Q4 2020 Shopify Inc Earnings Call
[music].
Thank you for standing by this is the conference operator, welcome to the Shopify fourth 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 will be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad should 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 Keita Director of Investor Relations. Please go ahead.
Thank you operator, and good morning, everyone. We're glad you can join us for Shopify is fourth quarter and year end 2020.
We are joined this morning by Tobi Luca Shopify, CEO, Harley Finkelstein Shopify, as President and Amy Shapero, our 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 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 assumptions risks and uncertainties and a press release this morning, as well as and our filings with U S and Canadian regulators note that the adjusted financial measures, we speak to today are non-GAAP.
And as yours, which are not a substitute for GAAP financial measures reconciliations between the two can be found in our earnings press release, and finally, we reports and U S. Dollars. So all amounts discussed today are in U S dollars, unless otherwise indicated and with that I turn it over to Harley.
Thanks, Katie and good morning, everyone 2020 was the year of the entrepreneur.
Entrepreneurs worldwide demonstrate grits meeting the challenges presented by a global pandemic that force businesses to think completely differently and which also pushed more buyers online.
Our merchants inspired shopify to level up and pursue our mission of making commerce better for everyone with even greater energy.
And I'm proud to say that entrepreneurship is and a better state and more businesses are surviving the pandemic because of the work that we do hear and shopify.
We broke new ground across the company and 2020.
A number of merchants from early stage and entrepreneurs to enterprise level brands chose shopify to launch and to scale their business.
At the end of 2020 with more than $1 7 million merchants around the world, reaching for their economic independents with shopify with merchants from outside our core English speaking geographies continuing to increase as part of our mix.
Approximately 3000 merchants join Shopify, plus our subscription plan for larger and more complex merchants, bringing the total number of plus merchants to more than 10000 at year end.
<unk> re imagine new ways of working as we permanently shifted to a remote work model, which gives employees a freedom to work from almost anywhere and empowers us to recruit top talent from around the world.
And our merchants generated approximately 120 billion and <unk>, which nearly doubled year over year for three consecutive quarters in 2020.
Shopify is getting more entrepreneurs to that magic moment, if they're for sale and 2020 and new business on Shopify made they're for sale every 28 seconds on average versus nearly every minute and 2019.
On an aggregated basis, our merchants would rank as the second largest E commerce retailer in the U S. A lead that further expanded this past year.
As a center of gravity and retail shifts firmly from offline to online shopping like continues to innovate for the future of commerce for merchants of all sizes.
Today I want to talk about for key trends that we believe will define this new era.
First consumers are voting with their wallets, so we're making it easier for them to go directly to the merchants and the brands they want to buy from.
And April last year, we launched shop, our all in one and mobile shopping assistant, which helps form authentic and lasting relationships between buyers and their favorite brands.
Shop features curated merchant lists, including local shops, and black and businesses and from day, one of shops launch 100% of the delivery of emissions produced by every single order using its accelerated checkup sharpei had been automatically offset at no charge to shop users for the brand.
Second retailers are prioritizing buyer retention we.
We see large companies are pushing acquisition costs up and their bid to attract customers. So we're innovating some merchants can build strong and lasting relationships with buyers and keep them for years.
The shop experience is built for buyer retention with features like our accelerated checkout shop or buy now pay later product sharpie installments and real time delivery tracking.
By the end of 2020 shop had more than 100 million registered users, including both buyers that have opted into shop pay as well as users of the app of which more than $19 million for monthly active users at the start of this year.
And by the end of 2020 shop, they had facilitated close to 20 billion and cumulative <unk> since its launch in 2017.
Third and the list is the growing popularity of modern financial solutions products.
Products like Shopify capital are increasingly sought out by entrepreneurs and small businesses that face unnecessary barriers to access from traditional banks.
Merchant empathy runs deep at Shopify, which traditional institutions were turning away small businesses because of perceived high risk we financed a record number of merchants when they needed. It most and we also introduced shopify capital to Canada, and the U K and 2020 to expand where we can help merchants.
Shop installments, which we began rolling out to U S merchants and our third quarter lets merchants offer flexible payment options to their buyers.
Now pay later products, especially resonate with young consumers, who since the start of the pandemic have contributed to this significant shift and online spending.
We also made shopify balance available for early access and Q4, enabling merchants in the U S to easily open no fee business accounts, and separating business finances, and their personal finances, and giving them greater clarity on the health of their business.
Finally, the power of Omni channel.
As E commerce captures a greater share of retail omni channel commerce becomes even more critical for businesses.
We continue to strengthen our multichannel value proposition in 2020, adding more ways to help merchants get discovered by new buyers, including Facebook shops, Walmart Pinterest and Tic Toc.
We're also making it faster and easier to check out and other channels.
Earlier this month shop. He was made available for the first time off the shopify platform to shopify merchants on Instagram and will rollout to Facebook and the coming weeks.
Once fully implemented with shopify payments as the processor of all transactions with Shopify merchants on both the social services not only will merchants have a conversion advantage of accelerated checkout through sharp pain.
But it will enable merchants to manage all of their Facebook and Instagram selling directly within shopify.
Brick and mortar merchants that came to shopify as their storefronts closed during the pandemic discovered the importance of omni channel commerce as they open online stores and attracting broader buyer audiences.
And with the release of the Shopify, all new point of sale software combined with our tap and chip hardware. These retailers are enjoying the benefits of a unified back office that allows for an integrated view of business operations and various omni channel functions.
These include buy online pickup curbside buy and store ship to customer and local delivery all of which would increase and popularity with buyers during the pandemic as a convenient way to get their products.
Shopify shipping offers merchants, another simple and affordable way to get products to buyers in Q for adoption of shopify shipping by eligible merchants increased to 52% up from 45%. This time last year.
And we continue our work to democratize fulfillment for entrepreneurs through the Shopify fulfillment network offering fast and affordable services to buyers.
The progress we made through the year on our platform set our merchants have for success during the global Black Friday, Cyber Monday shopping weekend, when shopify merchants exceeded $5 1 billion and GMB selling to more than 44 million consumers worldwide.
In addition to this record setting weekend, we saw holiday shopping start earlier and with more consumers supporting local independent businesses merge.
Merchants on Shopify, plus plan benefited from the power of the entire platform Stu.
Strong sales by merchants on Shopify plus throughout the holiday shopping season, with an outsized contributor to a phenomenal fourth quarter, Jim volume and revenue growth, which has been typical for our fourth quarter.
Shopify plus offers greater value and simplicity to the most complex brands compared to non shopify alternatives.
We are enabling more traditional retailers to directly reach their customers with speed and agility as their in store sales channels vanished during the pandemic and given digital native brands the tools to distinguish themselves in this modern era of commerce.
With a record number of merchants subscribing to Shopify plus in 2020, we saw diverse slate of notable brands launch in Q4, including International Skincare brand Dermatological for.
Fashion designer Elie Tahari.
Japanese motorcycle brand Yamaha.
California, Surf where brand O'neill.
International Furniture company Herman Miller for.
They must greeting card company hallmark.
One of the worlds largest makers of wines and spirits diageo.
Aldi mobile from discount grocery chain, Aldi and popular dog food brands from Nestle Purina.
Our summary for 2020 would be incomplete without acknowledging the enormous contribution of our partners to our merchant success over.
Over the course of the year more than 42000 partners refer to merchant to shopify up 72% compared to the 12 months ending December 2019, underscoring the strong demand for our partner skill sets and the shifting commerce landscape or.
Our partners played and incredibly important role and helping our merchants to adapt to the rushed to online shopping getting stores up and running fast and preparing our merchants to maximize new opportunities.
To shape their stores with the features that are important to them merchants made heavy use of our incredibly rich portfolio of more than 6000 apps with our App partners alone, earning more than $230 million from Shopify and 2020.
We are excited to continue expanding our partner ecosystem and 2021 outside our English speaking geographies in particular.
And shopify would not have been able to accomplish the amazing things, we did and this unprecedented year without our employees.
I want to say, thank you to all of our employees for your heart and your unfailing dedication to our mission and to our merchants.
To wrap up if 2020 taught us anything it is that the world needs more entrepreneurs.
And our ability to remain resilient and embrace change is why we believe the future of commerce is brighter than ever.
Entrepreneurs are the backbone of our economies and we need them to help our nations recover from this pandemic.
Shopify is here to give them the tools they need to adapt and evolve through the future that emerges, making commerce better for everyone and with that I will turn it over to Amy.
Thanks, Harley our merchants truly exemplify the spirit of entrepreneurship, and 'twenty and 'twenty and along with years of strategic investment and strong execution by Shopify. They helped propel us to exceptional Q4, and 'twenty and 'twenty results.
Revenue nearly doubled once again and our fourth quarter to $977 $7 million up 94% over the same period last year.
Subscription solutions revenue of $279 $4 million accelerated to 53% growth year over year, largely due to exceptional growth and monthly recurring revenue and <unk>.
And our growth also accelerated to 53 per cent year over year to $82 $6 million and Q4 as a high number of new merchants joined the platform in the quarter following record merchant ads and the third quarter.
Q4, <unk> also benefited from incremental new revenue from our retail Pos pro subscription offering as subscription pricing came into effect in November 2020.
Shopify, plus contributed $21 million for MRI, or 25% compared with 27% of MRI and Q4 of 2019, while shopify plus and <unk> grew significantly Nonplus Emaar grew faster benefitting from a significantly higher number of merchants on standard plans joined.
The platform and 'twenty and 'twenty as well as from our retail Pos Pro subscription beginning November one.
Merchant solutions revenue grew 117% to $698 $3 million and Q4 compared to the same period and 2019. This outstanding growth was driven primarily by merchants strong sales with GM being nearly doubling year over year to $41 $1 billion and the fourth quarter alone.
<unk> Q4, and <unk> was the result of a greater share of retail spend going to online purchases and extended black Friday, cyber Monday shopping season, and higher <unk> per merchant this strong growth and merchant sales combined with merchants increased adoption of shopify payments capital and shipping drove revenue from these products higher.
<unk>.
$19 $1 billion of <unk> was processed on shopify payments in Q4 and increase of 116% versus the comparable quarter last year payments penetration of <unk> was 46% versus 43% and Q4 2019 and more than one percentage point over Q3 this year.
For the majority of new merchants coming on to Shopify opted to use shopify payments and shopify, plus and international merchants expanded their share of <unk> year over year.
Demand for Shopify capital remained strong and Q4 with merchants, receiving $226 $9 million and funding across the U S. The U K and Canada up 96% versus the same period last year and the highest year over year increase in funding and 10 quarters, our data algorithms and prudent risk.
Management help keep loss ratios in line with historical periods, we are proud to stand with our merchants and provide them with convenient access to funding to help get them through the most difficult of times, because we know that ultimately when our merchants succeed shopify succeeds.
Adjusted gross profit dollar growth accelerated to 89% over last year's fourth quarter to $510 $6 million, reflecting strong revenue growth. Despite the significantly greater mix of lower margin merchant solutions revenue versus last year, and the ramp up of investment and Shopify fulfillment network.
Adjusted operating income was $200 million and the fourth quarter compared to adjusted operating income of $28 $5 million and the fourth quarter of 2019, as our strong revenue performance and the quarter greatly outweighed spending.
Adjusted net income for the quarter was $198 $8 million or $1 58 per diluted share compared with adjusted net income of $50 million or <unk> 43 per diluted share and last year's fourth quarter.
Finally, our cash cash equivalents in marketable securities balance was $6 three $9 billion on December 31, with a strong balance sheet, we are well positioned to fund our growth initiatives and help merchants capitalize on the trends that Harley spoke to earlier.
Shopify enters 2021 stronger and more mission focused this year, we will continue our important work of building a global commerce operating system to arm independent merchants everywhere with the tools they need to build their own businesses and take advantage of the strong secular shift to online commerce. This translates to executing on them.
Portfolio of growth initiatives that puts shopify into the hands of more entrepreneurs unlocks the value of the platform for our merchants and increasingly delivers scale benefits.
Three key areas of incremental investment in 'twenty and 'twenty, one our shopify fulfillment network the shop App and international expansion.
Starting with Shopify fulfillment network, we capped off a year of significant progress with a successful fourth quarter advancing the development of our fulfillment service and Q4, we continued to harden our systems executed multiple flash sales and smoothly process record volume through the peak holiday season, we also shipped our.
First self service Onboarding system, making it easier for merchants to access our network.
We announced shopify fulfillment network 18 months ago to reduce the complexity of fulfillment for our merchants and our network is taking shape and 2020, we opened and R&D warehouse and Ottawa to test fulfillment technology built out a network of warehouse and transportation partners enhanced our merchant facing app to provide updates on.
Lori and orders and assembled a team of fulfillment success managers to simplify the merchant experience.
We also learned a few things along the way that are informing the development of our product most important of all how to optimize to provide fast accurate and affordable fulfillment with great customer service and this will be reflected and much of our decision, making including the partners, we work with and the design of our network.
And we planned when we started this journey a year and a half ago. We will use 2021 to continue improving product market fit to focus first on quality and merchants delight before we scale our fulfillment capabilities. This means iterating on the software tightly integrates fulfillment into our tech stack optimizing our node network, which may involve adjusting.
Our network of warehouses to best serve our merchants needs and accelerating our merchant Onboarding journey.
We also plan to continue to invest and the automated fulfillment technologies of six river systems, which recorded strong revenues and our fourth quarter and exceeded 2020 bookings expectations. Six River Systems' technology has helped improve the productivity of Shopify fulfillment network and we believe will play an important role and supporting our scaling efforts.
Our shop App is another area, we plan to invest aggressively in 'twenty and 'twenty. One we launched the shop App, just 10 months ago to help merchants strengthen their relationships with buyers with the ultimate goal of increasing customer lifetime value for our merchants. Since then we have placed the app into the pockets of millions of buyers, making it easier.
For them to rediscover and purchase from the merchants they love and introduced features to discover local shops and black owned businesses.
In 'twenty and 'twenty, one we will continue to develop the shop app into a must have shopping companion that fosters buyer loyalty and retention we plan to invest and building features that will further reduce friction for buyers at more points along the shopping journey from discovery to delivery, creating value for both our merchants and their buyers.
And third international expansion.
<unk> and 'twenty, demonstrating just how big our addressable market is year over year GMB growth by our international merchants outpaced overall GNP growth and our international merchant base grew within the overall mix, we continue to localize the platform and several regions in 2020, making it easier to sell cross border and from a mobile device.
And launching shopify payments with a local payment method and Belgium, as well as and Austria and Q4, we introduced local pickup points in France, a popular delivery method and Europe in 'twenty and 'twenty. One we are focusing heavily beyond our core geographies to bring our omnichannel capabilities to more merchants.
We expect to continue to localize our solutions and countries, where we have established a foothold and increased investments and sales and marketing to bring shopify to more merchants around the globe.
Another area, we will incrementally and best albeit at a lower level as retail Pos retail merchants demonstrated resilience and a tough year adapting to socially distance selling our retail P. O S product, especially resonated with businesses wanting to seamlessly bridge their online and offline operations and buyer facing.
Experience.
Omentum continued in Q4 as more merchants adopted our pass offering and <unk> increased to record levels delivering a real turnaround from the first half of the year.
In 'twenty and 'twenty, one we will continue to grow merchant adoption of our retail Pos and Tos pro offering by investing and foundational technologies to make things like onboarding easier and our sales team expanding our pass products to more countries and and executing our go to market strategy.
We believe our investments and international and retail Pos will help expand shopper, vice president and enable us to capture more of our Tam while encouraging more entrepreneurs around the world to start businesses on and offline we've.
We've intentionally invested in both these areas over the past couple of years and expect them to deliver returns over the next couple of years and.
As always we intend to invest and our future across the business, including our platform, which encompasses our core and shopify plus offerings and our established merchant solutions Shopify payments shipping and capital these products, which are profitable today give merchants the fundamental tools to start and grow their businesses and have been critical.
And setting shopify flywheel and motion. While these tools are designed to make selling EZ. Our platform also allows for extensibility and our focus in 'twenty and 'twenty. One is on continuing to enhance developer tools for merchants, who want to customize their experiences beyond whats available out of the box.
And 2020 years of investment and our platform paid off as the future of retail was pulled forward, enabling shopify to act fast to help our merchants adapt during the pandemic and encourage more entrepreneurs to begin their journey in 'twenty and 'twenty, one we plan to execute on our product roadmaps, bringing our solutions to more merchants around the world.
And strengthening our value proposition as a leading global commerce platform.
'twenty and 'twenty was an exceptional year of growth and revenue and adjusted operating income for shopify, driven by the unprecedented acceleration of E commerce by Covid, which drove an acceleration and the growth of GMB and new merchants on the platform and the increased adoption of merchant solutions, we believe that change behaviors adopt.
And by merchants and consumers and 'twenty and 'twenty has expanded the prospects for entrepreneurship and digital commerce significantly.
Our outlook coming into 'twenty and 'twenty, one assumes that as countries rollout vaccines in 'twenty and 'twenty, one and populations are able to move about more freely. The overall economic environment will likely improve some consumer spending will likely rotate back to offline retail and services and the ongoing shift to ecommerce, which accelerated in 'twenty and 'twenty.
We'll likely resume a more normalized pace of growth for the full year 2021, we expect subscription solutions revenue growth to be driven by more merchants around the world joining the platform and a number lower than the record and 2020, but higher than any year prior to 'twenty and 'twenty the.
The growth rates of subscription solutions and merchant solutions revenues are likely to be more similar than and the recent past as we do not expect the surge and GMP that drove merchant solutions and 2020 to repeat and merchant solutions revenue growth to be driven by continued GMB growth from existing merchants and new merchants.
And joining the platform and expanded adoption of Shopify is growing menu of merchant solutions, including established offerings, such as shopify payments Shopify shipping and Shopify capital, both geographically and as merchants grow into them, while newer solutions, such as Shopify fulfillment network and six river systems contribute Nathan.
But incremental revenue and their early stages.
As a result, we expect that we will continue to grow revenue rapidly in 'twenty and 'twenty, one, albeit at a lower rate than in 2020 with regard to seasonality. While we expect that Q1 will still likely contribute the smallest share of full year revenue and Q4, the largest the revenue spread may be more evenly distributed across the four core.
Orders than it has been historically to the degree the rollout of a vaccine shifts more spending to services and prompts more offline shopping towards the back half of the year 'twenty and 'twenty catapulted commerce into a period of incredibly rapid change presenting shopify with unprecedented opportunities in 'twenty and 'twenty one.
To accelerate innovation, we expect rapid growth and gross profit dollars in 'twenty and 'twenty, one and plan to deploy substantially all of these dollars effectively investing back into our business as aggressively as we can and.
And research and development, we are launching and ambitious hiring campaign for engineers that we expect will gain strength over the course of 2021 and.
And sales and marketing, we expect to increase online marketing spend into increased global demand and to our global sales teams to capture more shopify, plus and POS margins, both in North America, and internationally and expand product marketing to help merchants to take advantage of the full range of capabilities on the platform for 'twenty.
And 'twenty, one we anticipate stock based compensation expenses and related payroll taxes of $465 million and amortization of acquired intangibles of $21 million.
As many of you who have followed US for years know, we have always prioritized long term value over short term financial opportunities because we don't manage our business to achieve short term discrete financial results, we are replacing quarterly and annual numeric ranges with information on directional indicators the primary levers driving are for.
<unk> and the assumptions that guide our planning and spending more time discussing the inputs instead of trying to predict a specific financial output should build a greater understanding of the many moving parts and shopify. The areas that are profitable today, those where we are incrementally investing and trends that shape, our revenue and cost.
Structure over time, we ultimately hold ourselves accountable for returns on our investments by whether or not they move the needle for our merchants because it is their success that ultimately drives our own and clothing shopify has a massive opportunity to shape the future of commerce and we are excited about 2021, we believe we are investing and the right initiative.
And to urgently build out the commerce infrastructure that will give our merchants and shopify the edge to win positioning us and our merchants for success this year and into the future I'll now hand, the call back to Katie.
Thanks Amy.
Before handing it over day area for Q&A, Let me remind you to limit yourselves to just one question that include related question. It's still another question. So just keep yourself to one that way we should have enough time to get to everyone who has a question on today's call.
Ariel can you now open up the line.
Certainly we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad.
You'll hear a tone acknowledging your request if you are using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then two.
Our first question comes from Brad Zelnick of Credit Suisse. Please go ahead.
Great. Thanks, and congratulations on the strong Q for my question is in respect to your focus on helping solve merchant pain points and how youre thinking about the investments required to help merchants with discovery heading into 'twenty, one and related to that how should we think about the impacts of the iOS app tracking trans.
Apparently changes on our merchants' ability to directly reach targeted customers.
Okay.
Hey.
Toby I mean, no Concord like same store non for right now.
Obviously.
<unk>.
Sure.
Most relevant and surface for for discovery.
Yes.
My NAV potential of discovery right now.
Okay.
And pointing you to look at businesses, and then echo and businesses.
So that's.
And I would expect that to continue.
And.
But again like a book.
Abbas.
Not a.
The increase for LTV of our customers.
Necessarily akamai, Florida transactions, and which way and a lot of differences. Thank you Betsy and shop for the flow for them.
And this particular optimization targets, that's that's not the norm and retail.
And then the related questions like that it's too early to tell on the.
Trucking.
Trucking changes.
And the remix of a whole lot of things and.
Advertising space.
But that's totally normal expense base.
And as rapidly and usually and if almost neutral what's coming coming online on new discoveries being made or people staying at the time and new channels.
Everyone. In this space is very vast use too.
Rolling out new strategies, and then the boundaries change so.
It's usually the entrepreneurs.
Who are the most adaptable and I think that proved investor and Covid and.
<unk>.
For the Makerbot stuff the new situation.
And I'll just repeat.
Sure thing Brad I'll, just repeat the instructions to limit yourself to just one question.
And Aerie. Our next question. Please our next question comes from Thomas Forte of D. A Davidson. Please go ahead.
Great. Thanks for taking my question for one of many things and I. Appreciate about Shopify is your culture, the notion that you're empowering rebels to overthrow the Empire and.
And you scale the business for example, adding 2021 engineers from across the Globe and 2021, what gives you confidence you can continue to add talent, while maintaining your culture.
Yes.
And.
From here again.
Okay.
As you can imagine and like.
And if you do.
Weekly town Hall, and ask for anything for which have been hosting for more than a decade and I've got a question about.
Paid mix.
Unit of time, we're going to hire more people than previous and unit of time. Therefore, how can we possibly keep a culture going.
And it's.
It's a super value question.
But it's just one that growth company for very familiar with honestly.
I don't know if you want to take it down to this resolution and episode.
The key from Vic just speaking as an entrepreneur Robyn like in general and rather than for you of Shopify right now.
The trick is don't try to hold onto previous culture, just evolve Chicago to be better and it must before.
And for what's your strength W. Don and your strength and try to leave some of the weaknesses behind and.
And just to make sure that of an exploration of the company as a better version and then previous previous company I think the way cultures and up at Sn people hold on to things that would be appropriate and previous times and.
And make those things.
Things that.
And negotiate well and.
I see this as a path that doesn't lead to anything.
Yeah.
And the one person looking at Shopify, who has seen every single version of Shopify.
And.
And this one is the best one so so far so growth.
Intending to keep it this way.
Thanks for that.
Our next question comes from Craig Maurer of Autonomous Research. Please go ahead.
Yes, hi, and thanks for taking my question I wanted to ask about Shopify.
Alex very intriguing product, we've seen products like this work very well and.
And some international markets. So I was curious over and how Youre thinking about this business in terms of what types of products financial services products you can bring to these merchants through the balanced platform to what degree interchange income.
Through purchasing is expected and how you can leverage shopify balance and to our b to b payments.
And it for them.
And there Craig it's Harley I'll take that question. So we enter and shutdowns entered early access and Q4 of 2020 is going to rollout to all U S. Merchants this year, who eligible meaning they are using shopify payments and.
And so we want to obviously evolve that we expect we expect balanced wide value over time, not only as a retention tool, but also with and efficiency tool. One it's going to make revenue available to merchants faster reduce delays that are sort of inherent to fund transfer process and between accounts. It also will help streamline merchant cash flow operations, which is something that a lot of merchants.
Quite challenging, but I think youre seeing is that more and more shopify you'd want to be at the heart of merchant businesses that they use at the merchant business and and the things that we use every single day and.
And so over time, we expect that.
Net merchants will use shopify balances and weighted and as a way to get in front of merchants introduce new more centralize more financial services.
So simple by their financial lives and anytime that we can offer a better solution that makes it easier for them, where they can be their business better faster and more effectively that is something that and we think is very important. So it's further brings us closer to the merchants are part of the business and our balance of course as you sort of alluded to provides opportunities for us to go beyond just things like cash.
Cash management. So it's the start of something that I think will continue over the years to evolve and help merchants and greater capacity.
Our next question comes from Ken Wong of Guggenheim Securities. Please go ahead.
Great. Thanks for taking my question.
And in the past you guys pivoted.
From thirst for merchants on Shopify to just that.
POS period recently, you guys announced pay to go beyond their walled garden with Facebook and Instagram I guess should we think about pushing beyond the shopify walls as something thats going to be more common place going forward and.
It's the impact that these new side doors have on merchant growth and monetization to the extent that you guys have kind of thought through some of these ramifications.
Yes, I mean wherever possible, we look to we look to future proof our product as much as possible for merchants what that means is that if we know that extending shop paid to services like Facebook and Instagram is going to help them not only find new customers and those incredibly huge services, but also transact better where there is.
Fewer card abandonments, where the transaction happens faster and more effectively we're going to do that so I don't think theres any hard and fast rule around and we keep these things internally or extend them, we simply want to make sure that shopify is not only the best product that merchants use right now but over the course of the next couple of decades. They never have to think about leaving shopify and the only way to do that is to actually.
Future proof the product. So there is again no no schematic of where it went to pull something out it really does depend on can we add more value for merchants and if we can we're absolutely to do that.
Our next question. Our next question comes from David Hynes of Canaccord. Please go ahead.
Hey, Thanks, guys and congrats on the results I want to ask to go to market question.
Now that you've had some time to digest can you speak to the pros and cons of the 14 day versus the 90 day free trial that you ran early and the pandemic I think you said that the 90 day.
Trials led to higher quality conversion and so I'm curious what consideration you gave to that or maybe something in between and in terms of being the go forward model.
Yeah, I'll I'll take that one.
So we were really pleased with the results for the 90 day free trial, the cohorts coming off of that 90 day free trial.
And in the face of dramatic and.
Increase and merchants coming to the platform are those cohorts have performed.
On par or better than pre Covid cohorts. So we're really pleased with the results of the 90 day free trial, but as we found towards the end of the offer period of the 90 day free trial.
And the merchants coming to the platform look more similar to pre COVID-19.
In terms of composition and we generally think 14 days is enough time.
Shoot for a merchant to trial on the platform. So we're generally back in the 14 day free trial mode, right now and selectively deploying 90 day free trials are.
Working with some governments are Canada as an example to get more merchants online. So we will selectively deploy it going forward, but we think generally the 14 day free trial, it's working well.
And and maybe just one more comment on that and the 14 day free trial is what drove the.
The significant merchant growth and Q4, so we're still seeing really really strong merchant growth on the 14 day free trial.
Okay. Thanks, David.
Our next question comes from Mark for goodwill.
Flash Securities. Please go ahead.
Yes.
Thank you I was hoping you could maybe provide some tangibles on the shop App. It does and it's that you spoke about that.
Good for us.
Bring and.
More coal the buyer side and.
You also mentioned by our loyalty and just curious.
What.
And maybe some specifics there it just seems like Oh.
Really a big untapped opportunity for you right now.
Thanks.
Yeah I mean.
And I agree it's an untapped opportunity for you.
But there's nothing I haven't got any kind of product announcements there.
Jamaica right now or is this for probably you're going to be in and around.
I think if I could try and so there was just.
And.
Confirm that this but how are you thinking about it. This is the direction we are going to.
Develop it.
Keep saying like the best.
And that's an absolute obvious playbook for sharp, but I think everyone can see the reason why we're not following it.
Because.
This.
The LTV and.
And.
But.
Shopify is.
Extremely focused on merchant and we believe that by focusing on merchants for <unk>.
You must end up getting better products and.
We believe.
We are students of retail history, we do believe that.
A sudden.
Like if you got a pre Internet times.
So sort of general criticisms of consumerism and these things.
All products of a channel of enrich retailing has to exist.
Very.
Mediocre.
Products.
For the ones, which tended to make it through the gatekeepers and the retail and process.
We believe that the direct to consumer.
Strategy is just better it's leads to.
True our products, it's actually as potentially a cure for this material.
And because of course.
This is sort of probably not like attention, but like.
For perspective beds.
Consumers and it is not.
The thing that exists because people love buying.
Buying things.
Because people hate for things that they got to buy.
Our quality is just not there and.
This was partly because of the disintermediation and bypass stuff.
And the people who had a chance of that.
Selling the products compared to the people who have for care to try to make the best products and then so and a lot of ways for Internet allows if it'll go direct that has a lot of good follow on.
But.
We have a last one for want to create some distorting.
Emitter channel there because we feel like this is like one of our accomplishments for the company is true.
And make this direct relationship book, so as the Io, creating our discovery surfaces and really have to be and keeping the peace ideas that they have strengthened existing relationships.
Half of it that day.
And make us half for customers and.
And therefore, if you have to invent things that otherwise you could just sort of take off for chip Playbooks and that just takes.
Longer and build.
Okay, great care to get it right.
Our next question comes from Colin Sebastian of Baird. Please go ahead.
Alright. Thanks, Good morning, everyone, maybe a bigger picture question for me.
And you guys have talked about bending the curve and entrepreneurship and I wonder based on what Youre seeing on the platform. If you think this inflection points and new business creation as a sustainable trend beyond the pandemic as the barriers have been lowered or do you think it's more of a function of the pandemic and people needing to find new or additional sources of income.
If you have any perspective on that thank you.
I mean, I think the data supports the fact that there are more business creation is happening now certainly in North America, but around the world you saw Q3, and the United States you had more business registrations than any other time since 2000 and for them and certainly we're seeing that on shopify more people are starting businesses I think part of this is that the pandemic did create this catalyst that people want.
To supplement their income or are they lost their jobs and to find something else, but I do not think this trend is going away, we envision a future where anyone that wants to or needs to.
Start a business or share of their product and things that they make that they love with the world can easily do so and again not all of them will succeed and we know that but that's exactly the point, we want everyone that has that ambition to try that and more and more shopify is becoming a place and they go and try it and and the ones that do succeed and again there. The success of those are are monumental right now youre seeing.
Its massive scale and some of these DTC brands that five years ago didn't exist and today there are literally the incumbents in their industries are leaders in their and their and the verticals that is happening entirely on shopify, and so making it really easy to get started where the.
The cost of failures is lowest possible for the ease of use continues to increase and the fact that once they scale. They have never had any reason to go anywhere other than shopify that is the strategy of the company and and I think that's working really well.
Thanks Colin.
Our next question comes from City Pentagon of Mizuho Securities. Please go ahead.
Thanks for taking my question. So in 2020, we saw this excellent and adoption of E. Commerce and you also talked about GM vehicles and up.
Partly benefited from non discretionary items like food beverages, and some trends like curbside pickups, and order online and pick up at store like that so could you give us some color and what percentage of that growth was driven by such kind of trend just to understand and and what and what are you seeing these days.
And Q4.
Go for it and as of today.
Yeah.
The main thing for us have been apparel accessories cosmetics.
<unk> ended 2020, what we saw during 2020 and and as a result of Covid was more food beverage Essentials home office home workout gear and things like that increase.
In terms of mix of Archie M. B work and we're continuing to see those sorts of trends, where we continue to see those trends and and Q4.
And believe that more merchants to sell those types of goods and found us.
Over the course of 2020, and so many of those trends will continue into 'twenty and 'twenty one.
Our next question comes from Matt Pfau of William Blair. Please go ahead.
Hey, Thanks, guys for taking my questions just wanted to understand how youre thinking about shopify plus for 2021, as we get closer to.
The new normal do you anticipate seeing more or less.
Established brands, either replacing their legacy ecommerce platform or moving online.
Yeah, So as I mentioned in my opening remarks.
10000 merchants and plus and in fact, I think 10000 is probably one of the largest enterprise ecommerce customer groups of any company on the planet.
And certainly plus JV grew faster than non plus international partially due to more plus merchants and an increase of of GMB from those merchants.
Plus merchant count growth came from a lot more upgrades and fewer downgrades, but we also saw an acceleration this quarter and migrations from legacy platforms, and specifically from brands like demand wear and and and magenta. So I think that will continue certainly as you heard in my in my opening remarks around some of the big brands that are that are used.
Shopify.
Lot of those brands had direct to consumer already they were just using legacy systems and they were looking at some of the more modern retail brands. The DTC brands and wondering why they had better technology than needed considering they were these massive companies with large budgets. So I think what you will continue to see with pluses not only will we will see more upgrades from those merchants they get released.
First of all and the platform. The homegrown success stories, you will also continue to see migration over time and and I think that's that mix is incredibly healthy.
Our next question comes from Paul Treiber of RBC capital markets. Please go ahead.
Thanks, very much and good morning, I just wanted to speak about international just looking at your full core geographies and much faster revenue acceleration this year versus the acceleration and international what do you see as the biggest points for it.
And for E commerce outside of your key markets and.
How are you looking to help eliminate that friction.
Yes, so as you heard and Amy mentioned this earlier, but Q4 <unk> was really strong across all regions internationally. Our plan is really to focus on geographies, where we have a foothold this year with a view to expand our presence into additional countries and the future. So really doubling down on where we think we have product market fit or close product market fit.
We're going to invest and growth marketing and product marketing and also and in country sales teams and those in those geographies because we think we actually have a lot of potential. There also remember now we've brought total languages up on shopify to 'twenty. So shopify admin and can now is now and 20 languages and Shopify payments is now available in 17 countries. So a lot of what we're trying to do is not only.
Go into these countries haphazardly, but rather go in and make sure that we have the best product in the market.
And in the countries, where we are investing heavily we think we have and the potential to have that in the near term. Some other countries that we have and are on our radar. We don't think the right. It's the right time to go really deep that will happen and the future, but this meticulous and very strategic approach international expansion leads us to actually being the leader in these and these countries as opposed to being one of many options and.
I think thats.
And that has served us really well from a strategy perspective.
Thanks, Paul Our next question comes from Trevor Young of Barclays. Please go ahead.
Thanks for taking the question just looking at first quarter, how should we think about trends so far quarter to date has it been a continuation of the strength that you saw last quarter on top of the.
Pretty difficult comparison in January and February versus an easier compare in March and are you seeing any of that spend shift.
Back to offline versus online thanks.
Yeah, we continue and Q1 to see strong ecommerce tailwind and strong interest and the shopify platform.
Our next question comes from drew Foster of Citigroup. Please go ahead.
Hey, guys. Thanks for taking my question I wanted to also just follow up on international specifically in Asia. So exclude.
Excluding Australia what countries specifically in Asia are you getting the most traction as I'm parsing the numbers there.
The thing that.
And the half of Asia, that's that's not Australia, it's growing much faster so curious.
It's driving success there thanks.
Yes, I think again, we don't we don't necessarily want to single out any particular country, but there are places where you've seen us do quite well, we've been in Singapore and Japan for quite quite some time. We obviously are have mentioned on previous calls what we're thinking about cross border strategy and a place like China, but generally our international strategy.
Whether it's in Asia, or us and Europe or anywhere else is the same we want to be the best product and market and those in those geographies and so we're not just going to simply go into those dose those markets just for the sake of it Australia is quite different if you recall, Australia is one of our core has been one of our core markets for a long time the way that it operates the way that our product works. There is very similar to what we've seen and places like the U K Canada.
And and United States, So Australia, I would say it would be different but we are keeping our eye closely on how things are evolving in terms of trends, though I mean, one of the things that we think is really fascinating study is what are people doing and China. How are consumers interacting with brands. There what does the new whatever new retail models look like there and what can we learn from those places. So Toby mentioned earlier, we are students.
Of E Commerce and retail history. We're also we're also students of modern and contemporary ecommerce trends and trying to figure out how we can bring some of those back to our core markets and.
And we will continue to always do.
Thanks drew.
Our next question comes from Egalet Iranian of Wedbush Securities. Please go ahead.
The gallery and of.
Wedbush Securities Your line is live.
And sorry, I was on mute.
Thanks for question and so we got some comments on the NSF and Amy just around some of the trends youre seeing and I want to dig in a little bit more were I guess you guys have highlighted the second half as and when we come out of the product market fit phase and until a full launch or things.
Thanks for the on track there are they being pulled forward pushed back anything.
Anything Thats, we kind of got closer to that as we think about how that can translate and.
Omni channel I think it was kind of the biggest word that's come out out of the pandemic as we go back to the.
The normal life and the Omni channel channel Commerce.
How can episodic.
And with Pls accelerate your opportunity there and kind of bring all those things together.
And E Mail, which one do you want her to answer the SF and one that shopify fulfillment network or the omni channel trends one.
Let's talk about the asset.
And I want to I guess.
Okay.
And.
Yeah, we achieved some really significant milestones and the Q and Q4 as.
As I talked about earlier record volume and 2021.
We remain and the product market fit phase as we said when we launched 18 months ago.
We are very focused this year.
Building continuing to build the software and the infrastructure for the network focusing on optimizing things like inventory and order management and network optimization.
And we're continuing to iterate learn and and belt.
And so there's really no changes to what we've previously stated at this time as we continue to learn if.
If our plans changed materially will be shared and communicate that.
Our next question comes from Josh Beck of Keybank capital markets. Please go ahead.
Thanks for taking the question I guess, maybe I'll ask about the point of sale angle, just maybe describe where it is and the journey is it the product market fit is effectively nailed at this point and it's really about scaling and just just curious when you think.
And that initiative just where.
Where we are and the journey.
Yes, so I think as Amy pointed out earlier, we achieved record point of sale GMB and Q4, which is which is great, but really what we're doing as we continue to grow the number of merchants using it despite lockdowns and seasonal focus on selling over a point of sale transition. We also added new features you saw smart inventory management.
Get integrated buy online pickup and store staff permissions retail level reporting. We also introduced the point of sale proceeds ascription. So I think while shopify is integrated <unk> solution.
Payments side by the way also is still limited for U S U K, Canada, Ireland.
And we think that we can expand not only payments, but we also can continue to evolve the actual offering that it provides the all new point of sale, though to be clear. It is faster. It is more intuitive and is more scalable and it's designed to meet the needs of our most cash.
Complex brick and mortar retailers and we introduced when we introduced the <unk> pro which is the new subscription we really looked at what was missing from it. So I wouldn't necessarily say that we're not a product market fit yet certainly the merchant that do use it find it to be incredibly compelling, but obviously, we are incredibly ambitious that shopify, we want to make sure. It for the best product on the market and so.
And we'll continue to happen, but again, just if you look at where it was a year ago to where it is now if you look at the record Tos and <unk> that went through it and Q4. If you look at the number of merchants that have been using at point of sale has a very bright future and shopify.
Our next question comes from Brent bracelet of Piper Sandler. Please go ahead.
Thanks for taking the question here I wanted to drill down probably for you hardly on shopify pay as a follow up.
Obviously, the consumer loves Shopify pay it's been a fantastic and frictionless payment experience for me personally, but you don't have Instagram and Facebook and starting with Grace Shopify pay My question is how much interest is there from other partners and brands to embrace shopify pay given there's so many other payment options out there and can you remind us the.
Monetization strategy, you get a small take rate for all transactions processed or just the the shopify merchants.
Yes, so just as a reminder, I mean in terms of shop PE.
It is now facilitated nearly $20 billion and <unk> by.
By the end of 2020.
And by the end 2020 relative to when we launch in 2017. It also is four times faster than than normal checkout, and and converge closer to two times higher than our regular checkups and so we're really excited by it in terms of other partners, we can't speak to who we're talking to or what our strategy is with partners around that but certainly we think that.
Shop, he brings his fast secure and efficient checkout to this all in one commerce experience offered at Facebook shops, and Instagram and we think it's going to be great for merchants in terms of the economics of it thats not something that we're discussing right now, but certainly we think that.
For by bringing it outside of the shopify ecosystem and providing them with partners where merchants can access <unk>.
Billions of new consumers. It is a really great way for our merchants and continue to grow and it also substantiates shopify his role and the future of retail and commerce.
Our next question comes from Brian Peterson of Raymond James. Please go ahead.
Hi, Thanks for taking the question so Amy I appreciate all the color on the investments I was a little surprised to hear and plus not on the list and so I don't know if thats, some investments kind of benefit plus as well and colors and the venn diagram and potentially change there in terms of investments but.
Could you characterize the investments and 2021 and beyond and specifically related to plus and I guess I'm curious how that go to market side and in <unk>.
Right.
Any color there. Thank you.
Yeah, and and is in there it was probably a lot the intake.
But we do absolutely intend to invest and and Shopify plus and in 2021.
Today, most of our plus merchants are concentrated in North America that intentionally that's where we've been focused.
One of the investment areas in 2021 is to.
Put more in country sales teams.
To take Shopify plus to other geographies more aggressively focusing on those markets, where we have a foothold today and.
And then we also will continue to and.
To follow up.
And and hands.
And developer tools for those larger more complex tech savvy merchants.
Who require that to customize their experience somewhat.
And to make it a great experience for them, so that'll be a focus as well, but it continued.
Strong opportunities and plus globally.
This concludes the question and answer session as well as today's conference call. You may disconnect. Your lines. Thank you for participating and have a pleasant day.
[music].
Yeah.
[music].