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 conference call.
We are joined this morning by Tobi Luca Shopify of 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.
The 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 in our press release. This morning, as well as in our filings with U S and Canadian regulators note that the adjusted financial measures, we speak to today are non-GAAP measures.
But you are not a substitute for GAAP financial measures reconciliations between the two can be found on our earnings press release and finally, we report in 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 devastated grits meeting the challenges presented by a global pandemic that forced businesses to think completely differently, 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.
I am proud to say that entrepreneurship is in a better state and more businesses are surviving the pandemic because of the work that we do share of shopify.
We broke new ground across the company in 2020.
A number of merchants from early stage of 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 the 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.
Shopify re imagine new ways of working as we permanently shifted to a remote work model, which gives employees the freedom to work from almost anywhere and empowers us to recruit top talent from around the world.
And our merchants generated approximately $120 billion in GMB, which nearly doubled year over year for three consecutive quarters in 2020.
Shopify is getting more entrepreneurs to that magic moment of their first sale in 2020 of new business on Shopify made their first sale every 28 seconds on average versus nearly every minute of in 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.
At the center of gravity of retail shifts firmly from offline to online Shopify continues to innovate for the future of commerce for merchants of all sizes.
Today I want to talk about four 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.
In April last year, we launched shop, our all in one of the 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 on businesses and from day, one of shops launch 100% of the delivery of emissions produced by every single order using its accelerated checkout sharpei had been automatically offset at no charge to shop users or the brand.
Second retailers are prioritizing buyer retention we.
We see large companies are pushing acquisition costs up in 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 the shop pay as well as users of the app of which more than $19 million were monthly active users at the start of this year.
By the end of 2020 shop, they had facilitated close to $20 billion in cumulative <unk> since its launch in 2017.
Third on the list is the growing popularity of modern financial solutions.
Products like Shopify capital on cash.
Recently sought out by entrepreneurs and small businesses that face unnecessary barriers to access from traditional banks.
Empathy runs deep of shopify with traditional institutions were turning away small businesses because of the perceived high risk we financed a record number of merchants when they needed. It most and we also introduced shopify capital to Canada and to the U K in 2020 to expand where we can help merchants.
Schuff installments, which we began rolling out the U S merchants in our third quarter lets merchants offer flexible payment options to their buyers.
By now pay of later products, especially resonate with young consumers, who since the start of the pandemic have contributed to the significant shift in online spending.
We also made shopify balance available for early access in Q4, enabling merchants in the U S to easily open no fee business accounts separating business finances, and their personal finances, and giving them greater clarity on the health of their business.
Finally, the power of Omnichannel.
E Commerce captures a greater share of retail Omnichannel commerce becomes even more critical for businesses.
We continued 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 checkout and other channels.
Earlier this month shop. He was made available for the first time of the Shopify platform to Shopify merchants on Instagram and we will rollout of Facebook in 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 of advantage of accelerated checkout through sharp pain.
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 Omnichannel commerce as they open online stores, 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. The.
These include buy online pickup curbside by in store ship, the customer and local delivery all of which the increase in 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 Q4 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 up for success during the global Black Friday, Cyber Monday shopping weekend, when shopify merchants exceeded $5 $1 billion on 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.
Merchants on our Shopify plus plan benefited from the power of the entire platform.
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 the digital native brands the tools to distinguish themselves in the modern era of commerce.
With a record number of merchants subscribing to Shopify plus in 2020, we saw a diverse slate of notable brands launch in Q4, including International Skincare brand Dermatologic.
Fashion designer Elie Tahari.
Japanese motorcycle brand Yamaha.
California, Surf where brand O'neill.
International Furniture company Herman Miller.
Famous greeting card company Hallmark.
One of the worlds largest makers of wines and spirits biagio.
All of the mobile from discount grocery chain Aldi and popular dog food brands from Nestle Purina.
Our summary of 2020 would be incomplete without acknowledging the enormous contribution of our partners to our merchants' success.
Over the course of the year more than 42000 partners referred of merchants to Shopify up 72 per cent compared to the 12 months ending December 2019 on.
Underscoring the strong demand for our partners' skill sets in the shifting commerce landscape or.
Our partners play an incredibly important role in helping our merchants to adapt to the rush to online shopping getting stores up and running fast and preparing our merchants to maximize new opportunities.
The 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 in 2020.
We are excited to continue expanding our partner ecosystem in 2021 outside our English speaking geographies in particular.
And shopify would not have been able to accomplish the amazing things we did in the 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 there.
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 of that emerges, making commerce better for everyone and with that I will turn it over to Amy.
Thanks, Charlie our merchants truly exemplified the spirit of entrepreneurship, and 2020, and along with years of strategic investment and strong execution by Shopify. They helped propel us to exceptional Q4 and 2020 results.
Revenue nearly doubled once again in 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 in monthly recurring revenue.
Our growth also accelerated to 53% year over year to $82 $6 million in Q4 as a high number of new merchants joined the platform in the quarter following record merchant adds in 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 to MRI or 25% compared with 27% of them are in Q4 of 2019, while shopify plus the <unk> grew significantly non plus <unk> grew faster benefitting from a significantly higher number of merchants on standard plans joined.
The platform in 2020 as well as from our retail Pos Pro subscription beginning November one.
<unk> solutions revenue grew 117% to $698 $3 million in Q4 compared to the same period in 2019. This outstanding growth was driven primarily by merchants strong sales with <unk> nearly doubling year over year to $41 $1 billion in the fourth quarter alone.
<unk> Q4 of <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 the strong growth in merchant sales combined with merchants increased adoption of shopify payments capital and shipping drove revenue from these products higher.
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$19 $1 billion of <unk> was processed on shopify payments in Q4, an increase of 116% versus the comparable quarter last year payments penetration of <unk> was 46% versus 43% in Q4, 2019 and more than one percentage point over Q3 this year.
Are 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 in Q4 with merchants, receiving $226 $9 million in funding across the U S. The U K and Canada of 96% versus the same period last year and the highest year over year increase in funding in 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 in Shopify fulfillment network.
Adjusted operating income was $200 million in the fourth quarter compared to adjusted operating income of $28 $5 million in the fourth quarter of 2019 as our strong revenue performance in 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 in 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 it.
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 the successful fourth quarter advancing the development of our fulfillment service in 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 on boarding 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 in 2020, we opened an R&D warehouse in Ottawa to test fulfillment technology built out of 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. This will be reflected in much of our decision, making including the partners. We work with in the design of our network.
As we planned when we started this journey a year and a half ago. We will use 2021 to continue improving product market fit the focus first on quality and merchant delight before we scale our fulfillment capabilities. This means iterating on the software that 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 merchants Onboarding journey.
We also plan to continue to invest in the automated fulfillment technologies of six river systems, which recorded strong revenues in 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 in 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 on 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 in 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.
One of 20, demonstrating just how big our addressable market is year over year GMB growth by our international merchants outpaced overall GNP growth in our international merchant base grew within the overall mix. We continued to localize the platform in several regions in 2020, making it easier to sell cross border and from a mobile device.
And launching shopify payments with the local payment method in Belgium, as well as in Austria in Q4, we introduced local pickup points in France of popular delivery method in 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 in countries, where we have established a foothold and increase investments in sales and marketing to bring shopify to more merchants around the globe.
Another area, we will incrementally invest, albeit at a lower level as retail Pos retail merchants demonstrated resilience in a tough year adapting to socially distance selling our retail Pos product, especially resonated with businesses wanting to seamlessly bridge their online and offline operations and buyer facing <unk>.
Experience.
Mentum continued in Q4 as more merchants adopted our pass offering and GM the increase 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 in foundational technologies to make things like onboarding easier and our sales team expanding our pass products to more countries and in executing our go to market strategy.
We believe our investments in international and retail Pos will help expand shop of vice president and enable us to capture more of our Tam while encouraging more entrepreneurs around the world to start businesses on an offline.
We've intentionally invested in both of these areas over the past couple of years and expect them to deliver returns over the next couple of years.
As always we intend to invest in 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 of the fundamental tools to start and grow their businesses and have been critical.
In setting shopify flywheel in motion. While these tools are designed to make selling EZ. Our platform also allows for extensibility and a focus in 'twenty and 'twenty. One is on continuing to enhance developer tools for merchants, who want to customize their experience is beyond whats available out of the box.
In 2020 years of investment on 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 2021, 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.
2020 was an exceptional year of growth in revenue and adjusted operating income for Shopify, driven by the unprecedented acceleration of E commerce by Covid, which drove an acceleration in the growth of GMB and new merchants on the platform and the increased adoption of merchant solutions, we believe the change behaviors adopt.
By merchants and consumers in 2020 of expanded the prospects for entrepreneurship and digital commerce significantly.
Our outlook coming into 2021 assumes that as countries rollout vaccines in 'twenty '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 the offline retail and services and the ongoing shift to ecommerce which accelerated in 2020.
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 in 2020, but higher than any year prior to 2020 the.
The growth rates of subscription solutions and merchant solutions revenues are likely to be more similar than in the recent past as we do not expect the surge in G. N V. The drove merchant solutions in 2020 to repeat and merchant solutions revenue growth to be driven by continued GMB growth from existing merchants and new merchants.
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 in the early stages.
As a result, we expect that we will continue to grow revenue rapidly in 2021, albeit at a lower rate than in 2020 with regard to seasonality. While we expect the Q1 will still likely contribute the smallest share of full year revenue in Q4 of the largest the revenue spread may be more evenly distributed across the four key.
Orders than it has been historically to the degree of the rollout of the vaccine shifts more spending to services and prompts more offline shopping towards the back half of the year 'twenty 'twenty catapulted commerce into a period of incredibly rapid change presenting shopify with unprecedented opportunities in 2021.
To accelerate innovation, we expect rapid growth in gross profit dollars in 'twenty 'twenty, one and plan to deploy substantially all of these dollars effectively investing back into our business as aggressively as we can and.
In research and development, we are launching an ambitious hiring campaign for engineers that we expect will gain strength over the course of 'twenty 'twenty One Inc.
In sales and marketing, we expect to increase online marketing spend into increased global demand add to our global sales teams to capture more of Shopify, plus and POS merchants, 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.
'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 the short term discrete financial results, we are replacing quarterly and annual numeric ranges with information on directional indicators the primary levers driving our fee.
<unk> and the assumptions the guide our planning spending more time discussing the inputs instead of trying to protect of specific financial output should build a greater understanding of the many moving parts of 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 in the right initiative.
As to urgently build out the commerce infrastructure that will give our merchants and shopify the edge to win positioning us in our merchants for success this year and into the future I'll now hand, the call back the Katy.
Thanks, Amy the.
Before handing it over the area of for Q&A, Let me remind you to limit yourselves to just one question that includes related question. It's still another question. So just keep yourself. The one that way we should have enough time to get to everyone who asked the 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.
We'll hear atone acknowledging your request if youre 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 Q4.
My question is in respect of 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 transparency changes on our merchants' ability to directly reach targeted customers.
Yeah.
Hey.
Tony I mean, no Concord like based on the answer right now.
Obviously.
Sure.
Most relevant surface for discovery.
Some minor of potential of the discovery right and all of them.
At point of view to local businesses and an echo on businesses.
That's.
And I would expect that to continue.
And.
But again like we put the buffer up.
Yep.
Not a.
The increase the LTV of our customers.
Necessarily optimize Florida of transactions on which way it again in a lot of differences. Thank you Betsy and shop of the flow of them.
On this particular optimization targets, that's that's not the norm in retail.
And then the related pressures like the it's too early to tell the Honda.
The the trucking changes.
And of the remix of of a lot of things in the.
The.
Advertising space.
That's totally normal expense base.
It's rapidly boarding the usually in the form of the new towards coming coming on line on new discoveries being made or people staying the type of new channels.
Everyone in this space of say about she was too.
Rolling out new strategies and been the boundaries change so its.
It's usually the entrepreneurs of it.
Who are the most of adaptable I think the proof investor of Covid and.
People the maker of most of the use of duration.
And I'll just like the Threep.
Sure thing Brad I'll, just repeat the instructions to limit yourself to just one question.
An area of the next question. Please our next question comes from Thomas Forte of D. A Davidson. Please go ahead.
Great. Thanks for taking my question. So one of the many things I appreciate about Shopify is your culture, the notion that you're empowering rebels to overthrow of the Empire.
Scaled the business for example, adding 2021 engineers from across the Globe in 2021, what gives you confidence you can continue to add talent, while maintaining our culture.
Yes.
Yes.
So the again.
Okay.
As you can imagine then.
You too.
Because it on how is an ask anything which have been hosting for more of a decade I've got my question about <unk>.
Paid mix.
Unit of time, we're going to hire more people than previous in the unit of time before of how can we possibly keep the culture going on.
It is.
It's a super value question.
But just one on that growth companies of a familiar the honestly.
I don't know if you want to take it on to this resolution the episode.
One of the key from the just speaking of the entrepreneur of oven like in general the rather than the of Shopify right now.
<unk> don't try to hold onto previous culture, just if all of Chicago to be better than the bus before.
For what the strength.
Don on your strength try to leave some of the weakness is behind it.
It just makes sure that of an exploration of the company is the better version of previous previous company I think the way cultures and up at Sn people hold on to things like where appropriate in previous times.
The make both of the things.
On.
On the negotiate well and.
I see this as the path that doesn't lead to anything personally.
On the one person looking at Shopify, who has seen everything of version of Shopify.
And this one is the best of luck so it's of.
Ask the question.
Pending to keep it this way.
Thanks, Brian.
Our next question comes from Craig Maurer of Autonomous Research. Please go ahead.
Yes, hi, Thanks for taking my question I wanted to ask about Shopify Bal.
Balance <unk>.
Very intriguing product we've seen products like this worked very well.
And some international markets. So I was curious how youre thinking about this business in terms of what types of products financial services products you can bring to these merchants through the balance of platform to what degree interchange income.
Through purchasing is expected and how you can leverage shopify balance into a beat of B payments platform. Thanks.
Craig It's Harley I'll take that question. So we enter the shutdowns entered early access in Q4 of 2020 is going to rollout to all U S. Merchants. This year, who are eligible of meeting.
Using shopify payments and.
And so we want to obviously evolve that we expect we expect balance wide value overtime, not only as a retention tool, but also with an efficiency tool one it's going to make revenue available to merchants faster reduce delays that are sort of inherent to fund transfer process of between accounts. It also will help streamline merchant cash flow operations, which is something that a lot of merchants.
On challenging, but what I think youre seeing is that more and more shopify, we'd want to be at the heart of merchant businesses that they use at the merchant business and the things of the use every single day.
And so over time, we expect the.
The merchants will use shop on balances of weighted and as a way to get in front of merchants introduce new more centralized more financial services.
To simplify their financial lives and anytime that we can offer a better solution that makes it easier for them, where they can do their business better faster more effectively that is something that we think is very important. So it's further brings us closer to the merchants are part of the business and the 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 it's the start of something that I think will continue over the years to evolve and help merchants of greater capacity.
Our next question comes from Ken Wong of Guggenheim Securities. Please go ahead.
Great. Thanks for taking my question.
And on the past you guys pivoted the Pos from the.
Best of merchants on Shopify to just that.
Pos period.
All of you guys announced pay to go beyond the walled garden with Facebook on Instagram I guess should we think about.
Pushing beyond the shopify walls of something thats going to be more common place going forward and what'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.
Yes, I mean wherever possible, we look to we look to future proof of product as much as possible for merchants what that means is that if we know that.
Spending shop paid to services like Facebook and Instagram is going to help them not only find new customers on those incredibly huge surfaces, but also transact better where there's fewer cart abandonment, where the transaction happens faster more effectively we're going to do that so I don't think theres any hard and fast rule around we keep these things internally or we extend them, we simply want to make.
Sure of that Shopify is on 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 of the product. So there is again no no schematic of 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 the go to market question.
Now that you've had some time to digest it and can you speak of the pros and cons of the 14 day versus the 90 day free trial that you ran early in the pandemic I think you said that the 90 day.
Trials led to higher quality conversion. So I'm curious what consideration you gave to that or maybe something in between in terms of being the the go forward model.
Yeah, I'll I'll take that one.
So we were really pleased with the results of the 90 day free trial, the cohorts coming off of that 90 day free trial.
And on the face of dramatic increase in merchants coming of the platform those cohorts of 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've found towards the end of the offer of period of the 90 day free trial of 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.
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 trial.
Working with some governments.
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 maybe just one more comment on that the 14 day for retrial of is what drove the.
The significant merchant growth in 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 the goodwill of <unk>.
Rosenblatt Securities. Please go ahead.
Yes.
Thank you I was hoping you could maybe provide some tangibles on the shop at the desk Vince that you spoke about that.
Good.
Bring in the.
More coal on the buyer side and you also mentioned by our loyalty of just curious.
What.
Maybe some specifics there it just seems like.
Really the big untapped opportunity for you right now.
Thanks.
Yes, I mean.
I agree it's non peptide the Cherokee.
But there's nothing I haven't got any kind of proud of announcements there.
To make right now of as the property, you're going to be in and algorithms.
I think about the trend.
Confirm that this but how are you thinking up out of this is the direction we are going to.
Develop it I.
Keep saying like the best.
On the investment absolute obvious playbook of the sharp, but I think everyone can see the reason why they are not following it.
Because of.
This.
The LTV.
And.
But.
Shopify is extra.
Extremely focused on merchant and we believe that by focusing on merchants and the consumers end up getting better products.
We believe <unk> be of students of retail history, we do believe that.
<unk>.
A sudden.
I think if you go of pre Internet times.
So sort of general criticisms of consumerism and the strength.
All products of the channel of enrich retailing has to exist.
Very.
Mediocre.
Product the.
The ones, which tend to to make it through the gatekeepers and the retailing process.
We believe that the direct to consumer.
The strategy is just better it's leads to.
True our product actually has potentially a cure for this material consumerism because of course.
This is sort of probably not like a tangent but like.
For perspective, the ASIC.
<unk> is not.
The thing that exists because people love.
Buying things.
Cost of people hate the things that they get the buy.
Of the quality of its just not there.
This is partly because of the disintermediation in the past of.
The people who had the chance of.
Of selling the product compared to the people who had the care to try to make the best products and then so and a lot of ways. The Internet allows if it'll go direct that has a lot of good follow on.
But.
We are the last ones, who want to create some distorting.
The middle channel there because we feel like this is like one of the accomplishments of the company.
It makes us the direct relationship book, so as the Io, creating our discovery services, they really have to be in keeping the peace ideas that they strengthen the existing relationships that the people half of it that day.
The make us half of the customers.
Therefore, we have to invent things of that otherwise you could just sort of take off the ship Playbooks and that's just.
Longer and the.
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.
You guys have talked about bending the curve in entrepreneurship and I wonder based on what Youre seeing on the platform. If you think this inflection points and new business creation is the sustainable trend beyond the pandemic as the barriers of the 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 of any perspective on that thank you.
I mean, I think the data supports the fact that there are more business creation is happening now.
In North America, but around the World you saw Q3 in the United States, you had more business registrations than any of their time since 2004, 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 wanting it to supplement the income or they lost their job need 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.
The startup business or share of their product the thing 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 the place of they go and try it and on the ones that do succeed and again there. The success of those are monumental right now youre seeing.
Massive scale of some of these DTC brands that five years ago didn't exist today, there are literally the incumbents in their industries are leaders in their in their in the verticals that is happening entirely on shopify, and so making it really easy to get started where the.
The cost of failures as low as possible, where 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 I think that's working really well.
Thanks Colin.
Our next question comes from City Pentagon of Missy Securities. Please go ahead.
Thanks for taking my question. So in 2020, we saw this excellent or the adoption of E. Commerce and you also talked about GM vehicles.
Partly benefited from non discretionary items like food beverages, and some trends like curbside pickups, and order online and pick up at the store like that so could you give us some color on what percentage of the growth was driven by such kind of trends just to understand and and and.
What are you seeing these days in.
In Q4.
Q4 and as of today.
Yeah the.
The main thing for us have been of apparel accessories cosmetics.
<unk> ended 2020, we saw during 2020 and is the result of Covid was more food beverage Essentials home office homework out Gary on things like that increase.
In terms of mix of <unk> work and we're continuing to see those sorts of trends, where we continue to see those trends in Q4.
And believe that more merchants to sell those types of goods of found us.
Over the course of 2020 and so many of those trends will continue into 2021.
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 you're thinking about shopify plus for 2021, as we get closer to.
On the new normal do you anticipate seeing more or less.
Established brands either of replacing the legacy ecommerce platform or moving online.
Yes so.
As I mentioned in my opening remarks.
10000 merchants on plus and in fact, I think 10, thousands of probably one of the largest enterprise E commerce customer groups of 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 the GMB from those merchants the <unk>.
Plus merchant count growth came from a lot more upgrades and a few of downgrades, but we also saw an acceleration this quarter on migrations from legacy platforms, and specifically from brands like demand wear 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 they did 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 on the platform. The homegrown success stories, you will also continue to see migrations 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 in the morning, I just wanted to speak of it international just looking at your full core geographies on a much faster revenue acceleration this year versus the acceleration of international what do you see as the biggest points of bricks.
<unk> for E commerce outside of your key markets.
How are you looking to help eliminate the friction.
Yes, so as you heard of Amy you 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 the view to expand our presence into additional countries in 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 in growth marketing and product marketing and also an in country sales teams in those in those geographies because we think we actually have a lot of potential. There also remember now we brought total languages up on shopify to 'twenty. So shopify admin income now is now in 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 the potential to have that in the near term. Some other countries that we have on our on our radar. We don't think the right. It's the right time to go really deep that will happen in the future, but this meticulous and very strategic approach international expansion leads us to actually being the leader in these in these countries as opposed to being one of many options and <unk>.
I think thats.
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 trend 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 on 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 in Q1 to see strong ecommerce tailwind and strong interest in the Shopify platform.
Our next question comes from drew Foster of Citigroup. Please go ahead.
Yes.
Hey, guys. Thanks for taking the question I wanted to also just follow up on international specifically in Asia. So excluding.
Australia what countries specifically in Asia are you getting the most traction is on parts of the numbers there.
The thing that.
You know the the half of Asia, that's that's a non Australia is growing much faster so curious.
What's driving success there thanks.
Yes, I think again, we don't we don't necessarily want to single on any particular country, but there are places where you've seen us do quite well we've been in Singapore in Japan for quite quite some time. We obviously are have mentioned on previous calls what we're thinking about cross border strategy in a place like China, but generally our international strategy, whether it's <unk>.
In Asia or in Europe, or anywhere else is the same we want to be the best product in market in those in those geographies and so we're not just going to simply go into those dose those markets just for the sake of the Australia is quite different if you recall of 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 in places like the U K, Canada and.
In the 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 in China, how are consumers interacting with brands. There what does the new whatever new retail model to look like there and what can we learn from those places. So Tony mentioned earlier, we are student of of.
E Commerce on retail history. We're also we're also students of of modern contemporary ecommerce trends and trying to figure out how we can bring some of those back to our core markets. Some.
Some of them will continue to always do.
Thanks drew.
Our next question comes from Egalet Iranian of Wedbush Securities. Please go ahead.
The gallery and the end of.
The Wedbush Securities Your line is live.
Sorry, I was on mute.
Thanks for the question. So we got some comments on the on assets and Amy just around some of the trends youre seeing on I want to dig in a little bit more.
We're I guess you guys have highlighted the second half is when we come out of the product market fit phase in until the fall launch or things.
Thanks, the on track there are they being pulled forward pushback.
Anything that as we kind of got closer to that as we think about how that can.
Translate and he knows where omni channel I think it was kind of the the biggest word that's come out of out of the pandemic as we go back to.
The normal life of the Omnichannel channel Commerce.
Yeah, I can at the Sun.
With Pls accelerate your opportunity there and kind of bring all of those things together.
And Eagle, which one do you want her to answer of the S. F N. One the shopify fulfillment network or the Omnichannel trends one.
Yeah.
Let's talk about the assets on one.
I guess.
Okay on on S F N.
We achieved some really significant milestones in the Q and Q4 as.
As I talked about earlier record volume in 2021.
We remain in the product market fit phase.
As we said when we launched 18 months ago.
We are very focused this year bill.
Building continuing to build the software and the infrastructure for the network focusing on optimizing things like inventory and order management and the network optimization.
We're continuing to iterate learn and and belt. So theres really no changes to what we've previously stated at this time as we continue to learn if.
If our plans changed materially we'll be sure to 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 on the journey is it the product market fit is effectively nailed at this point and it's really about scaling just curious when you think.
That initiative just where.
Where we are in the journey.
Yeah. So I think as Andy pointed out earlier, we achieved record point of sale of <unk> in 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 of transition. We also added new features you saw smart inventory management.
Get integrated buy online pickup in store staff permissions retail level reporting. We also introduced the point of sale proceeds ascription. So I think while shopify is integrated <unk> solution.
Payment side by the way also is the is still limited to the U S U K, Canada Ireland.
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.
<unk> brick and mortar retailers and we introduced when we introduce 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 of product market fit yet certainly the merchants that do use it find it to be incredibly compelling, but obviously, we are incredibly ambitious of shopify, we want to make sure. It's the best product on the market and so.
That will 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 Pos <unk> that went through in Q4. If you look at the number of merchants that have been using at point of sale has a very bright future of shopify.
Our next question comes from Brent price limb 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 on.
Obviously, the cause of consumer love Shopify pay it's been a fantastic and frictionless payment experience for me personally, but I of Instagram and Facebook that I'm, starting with brace Shopify pay my question is how much interest is there from other partners and brands to embrace of Shopify pay given there's so many other payment options out there on can you remind us the.
Monetization strategy do 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 is now facilitated nearly $20 billion in <unk>.
By the end of 2020.
By the end of 2020 relative to when we launched in 2017. It also is four times faster than the normal checkout and it converts close to two times higher than our regular checkups. So we're really excited by it in terms of other partners. We can speak to who we're talking to her of what our strategy is with partners around that but certainly we think that.
The sharp he brings his fast secure and efficient checkout to this all in one commerce experience offered at Facebook shops on Instagram and we think it's going to be great for merchants in terms of the economics of it that's 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 continue to grow and it also substantiates shopify his role on the future of retail on 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 of the color on the investments I was a little surprised to hear the bus not on the list and so I don't know if thats sort of investments kind of benefit plus as well on the colors on the venn diagram essentially changed there in terms of the investments but.
Could you characterize the investments in 2021 of them beyond the specifically related to the plus but I guess I'm curious on the go to market side and why.
Any color there. Thank you.
Yeah and it is in there it was probably a lot the intake.
But we do absolutely intend to invest in shopify plus in 2021.
Today, most of our plus merchants are concentrated in North America intentionally that's where we've been focused.
So 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 then we also will continue to the.
To follow up.
And enhance.
And developer tools for those larger more complex tech savvy merchants.
Who require that on to customize their experience somewhat.
To make it a great experience for them, so that'll be a focus as well but continued.
Strong opportunities in 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.
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