Q1 2021 Shopify Inc Earnings Call
[music].
Thank you for standing by this is the conference operator, welcome to the Shopify first quarter 2021 financial results Conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded after.
After the presentation there'll 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 a shopify is first quarter 2021 conference call.
We are joined this morning by Tobi loot cash Shopify, CEO, Harley Finkelstein Shopify, as president and Amy Shapero, our CFO after their prepared remarks, 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 can.
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 you asked from Canadian regulators note that the adjusted financial measures. We speak to today are non-GAAP measures, which are not as high.
Institute for GAAP financial measures reconciliations between the two can be found in our earnings press release, and finally, we reported in U S. Dollars. So all amounts discussed today are in U S dollars, unless otherwise indicated with that I turn the call over to Harley.
Thanks, Katie and good morning, it's been more than a year since the global pandemic began which triggered e-commerce to grow at a rate that is transforming the traditional retail model shop.
<unk> continued focus on bringing the best tools for our merchants to help them thrive in this environment drove our strong performance in the first quarter.
<unk> growth accelerated year over year as merchants across cohorts and geographies thrived in our platform backed by robust consumer spending and more entrepreneurs launched businesses on shopify trusting us with their livelihoods as they turn their ideas into reality.
We continue to reduce friction from our merchants. So they can find new buyers build strong customer relationships and more easily manage the increasing complexity of their back office operations as they scale.
Discovering new buyers is a top pain point for businesses multi channel selling which is one of our core value proposition is becoming more critical as the cost of customer acquisition claims and the lines blur between online and offline commerce, our sales and marketing channel to help merchants to show up where future buyers are spending time, where ushering in a new era of search.
For commerce, and helping more brands and consumers engage in the digital main street.
The number of shops actively selling our Facebook shops has more than quadrupled since Q1, a year ago as well as the GMB through Facebook.
While still small for launch of Facebook shops in May of last year is clearly starting to make a difference here.
In Q1, we expanded our marketing partnership with Tic Toc internationally to an additional 14 countries in North America, EMEA and APAC.
So far we've seen good traction in the adoption of <unk> in the U S. Since we launched the integration last October.
And we recently expanded our Pinterest channel into 27 additional markets opening discovery ability and sales opportunities worldwide.
More merchants are leveraging the value of Shopify point of sale, a true omni channel solution as a number of locations using our point of sale pro increase substantially over the first three months of this year.
Business is new to shopify as well as existing merchants started using shopify point of sale, enabling them to expand their buyers universe seamlessly bridge their online and offline operations and make shopping more convenient for their buyers with features like curbside pickup which is offered through our point of sales pro product.
Driving targeted discovery and rediscovery is key for merchants trying to grow their business shop, our online shopping assistant offers both these benefits.
We found that a mobile reorder is 11% more likely when orders are attracting shop.
This may be helped by the fact that the average buyer status checks their order in the App multiple times vastly expanding the number of touch points for brands to connect with their customers.
And we've increased potential touch points, even further by adding discovery filters for local shops blackened businesses Asian owned businesses women owned businesses in March and most recently over Earth week, merchants' practicing and promoting sustainable commerce.
Sharp is one example of how we're moving the friction from commerce, and helping merchants build relationships with their customers directly.
In Q1, we introduced enact buy buttons. So buyers don't have to leave the app to purchase the products that are recommended to them.
Along with our accelerated wallet sharp pain or buy now pay later product shop installments and end to end order tracking. These features help merchants increase the lifetime value of their customers.
Our efforts to make commerce better extend beyond our merchant stores to surfaces outside of Shopify plus is the integration of shop pay as a checkout option with merchants selling on Facebook shops, and Instagram checkout.
Merchants in the U S are in the early stages of Onboarding to this feature and buyers have already started to use sharpie on Facebook and Instagram to checkout.
In Q1 shop had more than a 107 million registered users, including both buyers that have opted into shop pay as well as users of the app of which more than $24 million were monthly active users.
At the end of March shop, he had facilitated over $24 billion in cumulative <unk> since its launch in 2017.
Ahead of general availability in the coming months merchants' adoption of shopping installments accelerated with the rollout of one click onboarding in Q1.
We get entrepreneurs the resources traditionally reserved for big business Shopify scale enables us to negotiate on behalf of our smaller merchants as we do at Shopify shipping.
Since its launched five years ago Shopify shipping has really come into its own for self shippers with over half our eligible merchants in the U S and Canada now using it.
Revenue growth from Shopify shipping accelerated in the first quarter with label volume at nearly the same level as in Q4.
We are excited to bring shopify shipping to other parts of the world for merchants, who arent, yet big enough to need to outsource fulfillment.
For those who are we are building the shopify fulfillment network some merchants with greater volumes can trust their fulfillment will be handled the same care as if they were doing it themselves.
While this building process is not fast or easy we are making good progress more merchants join our fulfillment network in Q1, and we fulfilled similar volumes as in Q4, while maintaining the same high service levels.
We are happy with this result, given the strong holiday shopping period drove fulfillment to record levels last quarter.
Once merchants start making sales capital is a natural follow on to continue their momentum.
Shopify is creating better and faster access to capital through Shopify capital, which has been a lifeline to our merchants during the pandemic and continues to be an important source of accessible funding.
And our first quarter of 2021, we funded over $300 million to our merchants up 90% year over year, and we are seeing a larger merchants take on larger advances.
This record level of funding brought us to an incredible $2 billion in cumulative capital funded since the launch of Shopify capital in 2016.
It took for years to fund the first $1 billion and just a quarter of that time to from the second.
Small businesses are underserved and overwhelmed by today's financial services. We know this because many of our merchants tell us they feel left out of today's banking system and many of them use their personal accounts to run their business.
Through Shopify balance, we are breaking down the barriers to entrepreneurship by providing critical business banking tools for the Unbanked.
Without stepping foot into a bank a merchant can get immediate access to a no fee account to hold their funds and a card that will give them fast access to their cash.
They also get monthly cash back rewards and insights into their cash flow to help them manage their money more effectively all from directly inside the shopify platform.
More merchants join our early access program in Q1, and we plan to rollout shopify balance to all eligible merchants in the U S over the coming months.
Shopify plus had another fantastic quarter, signing on a record number of high volume brands looking to adapt to the fast changing retail landscape.
In Q1, more shopify merchants on standard plans graduated to Shopify plus to continue scaling their business.
And our focus on bringing Shopify plus international is gaining traction as Q1 saw a record number of brands from outside North America join Shopify plus.
Brands at launch and Shopify plus this past quarter include Japanese sports brand Mizuho Unilever's Indian DTC store, the you shop and Lego.
So far we've seen a great start to our efforts internationally and our momentum in North America is as strong as ever Kraft Heinz launched Kraft Heinz direct channel that sells directly to local retailers convenience stores and our restaurant partners. Following the launch last year of Heinz to home care.
Tegan launch cravings culinary store, featuring recipes and products that inspire people to get comfortable in the kitchen and have fun cooking.
WWE E set up shop for their star wrestlers and the most recognizable sub brands.
Tinder set up shop for their fans selling tender made apparel and accessories.
General Mills has made it easy to buy check zero recipe kits directly and finally fabric value here in Canada is capitalizing on the Renaissance of sewing by making a full array of fabrics and patterns available over their newly launched online store Department.
Department stores are our brands as well, having built a special place in the hearts of shoppers for decades and in one case for nearly 200 years.
I'm excited to share that Lord and Taylor America's first Department store Saturn 18, 26 has now launched on Shopify.
Like so many merchants speed to market ease of use integration capabilities total cost of ownership innovation and shop pay where big reasons, why Lord <unk> Taylor selected Shopify.
It is exciting to see their value proposition evolved into an excellent mobile and social experience for their shoppers to find what they're looking for on a future oriented platform on which to build experiences that haven't even been thought of yet.
With a sustained shift to digital the need for innovation has accelerated as more businesses come on line and seek right fit solutions for their commerce needs.
Shopify partner ecosystem plays a critical role here influencing the success of our merchants and shopify in.
In Q1, the number of partners sending business to continue to expand as over 45000 partners referred at least one merchant to shopify over the last 12 months up 73% year over year.
The range of services, our partners provide to our merchants from building apps and beautiful stores to marketing and accounting helped our merchants drive massive volumes of economic activity in 2020.
Last year, our merchants generated over $307 billion in business activity benefiting local economies around the world.
This includes our partner ecosystem, which made over $12 billion in revenue.
To put this into perspective, Shopify made $2 $9 billion in 2020, highlighting the amplified effect that we've had on local communities and the global economy.
We believe that entrepreneurship is a powerful path to help people reach for economic independence and that is why shopify partner with national geographic to produce the documentary film one the room, which premiered on Disney plus in March.
Encourage all of you to watch it, especially with your children as it is an incredible documentary showcasing youth in the relentless pursuit of entrepreneurship.
If all of the journey of the next generation of young entrepreneurs from different parts of the world who are taking ownership of their futures by building businesses.
Stories like the ones to hold in on the room make entrepreneurship more related book and inspire shopify to continue making entrepreneurship easier for future generations.
This in a nutshell is why shopify exists.
We are here to make it easier for anyone with an idea and ambition to launch a business entre.
Entrepreneurship is thriving and trends like omni channel shopping and direct to consumer selling offer even greater opportunities for.
For the entrepreneurship is still harder than needs to be and by building a future proof retail operating system, we are more committed than ever to loving the playing field for entrepreneurs and making commerce better for everyone Shopify is truly becoming the world's entrepreneurship company.
There is an inspirational story for as many merchants as there are in shopify.
We are sharing one today that illustrates just a profound impact we can have when he put technology in the hands of everyone hears San Eugene Haines of two brothers farm in India.
As you know India is battling the worst of this global pandemic right now we are telling the family story to bring some hope in a very difficult time here. It is.
We didn't have a 60 day.
We still believe with people look for me.
Do you mind, if I can get back.
Selling at farmers markets, we didn't have a huge budget for this also skew higher LOE for the first of all agency.
For those.
Although muscle <unk> on Google for homeless above an e-commerce website, one of the full flow through to a simplified it for us.
For quite a lot from until before was the force.
When that Lincoln when they look you do then think about what is shopify. The best part of it was it didn't have any upfront capital large cost associated with it and we just signed up for it.
For love the entire shop us.
There was a low glucose <unk> hired for doing this.
So for those local goes for model and mobilized for them and we listed those vehicles.
I think total yield if you don't do any fair enough great advertising.
And then the force London sales, we got other than the sulfides in the 100, Poland Lucky.
Doug just marked the beginning of the same diode growth slowly.
<unk> hundred Poland will be for years back who now closing the yard.
Thank you Bill.
That is close to millennials.
We grew in terms of employees.
The employees' places the other banks.
No 100 less people.
Of the millions of stories, we could've share. This one, especially shows just how irrepressible and global the spirit of entrepreneurship is and how our merchants are persevering and when our merchants do well shopify can bring more and better ways to help everyone compete and succeed.
We're on the right track Shopify experienced rapid revenue growth in our first quarter as the tailwind from the acceleration of digital Commerce continue to drive an acceleration of Dnb and more merchants launch businesses on the platform and adopted more of our services overall revenue growth accelerated from last quarter up 110.
10% year over year to $988 $6 million in our first quarter to put this in perspective, our first quarter revenue exceeded our fourth quarter revenue a remarkable achievement given we typically see a seasonal decline quarter over quarter coming off the holiday selling season.
Subscription solutions revenue growth accelerated to 71% year on year in Q1 to $327 million largely due to strong growth in monthly recurring revenue <unk> growth accelerated to 62% year over year to $89 $9 million in Q1 as demand for Shopify remained elevated.
Q1, <unk> also benefited from our first full quarter of incremental revenue from our retail Pos pro subscription although its contribution remains relatively small.
<unk> App and Shopify plus platform fee revenues contributed to the nine percentage point difference between the growth of subscription revenue and MRI.
Shopify, plus contributed $23 $1 million or 26% of MRI compared with 28% in Q1 of 2020, while Shopify plus MRI grew significantly Nonplus MRI grew faster benefitting from a significantly higher number of merchants on standard plans joining the platform.
Form in 2020, and the first quarter as well as from our first full quarter of Shopify Pos price subscription revenue.
Merchant solutions revenue growth accelerated to 137% over the same period in 2000 $20 million to $668 million. This outstanding growth was driven primarily by merchants strong sales with GMB growth also accelerating to 114% to $37 $3 billion in the first quarter.
Alone strong Q1, <unk> versus last year was the result of a greater share of retail spend going to online purchases higher <unk> per merchant and an injection from the latest round of stimulus in the United States introduced in March.
Well GMB growth across all regions accelerated our strong growth in North America was outpaced by growth outside North America, which is gratifying given our focus there.
The strong growth in merchant sales combined with increased <unk> penetration of shopify payments and merchant adoption of Shopify capital and shipping compared with the same period last year drove revenue from these products higher.
$17 $3 billion of GMB was processed on shopify payments in Q1, an increase of 135% versus the comparable quarter last year payments.
Payments penetration of <unk> was 46% versus 42% in Q1 2020, the majority of new merchants coming onto Shopify opted to use shopify payments and shopify, plus and international merchants expanded their share of GTD year over year.
Adjusted gross profit dollar growth accelerated to 114% over last year's first quarter to $565 $1 million and outpaced revenue growth largely due to stronger shopify payments margins.
The combined strength in revenue and improved margin profile of shopify payments and lower overall opex spend as a percent of revenue contributed to strong adjusted operating earnings in Q1 compared to the same period last year.
And operating income was $210 $8 million in the first quarter compared to an adjusted operating loss of $7 $3 million in the first quarter of 2020 as our acceleration in revenue outpaced growth in spend.
Adjusted net income for the quarter was $254 $1 million or $2 <unk> per diluted share compared with adjusted net income of $22 $3 million or <unk> 19 per diluted share in last year's first quarter adjusted.
Adjusted net income in Q1, 2021 excludes a $1 3 billion unrealized gain from our equity investment and a firm, which we wrote up to its fair value upon in subsequent to the company's IPO.
Finally, our cash cash equivalents and marketable securities balance was $7 $87 billion on March 31st compared with $6 three $9 billion at year end. The increase reflects $1 $5 billion of net proceeds from our share offering in February strengthening our balance sheet.
Providing flexibility to fund our growth strategies.
Last quarter, we outlined three key areas of incremental investment for 2021, I'll walk through the progress we made in our first quarter and provide an update on our outlook for the rest of the year.
First as Shopify fulfillment network, where as Harley laid out we made solid progress in our first quarter. We continued to build software to make fulfillment easier for our merchants introducing enhanced inventory management capabilities and better insights manage orders as we build the product market fit of Shopify fulfillment network. We continue.
To focus on optimizing our software and network for accuracy efficiency and merchant delight.
Six River Systems' plays an important part in this process optimizing traffic flow within our partner warehouses to balanced throughput improved safety and increased productivity, they're easy to deploy fulfillment technology is also enabling their customers to act with speed and agility, helping them scale.
L as demand for their products has increased during the pandemic.
Second is shop the ecosystem of shops features that Harley described is attracting an audience of engaged followers for our merchants in the app. Although early we are seeing promising levels of engagement with buyer cohorts using the app for several months, we will continue to build more features into shop that offer buyers.
Delightful shopping experience and strengthen their relationship with merchants.
And third is international expansion more international merchants are joining and succeeding on shopify as we step up our marketing and sales efforts to introduce more entrepreneurs to shopify and continue to localize our platform and focused countries.
<unk> of World GMB growth outpaced that of North America and revenue from these international regions increased as a part of the overall mix in our first quarter.
We are also expanding merchant solutions to work well for how commerce happens everywhere in the world. We have seen how merchants benefit when we make things like payments shipping capital and retail easily available to them. So we are excited to make the full power of our platform available to shopify merchants and more geographies.
We made shopify shipping and option to sell shippers in Australia last year, and we will continue to explore partners and geographies to give more merchants this option natively.
And the reopening of nonessential retail businesses earlier this month in the U K coincided nicely with the marketing launch of our all new Pos there and in Ireland. We are eager to bring independent shops that have survived and incredibly difficult year omni channel capabilities as well as other cutting edge.
<unk> features that make them even more resilient.
These longer term investments are important to our merchant success debt.
Further future proof our offerings and capitalize on our position at the intersection of Entrepreneurship and E. Commerce. We're also stepping up our strategic partnerships. This includes investments in companies and technologies in our ecosystem that align with our mission and whose success at scale could positively impact our merchants.
We have several such investments now affirmed being one example.
Turning to our outlook our full year 2021 outlook is guided by assumptions that remain unchanged from February that as countries continue to rollout vaccines in 2021 and populations are able to move about more freely the overall economic environment will likely improve some consumer spending.
We'll likely rotate back to offline retail and services and the ongoing shift to ecommerce, which accelerated in 2020 will likely resume a more normalized pace of growth.
In March 2021, the U S government passed a coronavirus relief package and began processing stimulus payments in early March the benefits of Shopify is G. N. B from this latest round of stimulus ended in early April.
In view of these factors, we continue to expect to grow revenue rapidly in 2020, one, but at a lower rate than in 2020 for the full year 2021, we continue to expect the following.
Subscription solutions revenue growth to be driven by more merchants around the world joining the platform and a number lower than the record 2020, but higher than any year prior to 2020.
The growth rates of subscription solutions and merchant solutions revenues to be more similar to each other than in the recent past as we do not expect a surge in dnb, but drove merchant solutions in 2020 to repeat merchant solutions revenue growth to be driven by continued <unk> growth from existing merchants new.
<unk>, 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 nascent but incremental revenue in their early stages.
Well, we expect that the first quarter will likely still contribute the smallest share of full year revenue in the fourth quarter. The largest the revenue spread may be more evenly distributed across the four quarters than it has been historically, if the rollout of a vaccine shifts more consumer spending to services and offline shopping toward.
The back half of the year.
2020, catapulted commerce into a period of incredibly rapid change presenting shopify with unprecedented opportunities in 2021 to accelerate innovation. We continue to expect rapid growth in gross profit dollars in 2021 and plan to reinvest back into our business as aggressively as we can with.
The year over year growth in operating expenses accelerating each quarter throughout the rest of the year, we are seeing greater volume and velocity of new engineering hires over the last several weeks after putting the rails in place in Q1 to make as possible.
Digital by design, our approach to a fully remote work force that we're eager to keep building and improving on has also been helpful to hiring as we continue to gain steam we expect the bulk of our spending to happen in the second half of 2020 one as such we expect full year 2021 adjusted operating income.
<unk> to be below the level, we achieved in 2020.
For 2020, one we now anticipate stock based compensation expenses and related payroll taxes of $425 million and amortization of acquired intangibles of $21 million.
More than a year out since the onset of the pandemic there are still many moving pieces and the commerce landscape and will be for the foreseeable future. What is apparent is that entrepreneurs are adapting and thriving with our mission to make commerce better for everyone. Our merchant first business model and a strong balance sheet shopify is well positioned to.
Executing on our portfolio of growth initiatives and good for our merchants the tools they need to compete in the future of commerce with that I'll turn the call back to Katie.
Thanks Amy.
I'm sure I don't have to remind you all to help us make time for everyone to ask a question on the call today by limiting yourselves to a single very good question Ariel can we start.
With the first question please.
Certainly our first question comes from Thomas Forte of D. A Davidson. Please go ahead.
Great. Thanks for taking my question. So Tobey you wrote a very thoughtful blog post about building a company that last 1000 years and executive turnover, how should investors think about the duration of your own tenure as CEO of Shopify.
Thanks for the question yes.
I'm committed from.
I'm in for.
Sure.
Long term here.
I'll never in my life come up with a better idea for federal one of Shopify. So.
I'm all in.
Of course, as I said in the email.
From a.
Portfolio because.
I just wanted to.
There's a lot of.
When people.
These companies, there's always a kind of a little hotter.
And for everyone to figure out how to react to that I do think that.
It's rather something that should be celebrated because clearly incredible things have been done.
Together and then if I could.
Okay Fair story, everyone sees that this team has done some really amazing things together.
I would be grateful.
Joining me on this provision.
Todd for joining.
And.
Leaving at the right time is something vote class executive soup, and so I think that this.
It was important for me it would be way too early and went to a free way that I laid out.
In this post.
Great. Thanks, Tom.
Our next question comes from the city put a graph of Mizuho. Please go ahead.
Thanks for taking my question.
Just told me you talk about this sharp increase of E. Commerce adoption like you said before it pulled forward adopt somebody 10 years, but how is the competition landscape change mainly even from marketplaces are you seeing consumer more attracted towards marketplaces.
Yeah.
<unk> growth is so big and.
The digital commerce, but it really is hard to talk at all about.
Sort of.
Zero sumness of low for tenants.
Honestly are all growing and.
Consumer consumer mix is changing as.
People are getting more comfortable with just using the internet more broadly.
There's certain categories, and it's hard to know which ones for positive windup.
<unk>.
People Love to go direct for because you have if you can talk about the direct to consumer a lot maybe maybe I'm not going to take us all away from the top again, because I think everyone's familiar but for dynamics behind it.
But what we're finding is that.
I think from macro trend here is like.
The Pos.
The limit the limited inventory of other channels.
And the sort of departure store, it's about and still good.
Kerry just lead to very poor quality of product.
And very very high turnover, our product for people just have to replace everything a lot.
Now.
Because of being able to purchase directly from make us moving a highly incentivized not to win per channel, but rather make the best product you just for quite a few process going up so I think more and more categories of products.
At higher quality levels.
For a longer time periods.
And often in a direct way directly from manufacturers.
Again, I don't think that's necessarily computing.
With the channel because it's really it's really really growing the market and the same person might buy from a marketplace a bunch of things in it.
Nine a M. In the morning, and then buy from <unk> 920.
I've been thinking about for four months.
I think everyone's going to do all of it.
In her comments this has a lot of growth.
Yes.
Thank you city.
Our next question comes from Ken Wong of Guggenheim Securities. Please go ahead.
Great. Thanks for taking my question.
Earlier, you mentioned seeing higher attach.
Shipping and how potentially fulfillment could kind of follow on that in that pad is that 50% attach the right level to think about what fulfillment demand could look like and and as merchants.
Option increases how are you thinking about the need to supplement the partner model with your own distribution.
Thanks, Ken Thanks for the question a couple of things so on the shipping Shopify shipping in particular.
As I said, yes adoption has grown significantly since we launched five years ago now more than half of the Belgium eligible merchants in the U S and Canada are adopting it and I think shopify shipping has really proven its relevance now self shipping as a space with some merchants will continue to view and others, what kind of growth through which is why things like <unk> is really important.
In terms of the updated asset then I alluded to that from the opening remarks, but more merchants join us in Q1 and volumes for sales in Q1 were actually similar to Q4, which of course is a very strong holiday season, what we really want to do with <unk> is going to continue to build the foundation of the network itself, we want to focus on optimizing the software and the network we want to keep introducing.
New features that give merchants better insights.
Now you may have a merchant who may use shopify shipping for certain products and SSN for other products you may have certain merchants at the site <unk> exactly where I need to be but the <unk>. We are targeting customers in this product market phase or self shippers right now who are fulfilling anywhere from 10% to 10000 orders a day durable goods is really important and alt.
So brand experience is really key for their business and so we really are narrowing down exactly who is the right customer for us because we want to have the best.
We want them to have the best experience possible, but I don't think its going to be <unk> or shipping I think that the idea of shopify, becoming the global retail operating system is that merchants get different choices, depending on what they need for their particular business.
Thanks, Ken.
Our next question comes from Colin Sebastian of Baird. Please go ahead.
Hi, great. Thanks, Good morning, everyone, maybe another one for tobi here.
With respect to the technology platform and using rails I'm sure you're happy with the scalability, so far but do you have any concerns about the next stage of growth and are you satisfied overall with the pace of product development.
Yeah. Thank you yeah.
I mean part of the reason why shopify flow created whether free coffee mate.
Hey, good assumption for about for future growth business.
And technologies they would be.
But very small team for first.
Fix you asked before it took off.
First.
Okay.
Net investment.
Thanks for technologies like Radisson.
Obviously the commodity.
My team to move significantly faster than.
Much much larger teams on both technology stacks.
Getting leverage from technology is very core to.
Shopify.
Vs that'd be a few thousand engineers for but I think for you have the same.
The same idea, it's about getting productivity from using the best pieces of software.
Using open for us as much as we can.
And maintaining good open source project debt.
Help us.
Increase the productivity.
Productivity.
In the company and also give back to the community about has given us.
So much.
We have up for the books of <unk>.
Engineering team.
And everyone knows exactly how to scale it up.
If I find that need for go.
No really concern for them I'm really really happy with the productivity and.
Progress on product and engineering and infrastructure fund.
Thanks Sterling.
Our next question comes from Trevor Young of Barclays. Please go ahead.
Hi, Thanks for taking my question.
Some impact from the stimulus payments in March, which I think you indicated rolled off in early April one can you help us quantify that impact and then how should we think about how that impacted the growth differential you mentioned between international and domestic GMB.
<unk>.
Yeah. So the U S stimulus did have a noticeable impact to our T M b in the quarter.
<unk> was strong.
But even without it and let me give you a couple of data points.
So looking at total GMB, we started to see the acceleration in growth in January and February before U S stimulus with even a factor in March.
And in addition for the corridor, our DMD outside of the U S accelerated at a faster pace than the U S. So this isn't just the U S stimulus story with strength across the board in GMP across every merchant type standard and plus there was an acceleration and every geography.
Hey, so strength across the board.
Thanks Trevor.
Our next question comes from Paul Treiber of RBC capital markets. Please go ahead.
Oh, thanks, very much and good morning, just a question for Tobi just curious on your thoughts on leadership and culture. In particular can you speak about the importance of continuing to foster a culture of empowering and enabling employees against shopify, the increasingly ability to bring in proven management from the outside.
Yes.
Aye.
Like everybody else to think about it is.
It's not an either or votes are needed for the right balance of teachers and students.
And so.
Sometimes it's the same people who can be teachers in one context and students and other and actually making this day exclusivity.
Really really really.
Important.
Component of building a good culture like because for instance.
Some people have been with the company for a very long time ago for I have been in allowed for key.
Situations in meetings for instance.
A very key and several other decisions have been have been met.
This is context.
Extremely valuable for look forward reasons of.
Explaining the the outcome of the meeting, but rather bringing and teaching someone who might have just arrived.
What was considered to make the decision right because.
But one thing you have intercompany debt growth extremely quickly like Shopify has this.
It's a.
It's.
Yeah.
It's a grand old building that.
<unk>.
Uh huh.
A lot of things that could be better and it right because we are going to hurt the.
We grew very very fast.
And based on people to come in later.
And joined the team and say.
One.
This is all over here is this something that.
Like I cant figure out why the board is there.
And so but.
But the other thing to do then.
Potentially good low.
Not have a volatile.
Modify the bidding.
To be better for the purposes.
Ideally in this case someone's puts up a hand and says actually I remember, putting us well for veeva in a hurry and we just need to get something done or some book up of handsets actually that's a lot Barry.
And that was really a good reason for being there and we don't need to actually run the experiment of removal of that deal.
For consequences.
The way I'm thinking about this if you really want to go to ratio.
Once they are to be.
People, who have high potential and ideally.
Have someone who has seen but moving before and Ken because because about effects leads to faster growth and my belief is that companies really on anything other than.
The.
Aptitude skills of every person in the company combined.
Potentially.
Multiplied fiver alignment of direction and then whatever number is that.
That's really what the company is and how good the company is.
Yeah.
If I could.
The balance I think Youre building, a greater share and as long as everyone's honest EBIT cases that can be.
In both cases that can be either.
So we didn't spend I think you have a really really good culture.
Thanks, Paul.
Our next question comes from Craig Maurer of Autonomous Research. Please go ahead.
Yes, good morning, and thanks for taking the question I wanted to come back to the discussion of Shopify balance in its rollout can you talk about the long term revenue model for financial services offered as part of our Commerce platform E. Commerce platform is this.
Long term and interchange.
Model or credit or net interest income driven model.
Just a little thoughts on how you view the future of balance would be really helpful. Thanks.
Hey, Craig I'll take that question so to be clear shallow balances really built excuse me for independent businesses, We want to act as our merchants financial partner when a merchant signs up for balance they get immediate access to an integrated accountable their funds they get a card to access cash that you'd be able to spend the money. They get monthly cash back rewards that are relevant for.
Their actual business, but they also get these great insight in terms of the business is cash flow. We're doing this really primarily because we think that right now business banking, particularly for small businesses is not working a lot of merchants a lot of small businesses still use their personal bank accounts, because it's so complicated and so in terms of the rollout of it we've added more merchants to the early access program in Q1.
We are on track for general availability to eligible merchants out later this year, but that idea, whether it's balance for shopify payments and shopify capital interest.
Another way that we're trying to look at all the different <unk>.
<unk> for success that a traditional small business might have and reduce those barriers you heard earlier that we've now given up more than $2 billion worth of capital to small businesses that $2 billion Mark is important because obviously it shows the growth of Shopify capital, but more importantly, these are small businesses that otherwise may not have access to the capital.
And they are using it to grow their business and it's an amazing to watch when you can actually democratize. So much of the business challenges and make it available to over $1 7 million merchants, you will see us do more of these things in the coming years, but in terms of how we monetize each of those particular financial services those will each be very different.
Thank you.
Our next question comes from Josh Beck of Keybank. Please go ahead.
Thank you for taking the question wanted to ask about shop App certainly the origin themes centered around this idea of online.
<unk> assistant.
It seems like it's expanding you talked about discovery filters to find local businesses of all sorts, which is great.
But I'm just curious what is the for longer term ambition in terms of how you see this product fitting into the broader shopify platform. Thank you.
Yes, the number one goal.
Just to end to end.
Tool up book process and then just this is buying from.
The independent stores.
Pre shop.
They had to rely on.
Various sort of AD hoc organic.
Prioritization of our process, what I mean, it's like.
So you bought something you've been how to you've got E mail.
I mean.
Like vivo internally.
I think Shelby about joking about imagine like you bought book like this for you.
Contact free and then they send through email for ever.
We went for a while the location of per cap for both for pick up.
And then someone would.
Beverly remark that that's exactly how taxi services actually book.
Pretty crazy, but this is sort of a way to solve problems and vote.
And total computing the Sharpe.
Wants to make it so that you buy something from independent for direct from.
Vendors and the process of getting it.
To you if it's much clearer.
And hopefully after.
Oh, Okay, it's going to be something thats.
The look into as well.
In terms of reverse logistics for returns.
And that's our primary objective.
With that.
So this is very utilitarian, but actually really important.
And very delightful for well enough product.
I'm all for communities efficacy.
We.
From a.
Experiments every once in a while that that's different.
Like pointing you to different things you might be doing more quickly doing for to consider like local shopping and supporting.
Particularly across our businesses and let's see where that is.
Thanks, Josh.
Our next question comes from Mark Mahaney of Evercore ISI. Please go ahead.
Thank you. This is Ben Wheeler on for Mark just a question on Shopify pay if I could so Facebook and Instagram in the first places that shop pay is being used outside the shopify ecosystem, you're just talking about the impact that that has had on sales conversion and those channels are you actively working on similar integrations with shop pay and more social and digital channels.
Thank you.
Yeah I'll take that question so to be clear, yes shall pay is now available on Facebook checkout on Instagram and it's available to all shopify merchants and buyers in the U S. We are starting to see some JV transacted via shop here on Facebook checkout, although obviously its very early days. So the levels are fairly low, but really the implementation of shopify payments.
And in sharp pay as a processor across a bunch of different services is really because so many of consumers' favorite brands and their favorite stores are powered by shopify and so the idea of bringing shop pay to more services all over the internet feels like a really great idea and it makes not only the conversion rate is higher for on the <unk>.
Merchant side, but from a consumer perspective, youre able to check out a lot faster a lot more seamlessly. So you will see shop pay.
And more services, but really what you all sourcing is at the center of gravity really for retail right now is completely shifted to online and as we sort of think about shopify is retail operating system youre going to see us find ways in other services, where people are hanging out sort of the virtual town squares like Facebook and Instagram add more functionality to make shopping in.
Those places a lot better and I think the the advantage that of course, we bring is not just the technology of shop pay but the fact that we have $1 7 million of the greatest most interesting and most important brands in direct to consumer and beyond.
Thanks Ben.
Our next question comes from Brent bracelet of Piper Sandler. Please go ahead.
Good morning, and thank you here I guess I wanted to follow up on this thread for Harlan.
Stood out to me this quarter was the acceleration in <unk> 20 billion higher year over year <unk> growth accelerating I think you've talked about all merchants from geographies, even before the stimulus keep her hit in March. So the question for for you Harley.
Whats driving this broad based acceleration in <unk>.
<unk> and gentlemen February Inc.
In particular or is this just a broader behavioral shift in.
Similar preferences are you starting to see the social commerce talons become material enough to drive an acceleration or we just seeing the software innovations reduce friction for buy online I'm just trying to understand why now why would you see an acceleration in net and that cohort in the January and February.
First of all I think to your point consumer preferences has shifted permanently.
The center of gravity was offline. It is now online and there is no going back to to the pre pandemic version of that I also think there's still massive runway E. Commerce in general remember, we are still sub 30% e-commerce penetration in North America, it's only slightly higher in the UK, but it's still there's so much headroom and there's so much room for e-commerce.
To grow so again, when you combined consumer preference with making it easier to buy online and buy on your favorite surfaces upwards Shopify powers most of them if not all of them. It makes for obviously more people buying from from great brands that are that are on shopify in terms of the pandemic and what that's caused if you.
If you look at Australia, and New Zealand, which is not an exact proxy for the rest of the world, but certainly provide some interesting insights.
In those places where things have really opened up post pandemic, we're actually not seeing any slowdown whatsoever in terms of consumers buying from our merchants in fact online <unk> remains at elevated levels beyond in those places. So I don't think the consumer preference shift that happened through COVID-19 was a temporary thing again a center of gravity is now online.
Tumors want to buy and they're voting with their wallets to buy from independent direct to consumer brands of which Shopify has the majority of them and I think that youre going to continue to see this trend continue well beyond the pandemic again E. Commerce is still really quite small relative to total retail and it all came to grow really nicely.
Thanks Brent.
Our next question comes from Darren <unk> of Roth Capital Partners. Please go ahead.
Hey, good morning, Thanks for taking my question, maybe just to piggyback on what you said Harley I'm curious if with the rollout in North America.
More vaccines in April and this is maybe more of a real time question. I'm curious have you guys seen any change in terms of the cadence of your merchants business say versus the early months of the year.
Yes so.
As I mentioned, we have not seen that at all we have not seen a slowdown we mentioned merchant growth.
It remained elevated in Q1, we've seen as digital increasingly becomes the center of gravity growth was strong across all our regions. We also had record plus ads driven by both upgrades, but also new brands, joining shopify and obviously strong international growth in Q1 as well from the merchant side, we're not seeing any of that at all and then on the <unk> side.
Obviously with triple digit growth in <unk> year over year, that's certainly not doesn't seem to be an issue. The reason I brought up Australia, New Zealand again, it's not an exact proxy for the rest of the world, but it does provide some indication that this new trend that this new buying behavior in a way that retail operates is a permanent shift long. After the pandemic is over I think between those two things.
It's quite clear that this is not a temporary thing we will continue to see both merchant adds MGM beginning to increase.
Thanks Darren.
Our next question comes from Egal Iranian of Wedbush Securities. Please go ahead.
Hey, good morning, guys.
I just wanted to ask on the drivers.
Merchant growth and how they've changed as you expect merchant growth.
At a level not as high as last year, but higher higher than any other year kind of other flow since the beginning of the pandemic standard.
A lot of new business creation in the U S is it larger merchants that have.
We're already online at this stage right now we're already online before and now are taking the next step investment.
You're still getting a lot of new merchants coming onboard what do you think are the big drivers as we go through the rest of this year and what other areas of investment for those merchants.
Most looking towards for you guys talk them out with thanks.
I think the.
The advantage of the Shopify business model, it's not an or it's an and on the on the early side of merchant creation again, we've been we've all been watching that business registrations are increasing both in the U S. But around the world certainly we're seeing that with more merchants joining shopify that are first time entrepreneurs.
One of my favorite Stat.
To talk about is that every 28 seconds of new entrepreneur gets there for sale on shopify that is really important because that shows that we're not only growing our piece of the pie, but we're growing the pie itself. We are growing the actual market on the other side. When you look at some of the brands I mentioned around plus whether its kraft heinz or WWE or fabric bill or some other large retail.
<unk> excuse me department stores that have been around for 200 years. We are seeing people enter this digital commerce realm in some cases I never participated in other cases, they migrated from some enterprise e-commerce provider Thats simply has not been able to be future proofed Theres no integrations for the right platforms and services and it doesn't have things like sharp pain integrated.
So it's not one of those things I think the advantage of the shopper business model with all of those things, we are creating new entrepreneurs and we're trying to make it as easy as possible for them to be more successful, but also on the plus side. We are seeing for the first time, obviously, we have the upgrades, which are these homegrown success stories that start on our platform around their mom's kitchen table and grow to be category leaders.
We love those stories those are some of our favorites, but we're also seeing very established brands again like Heinz or checks from general Mills for the first time ever enter the direct to consumer model and Theyre doing it all on Shopify and so I think that needs to continue we don't just want to focus on the larger brands. We also want to help create the next larger brands with aspiration.
Entrepreneurs that start on shopify.
Thanks Hugo.
Our next question comes from Brian Peterson of Raymond James. Please go ahead.
Brian Peterson of Raymond James Your line is live.
Sorry mute.
Mute button got me there are policies. So thanks for taking my questions. So talking about the investments back into the platform.
I can appreciate that <unk> was above plan this quarter.
But just curious.
How has hiring trending the pace of investments.
Can you redeploy a lot of other investments into the key growth areas in 2021.
Yes, Brian that's certainly our aim given the opportunities that Harley just pointed out that's still in front of us.
We see tremendous growth opportunities and so we will continue to invest that back into the business as aggressively as we can as I said from my opening remarks, we do expect opex spend to accelerate each quarter for the remainder of the year, we are seeing velocity.
<unk> and engineering hiring and sales and marketing hiring as we lean into the opportunities and we resource those growth initiatives that I talked about earlier Shopify fulfillment network shop App International.
You know across the board, we have these opportunities and we will lean into them.
So yes.
We did post our adjusted operating income this quarter, but we fully expect to continue to invest back into the business aggressively.
Thanks, Brian we probably have time for only one more question Ariel So let's take this one last question.
Our final question comes from Deepak monthly volume of Wolfe Research. Please go ahead.
Great. Thanks for squeezing me in guys.
Amy I wanted to ask about your comments on the convergence in growth between merchant solutions and subscriptions, obviously youre seeing penetration gains in payments continue plus business is very strong and also as the sales volume for your margins are growing.
Like a Harley just mentioned are you thinking that volume reversal potentially from consumer spend on shopify stores could offset some of these continued headwinds for the growth rates to sort of converge can you give us some additional color on that that'd be great.
Yeah, I mean, thats purely driven by.
The fact that we don't expect the surge in e-commerce.
It happened in 2020 to repeat we fully expect.
E Commerce to continue to grow but at a more normalized pace. They just won't see the surge so from a year over year growth perspective that will impact the growth of merchants.
Our solutions, we do it.
Fully expect increased adoption of our merchant solution and a continued increase in our take rate for the year.
This concludes the question and answer session I would like to turn the conference back over to Katie Keita for any closing remarks.
Alright, Thanks, Deepak for that last question and thanks, everybody for participating today, and then leaving time for everyone. We might've gotten into a record number of questions and.
Have a great day bye bye.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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Yeah.
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Yes.
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Yeah.