goods to buyers also means delivering a great postville experienced or fast and affordable fulfillment.
More than half of eligible merchants in the U S and Canada adopted Shopify shipping air third quarter up from 45% in the same period last year.
Physical retail merchants also continue to offer buyers ways to receive their goods at a safe distance using curbside pickup and local delivery.
And of course, we continue to build the shopify for somebody network to help democratize fulfillment for merchants of all sizes.
Turning to shop, if I, plus which had another incredible quarter. We added a record number of merchants for the second quarter in a row and shopify plus merchants use more American solutions, including shop, if I'd payments and shop, if I capital as a scale their businesses.
Enterprise brands are realizing center of gravity is shifting from digital commerce being an add on to now being the control center or so I'd like to say, they're retail operating system for their business.
These large merchants of realizing that having a modern agile flexible commerce solution is paramount and a shop, if I plus represents this on multiple fronts.
Offering multichannel commerce.
Flexibility and partner integrations, Ah fast and reliable tech stack and constant innovation.
Considering it's low cost of ownership Shopify, plus is becoming the obvious choice.
More notable brands across a variety of vertical launch stores to shop, if I plus you know third quarter, including the following.
The global luxury brand D R.
Women's fashion brand B C. B G. Max Azria motion picture production House apartment pictures.
With Annabelle fashion brand Madden that.
Meet alternative food producer beyond <unk>.
Nutrition Bar company Clif bar.
Multinational telecommunications company, Telefonica and weight loss brand Jenny Craig.
Turning to pardon me ecosystem, which has become a true competitive answered for shopify.
As of Q3 more than 37000 partners referred merchant the shopify over the past 12 months.
Our partners make shop, if I'd better for every merchant helping to extend shopify functionality via R. A P eyes submergence can customize their stores and meet their need commerce needs.
Partners also work with merchants to build a brand new stores on shopify.
Through these challenging times they have played a vital role in helping our merchants get online fast contributing to both a successor merchants as Walter Shopify.
The majority of respondents to a recent merchant survey conducted by Shopify anticipate more online and in store purchasing during this year's Black Friday Cyber Monday weekend.
In fact more than half of the retail merchants that responded are actively making a proven to their online store to make up for anticipated lower in store sales that weekend.
Our merchants need our help to navigate this new territory and we're working hard to help merchants make the most of B F. C. M. Not just a features and functionality, but with helpful content ranging from optimizing the performance of our online store to promoting their brands in a way that creates value beyond the holiday shopping again.
Entrepreneurs are the backbone of our economies and shopify is doing everything we can to make more of them and make them stronger.
Before I hit it off the Amy I Wanna share merchant interaction with Kita, who owned status quo leather studio in Alabama that illustrates why shopify exists.
We are here to make the opportunity for entrepreneurship accessible to everyone. Because commerce is far better when more independent voices participate.
Okay perfect. Congratulations later.
Well I. Thank you because I'm I'm I'm really cannot express something to you <unk>.
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<unk>, an African American woman.
In terms of traditional finding.
Many times eight is just totally out of the question and not available.
Has whatever fifth still got in place.
And I'm Gonna tell you shopify, providing this opportunity on a general level you are really make an impact on a lot of people a lot of women and a lot of women of color, who could their businesses and different the only option that was available.
For actual capital funding and I really appreciate you for that and.
And if if people don't know right shopper five does in that in that sense.
I don't think a lot of people realize how valuable that particular funding option is for a lot of people and I just wanted to thank you all for that.
Thanks, Charlie is that conversation just illustrated businesses of all sizes rely on shopify. During these challenging times, we are in lockstep with them on their journey as demonstrated by another strong quarter. Thanks to ecommerce tailwind are emergency resilience and the continued strong execution by the shopify team.
Revenue nearly doubled once again and our third quarter to $767.4 million of 96% over the same period last year driven by strong performance for them, both are emergency delusions and subscriptions solution segments.
Subscription solutions revenue increased 48% year over year to $245.3 million largely due to exceptional growth and monthly recurring revenue M. A R accelerated the 47% year over year to $74.4 million as merchants from both the 90 day free trial offered for March 20th <unk>.
You remain 31st and standard 14 day free trial offered from June 1st onward converted into paying Martin in the corner, creating a double cohort effect.
Well demand, where my entire for subscriptions compared to pre covid level, we do not expect a year on year M. Our our growth rate in queue for to match, what we saw in Q3, given the benefit the third quarter results from this double cohort F F shop.
Shopify, plus contributed $18.7 million to M. R R or 25% compared with 27% of them are are in Q3 of 2019 as the strong growth a standard M. R. R. Outstripped that of Shopify, plus primarily due to the double cohort effect just discussed as shopify plasmas excluded.
The 90 day free trial.
Merchants delusions revenue grew 132% to $522.1 million in Q3 compared to the same period in 2019. This tremendous growth was driven primarily by merchants strong sales with G M be increasing 109% year over year, the $30.9 billion and increase adoption.
<unk> shopify payments capital and shipping driving revenue from these products higher.
$14 billion a G. M V. It was processed on shopify payments in Q3, an increase of 124% person to comparable quarter last year payments penetration of G. M V with 45% versus 42% in Q3, 2019, and not more than a half a percentage point of her queue to this year new emergency.
Across all segments, joining the platform ought to be shopify payments and shopify plots and international merchants expanded their Sharon P. P V year over year.
Demand for Shopify capital increase in Q3 with merchants receiving $252.1 million in funding across the U S. B U K and Canada in preparation for the holiday selling season.
This record quarter for capital represents a 79% increase in funding over the third quarter of 2019, while maintaining loss ratios in line with historical periods businesses need financial resources to survive and fulfill their potential, especially in these uncertain times and as you've heard just now capital greatly increases.
The value of shopify to our merchant.
Just a gross profit dollars through 88% over last year's third quarter to $412.6 million, which reflects the significantly greater mix emergent solutions revenue versus last year. The acquisition of six member systems in Q4 of last year, and our ramp up I've investment in Shopify fulfillment network.
Adjusted operating income was $139 million in the third quarter compared to adjusted operating income of $10.5 million in the third quarter of 2019, reflecting are strong revenue performance in the corner.
Adjusted net income for the quarter was $140.8 million or one dollar and 13 cents per diluted share compared with adjusted net loss of $33.6 million or 29 cents per diluted chair and last year third quarter. Adjusted net income in this your third quarter exclude an unrealized gain.
<unk> on an equity investment of $133.2 million or one dollar and seven cents per share stock-based compensation and related payroll taxes of $75.4 million or 60 cents per share and other adjustments totaling seven and a half million dollars or six that's for sure.
Finally, our cash cash equivalents and marketable securities now it was $6.1 billion on September 30th strengthened by the capital re raised in our third quarter, which provides us more flexibility to pursue our growth strategies.
The pandemic is backtrack commerce, the digital domain and there's incredible demand on both the merchant and consumer sides to enhance the commerce experience Shopify is in a unique position to help entrepreneurs N as emerging landscape or investments incor expansion and ambition initiatives, which correspond to knee.
<unk> medium and long-term return horizons pave the way for building a powerful global commerce operating system that is the one thing merchants need to start and scale a successful business.
Currently have already provided an update on shopify plus a key core initiative. So I will start with progress on our expansion investments international expansion in retail P O S.
And two three we continued to build product market set for our international merchant, making it easier for them to get online and start selling our merchant Adman partner Adnan and themes are are now available in 20 languages.
With the recent launch of Shopify payments in Belgium, which supports payment with credit card band contact debit card and local payment method ideal shopify payment is now available in 17 countries. The more intuitive we make our platform regionally. The more we're seeing are emergency C. As reflected in the strong your over your T M V growth for them.
Our international emergence in the third quarter.
And our work localizing and focus international markets continues we are digging into complex areas to deepen our product markets set such as evolving emergent user experience growing our partner ecosystem launching more sales channels, simplifying cross border and mobile commerce, and introducing new ways to get products to buyers such as pick up points, which are.
Quite popular in Europe.
Retail margins have been extremely resilient, finding new ways to reopen and operate safely such as adjusting the flow of in store traffic appointment only shopping using curbside pick up in local delivery features or changing store hours to accommodate demand as our emergency adapted you saw retailed G M D recover and exceed Precum.
<unk> levels in Q3 retail emergency are increasingly adopting are all new P. O S software and tap and chip hardware for a seamless omnichannel experience P. O S. Pro features and in particular smart inventory management are especially resonating with retail merchants as they based capital constraints due to limitations.
Relating to social distancing measures.
Are smart inventory management capabilities enable margins to effectively create and manage purchase orders accurately transfer receive in track inventory across locations and perform demand forecasting submergence can proactively stock up with the right products, helping to reduce errors and optimize inventory decision making.
Turning to our ambition initiatives first addressing shopify fulfillment network, we made solid progress in Q3 as we continue to develop the foundation of Arkansas element network software infrastructure activated more partner nodes in the U S added six forever systems technology and more partner nodes expanded our set of transportation.
<unk> partners and enhance the Martin facing App and merchant support functions, we continue to enroll martens and fulfill volumes at a rate where we can maintain high quality standards <unk>.
With Black Friday, cyber Monday, and the holiday shopping season around the corner Arthur a moment network is preparing for a rise in demand and do you have the dramatic shift to online commerce, we're working with our partners to increase staffing within fulfillment warehouses, keeping health and safety top of mine as well as with our carrier partners to mitigate <unk>.
The city issues by optimizing processes.
And we're staying close to our emergence communicating frequently and educating them on how they can best prepare for the selling opportunities and the challenges they may faith due to higher demand on logistics networks <unk>.
Building a vertically integrated fulfillment service is complex and we continue to be in the testing stages of a very young product. We are committed to building a reliable fulfillment solutions are merchants can focus on building a successful business.
And 236 for resistance hosted at second and you'll use your conference flow 2020 announcing hosted enhancements to it's Walden wall fulfillment solution that gives warehouses more visibility into and control of their operations retailers are being impacted by the secular chef from palettes, the parcels and the beta these days.
Along with increasing labor shortages and rising labor costs associated with the pandemic.
As a result, six river systems automated that's done that technology is resonating more than ever as these businesses seek a flexible scalable and cost effective solution. This translated into six forever systems strongest court.