Q3 2020 Shopify Inc Earnings Call
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I need to ask questions to join the question queue. You May press start then one on your telephone keypad should you need assistance during the conference call you May signal, an 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 a screen shot 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 our call today that are <unk>.
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 or non-GAAP measures, which are not a substitute forget financial measures reconciliations between the two can be found in our earth.
<unk> 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 continue to see incredible demand as a decisive shift digital commerce persisted and or third quarter and more entrepreneurs than ever before turned to shopify to start to run into grow their businesses.
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 death quickly to a 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 become the new normal.
[noise] 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 emergencies 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, neither first online self 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 through integrations like Facebook 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 the 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 Ticktock 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 business with future profits come from buyers big sold to before.
Merchants are increasingly leveraging how easy we make it for them to re markets by using tools like shopping by 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 check it 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 fulfilled.
Facilitating more shopify, Jim V, an apple pay Google pay and Amazon pay combined.
Not only the sharpei 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 sharp pain 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 their 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 <unk> experienced or fast and affordable fulfillment.
More than half of eligible merchants in the U S and Canada adopted Shopify shipping era 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 murky solutions, including shopify payments and Shopify capital as a scale their businesses.
Enterprise brands are realizing and 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 their retail operating system for their business.
These large merchants of realizing that having a modern agile and flexible commerce solution is paramount and a shop, if I plus representative in multiple friends offering multichannel commerce.
Flexibility and partner integrations, Ah fast and reliable tech stack and constant innovation Kinsey.
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 and our third quarter, including the following the.
The global luxury brand D R <unk>.
Women's fashion brand B C. B G. Max Azria motion picture production House apartment pictures.
Sustainable fashion brand Madden that <unk>.
<unk> alternative food producer beyond neat.
Nutrition Bar company Clif bar.
Multinational telecommunications company, Telefonica and weight loss brand Jenny Craig.
Turning to a pardon me cause system, which has become a true competitive answered for shops I.
As of Q3 more than 37000 partners referred merchant to shopify over the past 12 months.
Our partners make shop, if I'd better for every merchant helping to extend shop advice functionality via R. A P eyes submergence can customize their stores and meet the E commerce needs.
Partners also work with merchants to build a brand new stores on shopify.
Through these challenging times they played a vital role in helping emergency online fast contributing to both a successor emergence as well to shopify.
The majority of respondents to a recent merchant survey conducted by Shopify anticipate more online and in start purchasing during this year's Black Friday Saturday Sunday 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 emergency 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 with features and functionality, but with helpful content ranging from optimize 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 headed off to Amy I Wanna share merchant interaction with Tita, who own 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, it's far better when more independent voices participate.
Okay perfect Congratulations theater.
Well I. Thank you because I'm I'm I'm, sorry can I express something to you <unk>.
This is on the side of the.
The situation <unk>.
Graphically Blue a woman.
Being an African American woman.
In times of traditional funding.
Many times eight is just totally out of the question and not available.
Has whatever systems are 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 through businesses and if.
The only option that was available for actual capital funding and I really appreciate you for that and if if people don't know <unk> shopify 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, Harley 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. The E. Commerce tailwind are emergence resilience and the continued strong execution by the Shopify team.
Revenue nearly doubled once again in our third quarter to $767.4 million of 96% over the same period last year driven by strong performance from 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. I R growth accelerated the 47% year over year to $74.4 million as merchants from both a 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 merchant in the corner, creating a double cohort effect.
Well demand remains higher for subscriptions compared to pre covid level, we do not expect the 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.
<unk> plus contributed 18.7 $9 to M. R R or twenty-five percent compared with 27% of EM 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.
Merchant solutions revenue for 132% to $522.1 million in Q3 compared to the same period in 2019. This tremendous growth was driven primarily by emergency strong sales with G M be increasing 109% year over year, the $30.9 billion and increase adoption.
Shopify payments capital and shipping driving revenue from these products higher.
$14 billion a G. M D. It was processed done shopify payments in Q3, an increase of 124% person to comparable quarter last year payment penetration of G. M V was 45% versus 42% in Q3, 2019, and not more than a half a percentage point over Q2 this year.
The emergence 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 to fill their potential, especially in these uncertain times and as you heard just now capital greatly increases.
The value of shopify to our merchants.
Adjusted gross profit dollars grew 88% over last your 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 of investment in Shopify at this moment 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 and a quarter.
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 600 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 as fast track Commerce, the digital domains and there is incredible demand on both the merchant and consumer sides to enhance the commerce experience Shopify is in a unique position to help entrepreneurs and that's emerging landscape or investments incor expansion ambition initiatives, which correspond to me.
Your medium and long-term return horizons pave the way for building a powerful global Commerce operating system that is the one thing Americans need to start and scale a successful business.
Currently I 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.
In Q3, we continued to build product markets set for our international merchant, making it easier for them to get online and start selling our merchant admin partner Adnan and themes door are now available in 20 languages.
With the recent launch of shop with my payments in Belgium, which supports payment with credit card band contact debit card and local payment method ideal shopify payments 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 G. M V growth from our.
International emergency in the third quarter.
And our work localizing and focused international markets continues we are digging into complex areas to deepen our product market 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 <unk>.
<unk> 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 retail G M V recover and exceed pre covid.
Levels in Q3 retail merchants are increasingly adopting are all new P. O S software and tapping 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 really.
Waiting 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 our fulfillment network software infrastructure activated more partner nodes in the U S added six member systems technology and more partner nodes expanded our set of transportation.
Partners and enhance the Martin facing App and merchant support function, we continue to enroll martens and fulfill volumes at a rate where we can maintain high quality standards with black Friday, cyber Monday, and the holiday shopping season around the corner or if this moment network is preparing for a rise in demand in view of the dramatic shift.
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 capacity issues by optimizing processes.
And we're staying close to our emergence communicating frequently and educating them and how they can best prepare for the selling opportunities and the challenges they may face due to higher demand on logistics networks building.
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.
236 member systems hosted the second annual user conference slow Twenty-twenty announcing hosted enhancements too. It's Walden wall fulfilment delusion 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 fix river systems automated system. It technology is resonating more than ever as these businesses seek a flexible scalable and cost effective solution. This translated into six forever systems strongest quarter ever for bookings as new customer signed on and existing customers added to their orders and.
<unk> for the peak holiday shopping season.
Wrapping up shopify is helping merchants adapt and thrive in today's environment and to succeed over the long term through a steady pace of innovation that solved merchant pinpoint over different time Horizons. We're building a global commerce operating system that aims to stand the test of time and future proof our merchants businesses.
Immediate future remains uncertain. However, as the second wave of the code the pandemic hits regions around the world. What is clear is that the spirit of entrepreneurship is strong and access to entrepreneurship needs to be in the hands of the many not the few.
Shopify remains committed to lowering the barriers to entry to entrepreneurship, so that anyone with an idea and a desire is able to reach for their independence with that I'll turn the call back to Katie.
Thanks Amy.
And before I turn the call over to the operator for your questions I want to remind everybody to please try to limit yourself to just one question and then and well, let's get going area.
We will now begin the question and answer session to join the question queue. You May press star than one on your telephone keypad, you'll hear a tone acknowledging your request. If you are using a speaker phone. Please pick up your handset before pressing any keys to withdraw. Your question. Please press Star then too we will pause for a moment as color.
During the queue.
Our first question comes from Thomas 14th a V. A Davidson. Please go ahead.
Alright, Thanks for taking my question. So I know you just got this at link and the prepared remarks, but I wanted to highlight my question will get your short answer on it. So I think that's gonna be a very child your holiday from a supply chain and logistics standpoint. So what gives you confidence in your emergence ability to have and stuck inventory for the upcoming hall.
Today and for Shopify for no fulfillment networks ability to deliver products you in time for holiday.
Thanks for taking my question.
Okay. Sure that question is hardly here. So a couple of things to to point out first of all as we mentioned prepared remarks, we now have 51% of our merchants elder merchants using shopify shipping that's up from 45% last year now see more of merchants you shop by shipping means that as the entire macro environment for shipping.
Has you know has issues, we think shop, if emergence or better position. We're also working with them now to insure to be advised customers when purchasing that there may be some some delays based on either supply chain or on the last mile side of things that being said you know are focusing 2020th around F. F N as to achieve product market fit would you plan to continue.
<unk> <unk> <unk> into 2021, we want to ensure that the foundation of the fulfillment network is stronger than merchants experiences that standing before we enter sort of the scale phase, but in terms of how're arming our merchants or army the rebels to ensure that they have a great holiday season, we're doing everything we can to make sure that we give them the tools the information in the context, so that they can ensure.
The bear and consumers understand and appreciate what is what is happening, but so far so good receive that there has not been too much of a slowdown and to get more people using shop by shipping means that more people have a more emergence of more information.
Our next question Uhm.
Our next question comes from Ken One of Guggenheim Securities. Please go ahead.
Great.
Thanks for taking my question another solid quarter, guys and I just wanted to maybe pick your brain Harley in terms of what you guys saw from a linearity perspective as far as merchant growth and G. M vehicle you through the quarter and and then to the extent that you are able to comment like just to get a higher thinking about the the shape of the holiday season lots of moving.
In cases, there from macro two elections to social distancing in just a search online how might this comp to to maybe black Friday last year.
Yeah. Thanks for the question can a couple of things first of all I I think the Black Friday Cyber Monday weekend, just now becoming an entire season. So we're starting listening merchants start much faster. We also know that more consumers have have already decided to do the majority of their holiday shopping online and so obviously, that's gonna provide some some good tailwind store merchants in terms of G M.
Is is Amy mentioned and plus merchants certainly can you give me to grow their share of G. M V and what what are the biggest contributors to Jim V. In absolute terms International merchants also maintain their share of Jim V and continued to grow quickly year over year. This is mostly coming from apparel accessories, and cosmetic scissors sort of the the largest ranking categories and vertical for us that said.
With the onset of Covid in the pandemic, we are seeing food beverage in tobacco continued to expert experienced strong growth in Q3 as well so the nice part about our G. M V growth does that it's not coming from any one particular vertical without coming from any one particular type of merchant, it's coming across the board and and we look forward to a very strong black Friday cyber Monday at holiday season.
Yeah, and I think if I could just add you would ask at the very beginning of your question about merchant growth. So I want to just highlight that we did have a record quarter in Q3 for merchant grows due to the double cohort effect that I talked about in my opening remarks, but I think it's really important.
<unk> to emphasize that even excluding the 90 day free trial S who converted in Q3, we still would've seen an acceleration and our merchant growth over pre covid levels, which tells you that there are more merchants coming to the platform with a shift to online commerce.
<unk> and co visited the demand for the platform has increased as we're saying more business generation occur in this environment and a desire for multichannel commerce.
Thank you can.
Our next question question. Please.
Your next question comes from city kind of grassy of Missoula. Please go ahead.
Yeah. Thanks for taking my question just wanted to <unk> just to pull up to last question you meant some 71% increase getting used to it creates in in two two and what else can I do and I did that sweet that so how was that comes with some <unk> some dark blue crab answering subscription revenue grew 48.
Person and how is the new shopping center and again in this courtroom.
Yeah, so the new store creation in queue to where the the new stores coming on the platform associated with a 90 day free trial. So we were not able to count them as merchants in queue to we saw many.
Of them conferred two paying merchants in Q3.
The conversion rate that we've seen on a 90 day free trial S.
<unk> is slightly lower than cohorts uhm historically on 14 day free trials, but we think that's okay, because they're more intentional when they convert because I've got a longer time period.
The data that we have in the three months with some of the earliest 90 day free trial cohorts and converted suggest that those merchants <unk> have a higher retention then 14 day free trial US we know many of them coming online and Q2 are established businesses Lee.
Looking for a multichannel platform and and so we believe that those 90 day free trial. It will be more sticky then the 14 day free trial is cohorts historically.
Thank you Thank you city.
Our next question comes from calling Sebastian of Bird. Please go ahead.
Good morning, Thanks for taking my question and congrats to Harlem, a new title I was hoping you could talk about the combination of shop pay in the shop App in terms of how this benefits merchants assuming areas such as conversion rates or repeat order volume and are there plans to push adoption of these more consumer facing services.
[noise] aggressively in your head through more marketing advertising or other promotions. Thank you.
<unk> Kobe, Yeah, So I mean, <unk> shop shop, App and shall pay the that connected and a specialist but this is like the brand to buy us like if this is all of us a little bit hot to appreciate from from old Specter fixed for you.
I'll have a good understanding of shop, if I have a company, but again shop shop, if I as a branch too merchant entrepreneur of and.
We decided to go with shop for on on a on a on a biosafety side. So that was clearly something that you're doing the like more off now I.
I I don't have a specific fans for like like media purchases or so and and an amplification of all.
Shopping shall pay growing really really really good on on marriage, I think all right now and because that's all for your problems.
And it's.
It's it's a focus of ours it'd be be able to try to figure out how to make all of <unk> like <unk> <unk>. They have a a good way it'll <unk> sort of coalesced until the internet. It's it's very that's very strong line spilling the Asian like <unk> <unk> you go to basically.
He started and it took thousands now you've got to a browser and you hopefully made your voice some some way to an online store and the moment you play purchase it like the role of the income of software is really stopped it might offend you. Some emails, but you have to go like the email client to figure out very orders, maybe it had a tracking number.
It takes you through USPS and <unk> you have to go with maybe they can look up the thing whenever you're packages and and if you ever wanted to return your cold fine, but you know ideally do a search if you can even find it and and you know like <unk> <unk>, if I get Janky as Hell experience [laughter], that's gonna be all good you said, so you're familiar with it but I was gonna have good so.
<unk> via trying to.
As much as strip if I can be be try to aim for global maxima accepting sort of a winding path <unk> and.
Sharpei, specifically avoiding that anyone has to enter the address with a thumbs and the shop I've been taking but I know you'll get to the uhm, but so computer off all the times, which is a phone and telling you exactly with your package has committed might be arriving and uhm for the into the.
Relationship process, because this is sort of a vision around at all and.
You'll see a lot of broke us I think from us over the next while I'm on the ninth.
Alright, Thank you calling.
Our next question comes from Josh back of Keybanc. Please go ahead.
Thank you for taking the question you mentioned that six river I believe had its strongest bookings <unk> ever I think which is a great example of.
Of the product isn't an interest a little bit curious about its application within S. F. M. Really if you could maybe just talk about how that's progressing and how important robotics automation could put it is to really be able to scale a sofa it over time.
Yeah, So as I said I prefer the system's I prefer to live in 11th like what six service at some stars relative have within shopify as to modernize the inside of my house and and really get the.
The full time to go out to the point that it's almost a soft the address of both like books.
Just up if you need help with your.
Uhm, leading this but like from the perspective of most of the shop at five it's the company, but mostly though.
Thanks, and suffer and bites. This is the ideal because once they can treat well how is this as a basically a task management system, but if it just say okay. If this package has to go back and he has he has a pellet the things I need to be stopped and so on and this can help them fifth 90 940 something.
<unk> <unk> <unk> liability and all these kind of things in the exception for a minute then is it that I can think about warehouses could opening alright, and and and save you can have tens hundreds potentially thousands potential in like partners and some on both homegrown guns around to.
Go ahead, and and and balance of products that our customers needs to where they need to maybe a bigger bed I need to be stored.
So.
The <unk> really really important for for way Jose increase efficiency enormously a like just gotten more important because of you know it's easier to social distance amongst people then robots do a lot of moving more things and did you have.
It seems really really greater thought it was a great product uhm.
Those two things absolutely need each other to to be successful.
Our next question comes from Paul Trager of RBC capital markets. Please go ahead.
Oh, Thank you very much and good morning.
Follow up a little bit of a follow up to toby's uhm previous comment our first comment, but they didn't obviously massive acceleration E commerce, but it's been in a unique environment cause. So many people working from home broadly what's your view on the biggest remaining points approaching for E commerce and to what degree is it possible for shopify too.
Develop solutions to address these remaining points of friction or or some out of the control of the company.
That's a good question.
I mean, I don't think that.
It's a multiple challenges in a boat.
And for being just a question of time in capital allocation. So, it's suddenly and scope us to make a war thing as as simple as possible I mean literally the.
<unk>.
The the the the idea of a way for us to do this up above them. A netbook has employ teleportation [laughter] like if they can figure out the physics related to that and can just make drinks appear on the desk correct that you want them then that's that's that'll be awesome.
Feeling that via via sort of <unk>. This is actually a starting point of it already but first line in the middle of the road for the <unk> and then B walk backwards towards what's possible and of course. This <unk>. This is his heart.
I'm sure everyone.
I know this is you'll give us from every one of the logistics of it but it's hard it's really really really really hot oven.
<unk> no that is hard so that there's a lot of friction in this process and a lot of <unk>.
Hot to see right now how to avoid it like process is can only get you so much and and so if that can only do so much like this headroom, but it's fine. So and then you will have to.
The way you're dealing with things going wrong cause then something much more important than the quality of the processes and everything goes right. It just I mean.
Obviously this is everyone knows that this is true everywhere know fix the covid and there's pizza bright thing, but I know some color.
Uhm so.
If you want to <unk> sort of friction it does it fixed has a lot of it <unk>.
<unk> <unk> information.
A lot of a fricking exists right now and different systems not talking to each other like the system stuffed up your six knows how long it would take to get the package to people, there's something goes really really wrong, but the assistance on sophisticated enough to really need sofas irrespective of by at the time, then they want to purchase and and so.
That's a lot of all of it goes into <unk> into bridging some legacy systems Tu Tu Tu Tu Tu Tu modern systems with a lot of machine learning that can help get getting more specific to your office and so yeah chipping away one step at a time.
Thank you <unk>.
Our next question comes from Brad Zelnick of Credit Suisse. Please go ahead.
Thanks, so much in a congrats again on all the success Toby actually want to follow up on that last question. You know in the past few of talk about how the pandemic has accelerated ecommerce trends by a decade.
And you know in terms of solving the problems ahead of us and and thanks to come.
You know there's no doubt shopify is capitalizing on this opportunity today, but you said these adjacencies and.
Really it comes down to time in capital allocation, but with $6 billion in cash why not deploy more capital. So even further distance shopify ahead of everybody else to to ensure your leadership for more years to come.
Okay, that's a fantastic question and I.
I don't know if the best way to <unk> like I I I think that the <unk> the money in the bank functionality and that's not the like the the use it [laughter] <unk>, but there's.
I I mean, I I think I hope that'd be show on W. Prudent.
<unk>, a couple of allocative and I I think actually if you have.
Yeah, probably not.
The best company devoted parabola location like it's from my financial thing, but I think we might be amongst the best company can avoid and attention on location, which is actually a much more finite resource and so.
This is <unk>, that's the tricky thing like maybe there's a there's a lot of reduction is thinking, especially about M&A <unk> people think that's a deal but and ends up at the transaction time or the money from the bank like <unk>. The the opportunity cost of integrating is enormous bedroom. So have you tried to take a war picture.
Perfect. So uhm. This is made up potentially more careful but I also think just more realistic about what I'm gonna I can do for a company.
<unk> in the past uhm, but they also like rethinking everyone of previous approaches and biases and don't come at all I'd like so <unk> very well, maybe that's you're gonna see a lot of things that that that could help accelerate for roadmap, but that's that's gonna be the way to do it like they would be the want to access.
Right Oh, a roadmap through M&A. That's all that's all they have an atheist that you have done burnt through done and this way.
I I I I don't I'm, not a I'm not a huge fan of M&A for acquiring revenue. So that's gonna be with strategy going forward.
Okay. Thank you Fred.
Our next question comes from Richard C. A national Bank financial Please go ahead.
Yes. Thank you so I'll just say the charging environment, so kind of outside of the obvious offering response has there been any change from your former strategic plans for for cause I know some organizational changes that it was quarter, perhaps you could try to talk about that.
Uhm.
I I mean like.
[laughter], yeah that would have been changed <unk>.
The first thing I ask the company to do is like delete all plans and then.
Cause it happened uhm, it's tons of a significant change like time forever. Most of the South Dakota doing well no I I think that you have a better idea of of of shape of what's happened 15 of acceleration of e-commerce I think this seems like a a final uhm truth and that's.
Like it's it's really retail both if <unk> if it for tactical channel and it all has to be combined.
Uhm.
<unk> you saw that like I I, just I was really you know the content of my kick off in 2012 with him. He was about like gave US all I Gotta go to be up I said this was not a surprise with without a surprise for anyone in the industry, but you have no I think shipped a lot of what you needed to be <unk> like I Saturday of Bilking on a lot of like really sort of.
Detailed.
Machine getting modeling to try to get make sure that if he can do even better job forecasting demand and and then assessing risk and.
Telling people that win by packages that right and all that kind of thing. So then I'll go you really really deep under various things that'd be launched all over the last like hockey. It. So now what organizationally philosophy really important thing now is to go and bid infrastructure again because.
I've been great products.
Great product I, basically just pick up important topic and get a million tiny that'd be tests right, but the only way to get detached right is to be able to draw on infrastructure your fifth and bit up over yes, I feel like this is maybe like to uhm organizationally, just make sure that you're building up the infrastructure of at a company that can stuff millions management.
The ronco good can can can can support so there's lots of <unk> <unk>. This is not but I'm thinking of it and I say that because there's a million things, but ah related to this but the around the globe thing is really important I agree with you to spend a lot of time for instance on on performance book like so that'll be and in some cases.
Serving people are in Australia from Australia, a assistant with global deployment cause the kind of thing again, you can do at scale for the entire platform.
Uhm, but no individuals redo that could really small.
Small small medium business would not invest in this kind of deployment otherwise. So there's a lot of these kind of things that we can do now because of infrastructure vocally on a couple of years ago, and it's really important to keep that balance that the it.
Infrastructure space leave a few that you've got to run the engine off and N B Rev. The engine pretty hot for Covid Sunday Night, I'll make sure B U D D see what again.
Thank you Richard.
Our next question comes from Walter Pritchard of City. Please go ahead.
Hi, I'm wondering if you could update us on how are you thinking about the marketing channel. Your your email product that's been out there and and the partnerships you have and and and sort of what impact that's having driving the the front and obviously the demand is very strong general it may be hard to tell but just curious how how the current environment and what you're seeing there may may impact your views.
Thanks for that is hardly here. So a couple of things on email as you as you as you heard earlier, we've now merchants of now sent out more than 500 million emails in Q3, and we've now also in there's now a monetization model around email. So you know 2500 emails are free and then.
It's a dollar per thousand emails after that the reason, we're doing email and the reason that we were spending time investing in the marketing channels and generally marketing for merchants does that for a lotta merchants getting a products, making a products building the online store building. The retail model is that they can do that we'd be given the choice to do so but finding customers or something that you know remain supine.
I mean, it's challenged so anything we can do that for their levels of Plainfield. So they can have a single dashboard, where they can see whether traffic is coming from what's converting better than other other other traffic sources and therefore, they can go in and invest further in those channels that is gonna be helpful. Until you mentioned earlier that.
Retail in itself is not who really complicated, but bringing it all together into that centralized retail operating system does that really is the value shopify that we take all the different pinpoints all the different challenge areas and we simplify them. So that small businesses can become very large businesses on our platform in the long run so whether its E mail or it's new things were doing with <unk>.
For example, alright, if any of the other marketing channels. We have what we're trying to do is make it easier for Americans to get started and then to scalar businesses indefinitely on shopify and email and then some of the other stuff. We've announced recently are are just more you know for furthering that that goal and that that objective.
Alright, Thanks for your question lot Sir.
Our next question comes from Darren Doggy Roth Capital Partners. Please go ahead.
Yeah. Good morning, guys Thanksgiving My question. Congrats on your results question on the mix of domestic versus.
Speaking <unk> and a quarter and I'm kind of curious about the relative conversion rate of those are the two segments. Thanks.
Yeah, we saw similar trend across all the regions very comparable to the overall trying that you saw so strong internationally as well as an accord English speaking and that that conversion uhm number smarter.
We're similar as well.
I think once again I'd like to assist them like add is <unk> conversion numbers with one of our super and it'll be a things I I I never got a matter of a lot of in the enterprise space, but like it's in in there can be space.
The company might actually get significantly better while the conversion rate goes down because you're you're you're feeling like a mock things that are you feeling more people to funnel that's more general interest in in in in the topic of entrepreneurship. So uhm as people that are developing d'amato's I I I would encourage not to use conversion right S. It's kind of a proxy.
People have.
Yeah, well one one final point on that I think many of you know, but but Q3 2020, the United States had a record number of new business creations <unk> actually the highest it's been since 2004, well. We're trying to do is want to capture anyone just thinking about starting a business whether or not they become the next you know Jim sharper. The next all birds well you remains to be seen.
But the idea is that we want to capture anyone who has any ambition to start a business on shopify.
Great Okay.
Okay. Thanks Darren.
Our next question comes from Brian Peterson of Raymond James. Please go ahead.
Hi, everyone. Thanks for taking my question. So oddly I just wanted to hit on the plus drink obviously that was strongest quarter I'm curious how should we think about the the upgrades versus that'd be logos.
You can sure I competitive dynamics. Thank you.
Thanks for the question, Yeah, So plus headed second consecutive record quarter of 90 emergency queue. Three it wasn't just upgraded it was also a lot of strong you bland joined the platform come online and some case for the very first time. We also continue to see these reply for me from other providers and they're coming to us because of flexibility cost effectiveness of the platform.
Which seems to be happening is that the world is refactoring off of old legacy systems to modern platforms and you see that effect you you will see that effect on her G. M. B in the future with plus so a part of it is you know we we were seeing upgrades, we're seeing more merchant become more successful on our plot for but we're also seeing continued migrations and <unk>.
As I mentioned earlier brands like D or or Telefonica her Jenny Craig some of these brands didn't sell online ever be for some of them were migrating from legacy platforms and with new products that were coming never never developing forties larger merchants, whether it's automation enhancing flow to make it easier for for merchants to automate the business tasks or in a.
Agree with other platforms or it's a new plus admin, which allows for far more flexibility and you know the multi shop admin on itself. It's been quickly adopted because it allows large brands to manage large organizations have all the security cause they require and and I think you know they send in a glass. According to earn his call shopify past remains.
Best solution and certainly the best value for enterprise and fast growing brands.
Thank you Brian.
Our next question comes from so much Savannah of Geoffrey's. Please go ahead.
Good morning, Thanks for taking my question is and and a great quarter first job and we we want factor in Californication into economic started great, but we're hopefully you'll get there, but but for the short term. Amy My question is on sales and marketing shopping incredible efficiency, you know what record that adds without really.
Immaterial dollar increase in sales and marketing.
How should we think about that S. N M efficiency and is this leverage sustainable and and maybe just what's the short I guess shorter medium term philosophy on on investing in that sales or marketing Y. Thanks again for taking my question.
Yeah. So we have seen efficiencies are operating leverage on the sales and marketing line and it really first and foremost driven by the significant drive within and revenue.
But also keep in mind that with co bed, it's reduced some of our is that marketing. We've also been more intentional about Brandon studio spend and covered really we decided to to.
Pull back on some of the brand work that we did in 2019 and focus more on meeting the immediate needs of merchants during covid with like the 90 day free trial instead.
And actually I would say, we're leaning into this opportunity that we see with new business formation, increasing and spending more for online marketing and some other initiatives that uhm.
We're doing including the operation help announcement that we made when we see some real opportunity to widen the upper part of the funnel and continue to democratize commerce. So there is leverage there, but where we see opportunity we're gonna lean into it.
Thanks, so much.
Our next question comes from Koji Akita of Oppenheimer. Please go ahead.
Oh, great. Thanks for taking my questions and congrats on a really great quarter I wanted to ask you a question I'll take right. Our model shows that there was really just a slight compression to take great quarter and this quarter and I know, it's really nitpicking, but I wanted to ask cause we haven't been Kay great compression in our models in 2016 and I was considering there are a lot more.
G in the modernization lovers today compared to four years ago. So it was there anything meaningful that would've caused that compression to take right that's quarter that we should be aware of.
Yeah, So let me.
Let me review that with you, but first let me start by saying, we did see a compression quarter over quarter, but we still posted a healthy gain year over year and our tech right the quarter over quarter decrease was driven by shopify payments and payment transaction fees and it was more a function of Q2 than anything specific to.
Q3, So let me walk you through a Q2 first and <unk> with a rush to online given covid and the extended free trial that we offered we saw two things happen first have jumped in R. G. M. D next processed at the higher payment rates associated with lower cost subscription.
Plans are basic plan for both shopify payments as well as for the transaction fee for that is not on shopify payments.
Second thing, we saw a dip an average order value and Q2, resulting in a higher fixed per transaction fee on a percentage or take right basis.
The fast forwarding to Q3, we saw returned to them next more similar to our pre covid distribution with increased plastic G. P. V next quarter over quarter as you know classes lower payment take right in basic and plus had a very strong Q3 grouse G. P D.
Second thing in Q3, we saw returned to an average order value to pre covid levels similar to one it went up versus Q too.
So we fully expect our take right will continue to rise over the longterm and we've been clear that makes chefs another movements like a L. V may play a factor corner over corner.
Thanks <unk>.
Our next question comes from Ego Iranian of Wedbush Securities. Please go ahead.
Okay. Good morning, everyone and thanks for taking my question, what's that by that that then.
And as logistics, obviously, it takes center stage, a little bit more it's could help help that's just understand what what are merchants considering when there thinking about that thought that in verses about the three P. All or nothing <unk> another human partner <unk>, yeah, even if it's weather.
They're they're fulfilling on their own versus moving too do two or three P. L and what what what do you like the the consideration that for them.
Did you move up and look at larger merchants what are the what are the missing pieces, what what do you need to to kind of do around us up and get your largest merchants on board.
I would pick what they have a lot more complexities and <unk> and their needs and then just last week uhm on the same topic you. The past couple of quarters, you updated on kind of a penetration volumes uhm any update you can give around the the numbers and value during thank you. Thanks.
Yeah. So the the number of merchants enrolled in Q3 was fairly consistent with with queue to we're continuing to manage enrollment we want to build volumes at a rate that we can maintain really really high quality standards demand <unk> increase in the corner. It just because I mean commerce is accelerating but also to your to your point merchants <unk>.
Generally and retailers generally find that fulfillment is not something that that that that it's easy for them either they are not able to maintain particular two day delivery at a reasonable price that consumers are now beginning to expect and demand. What we think we can do is we can simply you know we now have about nine partner nodes <unk>.
<unk> in the U S. As in addition to the only dissenter, we have in Ottawa, which opened in Q1 four of those nodes are using six or S. Technology. So we're trying to do is we're trying to you make it so that merchants don't have to think about fulfillment that I'll have to think about their shipping now who is going to be the exact target for S. S. N longer term will the nice part of having some time to.
Experiment is that we can figure out, which merchants should put which products until our fulfillment network and it may not be for every merchant, there's gotta be smaller merchants, who simply outgrow their living room as the fulfillment warehouse is gonna be very large merchants, who simply are unsatisfied with their existing three P. M. And we think we can attract both sides of it but we're trying to be like everything else would go shopify incredibly thoughtful of who we.
Except in how we deliver great S. S N service to them and that's the reason why we are we're taking our time and and building something that'd be think is going to be really high quality.
Okay. Thanks again.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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