Q2 2021 Shopify Inc Earnings Call
Thank you for standing by this is the conference operator, welcome to the Shopify second quarter 2020.
<unk> financial results Conference call as a reminder, all participants are in listen only mode and the conference is being recorded after the presentation there'll be an opportunity to ask questions to join the question queue. You May Press Star then 1 on your telephone keypad should you need assistance during the conference call you may signal.
1 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 are glad you can join us for Shopify <unk> second quarter 2021 Conference call. We are joined this morning by Tobi Luca Shopify.
Ignacio 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 could cause actual results to differ materially from.
We undertake no obligation to update these statements except as required by law you can read about these assumptions risks and uncertainties on your press release. This morning, as well as in our filings with U S and Canadian regulators note that adjusted financial measures. We speak to today are non-GAAP measures, which are non a substitute for GAAP financial.
Measures reconciliations between the 2 can be found in our earnings press release, and finally, we report in U S. Dollars. So all amounts discussed today are on U S dollars, unless otherwise indicated with that I'll turn the call over to Harley.
Thanks, Katie and good morning.
Momentum continued in our second quarter are strong.
Strong commerce trends prevailed and more merchants join and succeeded on our platform.
In fact, Jimmy reached its highest level ever at physical stores more regions. We opened their doors in the early days of the post pandemic recovery and as buyers continue to value the convenience that online tools bring day shopping Jason.
Case in point in places that have.
Begun to reopen like the UK Jimmy grew faster than our overall, Jim in the quarter year over year, indicating that online and in store commerce are no longer mutually exclusive.
And while we did start to see a shift in some consumer spend back to services and recreation towards the end of the quarter, which we expected all regions remain at.
At <unk> levels above pre COVID-19 levels. This may be why shopify remains the go to platform for entrepreneurs around the world to launch and to grow their businesses as they sell directly to their customers.
Merchants using shopify are exceptionally well prepared to make commerce happen on every surface area that it needs to whether it's online in store.
For or through your favorite apps.
Our brick and mortar merchant illustrated this as they adapted to the accelerated shift to digital commerce in 2020, I don't know navigating the early stages of returning to in store selling.
Retail point of sale GMB is nearly back to pre COVID-19 levels as a percentage of overall G. M. B even on these higher G&A.
<unk> levels at physical stores reopen and merchants are better equipped with our upgraded hardware and software.
More locations adopted point of sell pro in our second quarter for its modern Omnichannel features like buy online pick up in store, which was adopted by 63% of brick and mortar merchants in English speaking geographies at the end of June.
This is up from just 2% in February last year.
Social Commerce is another way that merchants are expanding their presence and succeeding in for.
In Q2 year over year, Jim V growth from Facebook, and Google channels, where several times that of the online store with consumers spending more time than ever on apps, we continue to.
To expand key partnerships.
We deepened our partnership with Google in Q2, making it easier for our merchants to sell on Google through a simplified on boarding process and extending our accelerated checkout sharpei to all U S merchants selling on Google, whether they use shopify or not.
Buyers love using shopify to check out the speed.
And ease of making a purchase strengthens the relationship between merchants and their buyers, which is why we are bringing sharpie to more surfaces.
Sharp is available now to U S merchants on Facebook and will be available to shopify and non shopify merchants selling on Facebook and Google in the U S. Later this year.
We're seeing early traction for shop hang on.
Facebook and Instagram with more buyers opting in and a larger share of Jim B through D surfaces. Since we announced the integration in February we remain on track to add shopify payments as the processor for all Shopify merchant transactions on Facebook properties by year end.
As global retail E. Commerce sales are expected to continue shifting to more.
Cases mobile shopping from Shopify merchant has to keep getting easier and more fun if there to compete.
Our online shopping assistant shop is built for easy shopping on mobile with buyer friendly features like order tracking and sharp pain.
Starting in Q2 merchants can manage how they show up in shop by customizing.
Their store profile on the App. They can also track the impact of shop on their business from a new analytics dashboard, while driving repeat purchases from customers through automated marketing tools.
<unk> now supports in app purchases, allowing customers to add to cart and checkout with shop within the App.
In Q2, we also introduced new filters for.
For discovery on shop for local businesses, LGBTQ, plus on businesses and indigenous owned businesses.
At the end of Q2 shop at more than 118 million registered users, including both buyers that have opted into shop pay as well as users of the app of which approximately $23 million per monthly active users.
At the end of June Sharpei had facilitated nearly $30 billion in cumulative <unk> since its launch in 2017.
The increasing complexity that comes with selling everywhere. It makes shopify and our suite of solutions, even more valuable as a result merchants are making greater use of our merchant solutions.
Users Shopify capital is a great example.
We funded more merchant than ever this past quarter, and directed more capital to them than ever a record $363 million.
This is a 137% more funding than in last year's second quarter and represents record growth for us in capital bringing us.
<unk> to over $2.3 billion in cumulative capital funded since we launched it in 2016.
Not only the shopify capital helped fuel our merchants growth our data tells us that merchants that accept capital stay with shopify longer as they succeed on the platform and take more of Shopify is other solutions, namely Shopify shipping apps.
Themed and domains and maybe most importantly, extending capital when their business needs. It reinforces the trusted relationship that we have with our merchants 1 that goes beyond what they have with their bank or any other vendor. When we talk about shopify is flywheel. This is exactly what we mean.
Shopify shipping and shop on fulfillment network complete.
<unk> experience for our merchants buyers in Q2 label volume for Shopify shipping increased quarter over quarter, and we focus on transitioning merchants, who are a good fit from shopify shipping to shopify fulfillment network to benefit from our full service fulfillment offering.
Merchants and their buyers are also making use of our newer merchant solutions.
The card in June we made our buy now pay later product shop pay installments available to all eligible merchants in the U S with the product automatically enabled for new merchant signing up for shopify payments and simple self serve on boarding available to existing merchants.
While early G M V transacting through sharp pain stomach.
<unk> more than tripled in Q2 over the prior quarter as more buyers are using our product to check out.
We are pretty excited about the potential here over the long term.
And more merchants are signing onto shopify balance, which is an early access until later this year.
Shopify plus had another great quarter as large brands continue to turn to shopify.
Shopify plus to help make the complex simple in Q2 more merchants on standard plans upgraded for Shopify, plus and more international brands join Shopify plus to grow their businesses.
The list of brands that launch on Shopify, plus recently is stellar global entertainment platform Netflix luxury fashion designer.
Diane von Furstenberg World renowned winery, Robert Mondavi people footwear from well known shoe company Aldo.
Global fashion brand and a huge personal favorite of mine James Pearse.
Indeed, and vintage clothing retailer mod cloth famous.
Amos coffee brands, Stumptown coffee and peet's coffee children's clothing brand.
And justice.
And more CPG brands from Nestle and Mccormick.
Shopify is leveraging the entire ecosystem to create a global retail operating system for the future of commerce.
More than 22000 viewers tuned in to this year is virtually held developer focused partner conference Shopify unite for.
Where we announced major upgrades to our platform on which we are building the Internet Commerce infrastructure. These include online store to point out a flexible and customizable storefront. So on merchants can build their stores quickly without touching code, while giving Max code access to developers, allowing them to extend and customize both the storefront and the checkout.
Powerful new Apis and developer tooling it gives our partners and merchants more creative control without sacrificing speed for scalability.
A faster and more powerful checkout designed to give each individual shop, the ability to handle as much sales volume as we serve across all of shopify at the peak of Black Friday Cyber Monday in.
<unk> 2020 and.
And a scalable payments platform, enabling partners to build third party payment gateways as apps.
We also announced a zero per cent Rev share for App and theme store developers on their first million dollars of revenue annually, starting in Q3.2021, making it even more attractive for tech talent to.
To want to build the future of commerce with Shopify.
Our teams on Shopify had been heads down innovating over the past year during the plot from updates announced at Shopify unite to life there.
Their incredible work has formed an even stronger commerce infrastructure for developers to build on.
We look forward to seeing the hard problems they will help us solve for emergence.
As we double down on our efforts to make shopify the best place to build our partner ecosystem continues to grow in Q2, the number of partners sending business to us continue to expand as over 46000 partners referred at least 1 merchant to shopify over the past 12 months up 53%.
Year.
As the post pandemic future emerges it is clear that retail has changed forever Shopify is making sure those changes are for the better.
Entrepreneurship remains strong and opportunities to thrive in a modern retail are up with the right tools are boundless.
Thanks.
Charlie merchant success, combined with sustained ecommerce tailwind and strong execution by Shopify contributed to a fantastic second quarter.
Revenue in our second quarter was up 57% year over year to $1.1 billion, marking the first time shopify exceeded $1 billion in a single quarter.
Year over year. This was driven by strong performance from both our subscription solutions and merchant solutions segments.
Subscription solutions revenue increased 70% over the same period last year to $334.2 million largely due to strong growth in monthly recurring revenue <unk> growth accelerated to 60.
<unk>, 7% year over year to $95.1 million as more merchants, joining the platform and the number of retail locations using P. O S Pro increased.
Remember MLR on the second quarter of last year was impacted by the 90 day free trial on standard plans offered until may 31st and that we experience.
These double cohort effect in our third quarter last year as users from the 90 day free trial, and 14 day free trial converted into paying merchant in that corner compared with Q1 <unk> added in Q2 was more normalized as economies reopen share.
<unk> contributed $25.2 million or.
For 26 per cent of M R compared with 29% in Q2 of 2020 when standard merchant M. R. R was impacted by the extended free trial I just mentioned, while Shopify plus <unk> grew significantly this past quarter Nonplus MRI grew faster benefitting from a significantly higher number.
A dump merchants on standard plans, joining the platform in 2020, and new incremental revenue from our Shopify P. O S pro subscription offering over the same period last year.
Merchant solutions revenue grew 52% over Q2.2020 to $785.2 million. This.
Number growth was driven primarily by G. N V expansion, which was up 40% year over year to a record $42.2 billion.
The strong growth in merchant sales combined with increased <unk> penetration of shopify payments merchant adoption of Shopify capital and shipping and partner related revenue compared with.
The same period last year drove revenue from these solutions higher.
$23 billion of Dnb was processed on shopify payments in Q2 up 51% versus the same quarter last year shopify payments penetration of <unk> was 48% versus 45% in Q2.
2020.
This increase was driven by GMB penetration gains through online and retail P. O S channels, while shopify, plus and international merchants expanded their share of G. P V year over year.
Merchant solutions revenue also benefited from the recognition of revenue in Q2 associated with noncash considering.
Ocean or warrants, we received from our strategic partnerships with affirm and global E relating to performance obligations with respect to our shock pay installments and cross border commerce offerings, respectively. The warrants associated with these partnerships for valued at the start of the respective commercial contracts.
<unk> are deferred and then recognized into revenue ratably over the expected life of the contracts. While there are other revenue components to these products. The noncash consideration component from those commercial agreements added approximately 3 percentage points to our year on year merchant solutions revenue growth.
Adjusted gross profit dollars grew 64% over last year's second quarter to $627 million and outpaced revenue growth primarily due to the larger mix of subscription solutions gross profit relative to last year's mix, which was suppressed by the extended free trial.
The combined strength in revenue.
Improved margin profile and lower overall opex spend as a percentage of revenue contributed to strong adjusted operating earnings in Q2 compared to the same period last year adjust.
Adjusted operating income was $236.8 million in the second quarter compared with adjusted operating income of 113.
Point $7 million in the second quarter of 2020, as our revenue growth outpaced growth in spend.
Adjusted net income for the quarter was $284.6 million or $2.24 per diluted share compared with adjusted net income of $129.4 million.
1 dollar and 5 cents per diluted share in last year's second quarter. Adjusted net income in Q2, 2021 excludes a $778 million unrealized net gain on our equity investments, including global E, which we wrote up to its fair value upon in subsequent to the companies I P O.
Finally, our cash cash equivalents and marketable securities balance was 7.7 hundred $6 billion on June 30th compared with $6.39 billion at year end, our healthy balance sheet gives us optionality that we believe increases our competitive advantage to retain this financial flexibility we filed yesterday.
Yesterday to increase the registered room on our base shelf prospectus.
With so many merchants now building their businesses on Shopify, our job is to make entrepreneurship easier and help our merchant succeed. This is reflected in our 3 key areas of investment in 2020, 1 shopify fulfillment network shop and international.
<unk> expansion.
First we're heads down building the foundation of Shopify fulfillment network. So that our merchants can access simple fast and affordable fulfillment in Q2, we introduce features that help merchants manage and organize the products fulfilled by our network via the merchant admin and improve shipping speed.
<unk> and accuracy.
We also added the ability for merchants to manage preferences like staff notifications. Our focus remains on building a product that offers merchants a delightful experience and optimizes our network of nodes and partners 6 River systems, which had another strong quarter continued to deploy its fulfillment technology.
Into our partner nodes and customer warehouses, increasing the efficiency of their fulfillment operations.
Our second key area of investment as sharp as Harley outlined we continue to invest in developing new features that add value to our merchants and give buyers a great mobile shopping experience.
Our third key.
Investment is international expansion, we introduce new retail P. O S hardware that is integrated with shopify payments in the U K and Ireland in Q1 and in Australia in May this.
This is helpful to gross payments volume as P. O S pro locations in P. O S. G M D trend upward and more importantly helpful to merchant.
<unk> for benefiting from our leading P O S capabilities.
We plan to expand our integrated P O S offering to additional regions in the coming months.
As we expand our commercial efforts into regions, we are localizing our support efforts alongside them.
That merchants are able to reach a human who can help them navigate.
Area issue or lead them to the best next steps is an important differentiator for us and when our support team is armed with data superpowers and speaking our merchants language merchants everywhere can go farther faster.
And a quick note on our equity holdings and companies like globally.
<unk> and <unk> and others. We remained active in Q2 pursuing partnerships that position us to work with innovative teams that can help us solve hard problems for our merchants and to continue building the future of commerce.
Turning to our outlook our outlook for the remainder of 2021is consistent.
With our assumptions in February we've seen an improvement in the overall economic environment through the first half of this year consumer spending beginning to rotate back to services in offline retail and e-commerce growing at a more normalized pace relative to 'twenty 'twenty.
In view of these factors and Shopify is perform.
<unk> year to date, we continue to expect to grow revenue rapidly in 2021, but at a lower rate than in 2020 for the full year 'twenty 'twenty..1 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 and 20.
1 in 'twenty, but higher than any year prior to 2020 the.
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 the surge in G. M. B that drove merchant solutions in 2020 to repeat.
Merchant solutions revenue growth to be driven by.
Continued G M D growth from existing merchant new merchants, joining the platform and expanded adoption of shopify is growing menu of merchant solutions, including establish 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 6 river systems contribute nascent but incremental revenue in their early stages.
We expect that the first quarter will likely still contribute the smallest share of full year revenue in the fourth quarter, the largest and that the revenue spread will be more evenly distributed.
Across the 4 quarters than it has been historically.
We continue to expect rapid growth in gross profit dollars in 2021 and plan to continue reinvesting back into our business as aggressively as we can with a year over year growth in operating expenses accelerating in Q3 and again in Q4.
For.
Hiring momentum picked up in our second quarter as we nearly doubled the number of new hires joining shopify quarter over quarter bring on more engineers and commercial talent to support our growth initiatives. In addition to increasing our commercial talent, we expect to ramp up our go to market programs and events in the.
Half of 2020, 1 as regions reopen finally, we expect stock based compensation and related payroll taxes to be $425 million and amortization of acquired intangibles to be $21 million for 2020.1.
Due to the sustained momentum of digital commerce trends in the first half.
Half of 2021 combined with the U S stimulus distributed in March and April this year shopify generated higher than anticipated revenue, while incurring lower than planned opex spend as a percent of revenue in the first half of 'twenty 'twenty 1.
As a result, we now expect full year 2021adjusted operating.
<unk> income to be above the level, we achieved in 2020.
In closing Shopify is investing in the future of commerce, and we're taking a multi pronged approach leveraging technology and talent by building the commerce infrastructure of the Internet innovating, new and improved products and expanding our relationships.
With a diverse community of partners, we are creating a global retail operating system that will help our merchant succeed in the years ahead and make commerce better for everyone.
Thanks, Amy before we open the call up for questions I'll remind you to limit yourself to a.
A single question that way more people will get a chance to ask a question on the call. This morning.
Ariel can you take the first question please.
Certainly to join the question queue. Please press Star then 1 on your telephone keypad, you'll hear atone acknowledging your request if you're using a speaker phone.
Pick up your handset before pressing any keys to withdraw your question. Please press Star then 2.
Our first question comes from Craig Maurer of Autonomous Research. Please go ahead.
Yes, hi, thanks for taking the questions.
So 2 questions.
Please 1 around payments.
Regarding the shop pay announcement, you guys had during the quarter.
Around making the shop pay button available on non shopify platform to non shopify platform merchants is there an opportunity to.
Take the shop pay button to a full stack processing solution.
And connecting with stripe on the back end to be a full stack Paypal competitor.
And secondly.
We heard that Shopify is now powering a large global brand in Brazil.
<unk>.
Is that large global brand pulled you into Brazil, and I was wondering what the growth opportunities are for shopify going forward in that region. Thanks.
Hey, it's Harley I'll take that question on the international side, I mean, as Amy discussing her in her remarks.
<unk> is while international remains an important part of our of our business on a growth story in fact merchants from outside North America grew as a percentage of our total merchant mix in Q2 year over year and year over year <unk> growth in the rest of world actually outpaced North America in Q2, 2021, So we're seeing more international merchant that are joining and theyre succeeding.
Brazil, Shopify, and obviously, we're stepping up our growth marketing or sales on our support efforts in places like like Brazil, and all over the world. So it isn't necessarily any particular focus on Brazil per se, but their merchants around the world 1 for looking for retail operating system and Shopify certainly is as a favorite of theirs and then we're able to help them sell.
On way that they want in terms of sort of the shop, Hey, a question look I mean, the ability we think shop pays the best way to check out on the Internet. It's fast it's secure merchants love it because it helps with conversion rate consumers love. It because it allows them to check out really really quickly so making that available on more services, whether its on Facebook or it's.
On Google or on Instagram.
Shopify merchants and also to non Shopify merchants, we just think that's the right thing to events Congress.
And this is Toby.
I think your question specifically about how far we can take us beyond the.
Shopify platform.
I think for everything that I shop has been so successful.
It's highly bespoke to particular to Vishal for fed platform like we can bid and are based on assumptions that you can make about to the merchant and backup abilities, because stay up because of our vertical integration.
Do you have no.
I think.
If we go beyond the realm of a platform for its customers.
So then we would have to lose a lot of differentiation. There. So fast no that would be an adjacency for for the product and we have no such plans.
Okay. Thank you so much.
Our next question comes from Thomas Forte of D. A Davidson. Please go ahead.
Great. Thanks for taking my question. So wanted to know what the financial implications are of not collecting a commission on the first million dollars of revenue for developers on Shopify and Laura on your take rate after the first 1% to 15% from 20%.
Yeah.
And then change on the App store and theme.
The revenue model that was announced at unite are not material to shopify. Its results in the back half of this year or for the full year and I want to emphasize that while it's not material for us it is material for our developer partners.
And we are.
Are committed to our developers and believe this is the right long term benefit for our merchants and our partners to help them be more innovative and creative on behalf of our merchant and to keep more of the dollars in their pockets and so that any short term.
Losses.
Of of revenue in the back half is immaterial to us and well worth the long term benefits.
Alright, thanks for your time.
Yeah.
Our next question comes from Ken Wong of Guggenheim Securities. Please go ahead.
Alright, Thank you for taking my question.
I just want to prep for for Tobi or Harley.
Just over the past month the company has introduced.
Merchant shop, App conversion of ads and the partner App store and we've seen theoretical headlines like an audience network out there how are you thinking about advertising as a product category and in what areas do you think makes sense for shopify.
For 5 to potentially monetize on the on those products.
Yeah.
Okay.
[laughter] per berth no 1 like [laughter].
Like approach you're asking for what are you hearing about is a lot of day early experimentation I, maybe the nature of advertising is like it's that day.
How to conduct a test, but no 1 fees because I don't think but for.
Any of you for data so.
There's a bit of loading and public going on there.
And.
Look back with some value or merchant, obviously you want.
2.
Deepened their relationship with their existing.
Buyer base.
Sharp is specifically really good enriched nature of the bridging that gap is.
Current people get trying to discover.
And.
We had taken advantage of some opportunities again.
No companies out of journeys product for journeys, sometimes you don't quite know where it leads.
Suddenly didn't when I started thought that we would be building fulfillment warehouses.
Or do loans and to a degree.
And advances to the degree that we're doing now so.
Again I. Thank you.
Youll see a day early representation of early attempts there and be really.
Our line of sight on what that does to revenue and certainly not body are trying any of those things BBB via.
Figuring out what the right mix of prices for new merchant towards trying to vote on our business and reach for independence.
And if advertising from us put us in.
Happenings is part of that.
Hopefully notice over next yes.
Well, thank you Ken.
Our next question comes from city Pentagon of Mizuho. Please go ahead.
Hey, Thanks for taking my question.
It's impressive.
Some me this record GMB I know you guys don't disclose much sense, but how do you say the trains in <unk> for motion.
On a train this year and also especially in July what what do you see and then what's your expectation on.
On the trend for the remaining of the year.
Yeah, and the productivity of our merchant has remained strong on the platform as it is Harley said in our opening remarks, the $42 billion of G. M. D. On the platform was was a record.
And so on <unk> per merchant remains strong.
Year over year, and it's really the combination of what Harley talked about Pls, our physical retail G M B a.
<unk> has had 4 consecutive quarters of acceleration is now back to the percentage mix pre COVID-19 on much higher G. M D levels. They.
So we're seeing.
Drawn on productivity there.
And with respect to online G. M. B, we do believe that it has reset at a higher level and is now just growing at a more normalized level.
Level and so we use the UK as an example of 1 of the economies that reopened for.
<unk> Street, and our UK GMB grew faster than our average, suggesting that when we equip merchant with multichannel.
They do better on a very fluid commerce environment. We also saw social G. M D increased substantially.
It's still small.
Small as a percentage of our mix that the growth quarter over quarter and year over year was significant.
And so these are all things with the multichannel approach that we expect will help continue to keep G&A per merchant strong.
Thank you Cindy.
Our next question comes from Trevor.
<unk> of Barclays. Please go ahead.
Great. Thanks for taking the question can you talk a little bit about the impact either qualitatively or quantitatively that merchants are seeing from their ability to use Facebook and Instagram AD targeting just in light of IBSA. We're hearing a lot of noise around this and I would just be helpful to hear.
How it's impacting your merchant and by extension the <unk> growth and then how you're adapting to enable that targeted advertising. Thank you.
Thanks, Trevor So I think we mentioned this on previous earnings calls, but just you know.
In the near term, we do think it will reduce the efficacy of some adds but I think.
Further we will incentivize merchants to look for new ways in multiple ways to connect with buyers on top of ads getting increasingly expensive. So longer term, we expect merchants will benefit from further embedding commerce itself into surface areas across the internet and in person, whether that's re targeting or its apps like.
They give more control to the buyer who is actually opted in.
On Shopify have.
Always been resilient, whether it was through the pandemic or through different technological changes and we think they'll continue to be resilient and find ways to connect with buyers.
Thanks, John that's really helpful and just a.
Our.
Sharp's question comes from Matt Pfau of William Blair. Please go ahead.
Hey, guys. Thanks for taking my question just wanted to ask a question on the impressive point of sale uptake that youre seeing.
Do you think that this is more tied to economies reopening in physical stores reopening.
Our net or is it more driven by some other product enhancements that you've made around point of sale. Thanks.
So I think a couple of things so in terms of retail point of sale of <unk>. We are seeing that it is nearly back to pre COVID-19 levels as a percentage of overall GMB, which again as Amy mentioned on the last question.
Is on much higher on <unk>. So it's physical stores reopen and merchants are better equipped with our upgraded hardware and software if theyre going to somewhat we did do we did rollout also all new shopify point of sale with new hardware and integrated payments in places in new geographies like places like Australia, and we're making great progress in places like UK and Ireland as well so.
Reopening to enable merchants in these regions to seamlessly bridge their online business on their offline commerce.
2.
<unk> point earlier that day.
It should not be mutually exclusive.
We also saw that 63% of our brick and mortar merchant English speaking geographies for now using some form of local in store.
Curbside pickup and delivery.
Solutions, that's compared to like 2% at the end of February 2020. So that's part of what we're going to see is reopening is going to happen, but also as retail has been reset through COVID-19 is that it will be retail everywhere and shopify the platform that powers retail everywhere, whether it's online or offline.
Thanks, Nick.
On the just.
Where truck base fares and other effects that.
Debt to EBITDA.
Point of sale product is not very good.
<unk>.
Previously, it's most differentiated feature of let's just set it both attached and right for the same real time databases.
On in store.
That's very valuable and so on right, but like we really took that product seriously I think for you on.
Rewrite on before at this point.
Just because.
So there's just a lot of learning and.
Our initial vision for pumps that are on absolutely.
Oriented this what's the point of sales industry has been doing but previously electric like.
Better implementation I think.
And then.
But all of the existing patents.
When in fact, you are seeing in a lot of spaces is that.
Second third fourth wave of software ends up being more digitally native like let's actually use exactly what that's like for policy for Apollo Internet power of touch devices.
So in Regulus case too to enable exactly what.
Like what they can bring instead of just making a touch version of a.
All it takes space point of sales system.
I'm very very happy with their point of sale is it's it's it's really really ready for.
To be adopted.
It's not for them and I think that has them.
I just didn't ask other estimate too.
Our next question comes from Colin Sebastian of Baird. Please go ahead.
Thanks, and good morning, everybody I Wonder if you could expand a bit on plans for shopify.
<unk>, plus maybe where you're focused.
In terms of the product roadmap to drive more merchant adoption and how much of that is geared towards the enterprise tier versus the mid market. Thank you.
Thanks for the question. So I've mentioned in my paired remarks, but but Q2 was it was a great quarter for plus more merchants on standard plans upgraded.
Shopify plus we also saw more international brands, joining plus to grow their business in terms of upgrades versus net new we're seeing you know we're seeing both on the upgrade side with adding more than 700000 merchants in 2020 that really does feed the pipeline for upgrades and obviously cash in that cases incredibly favorable.
On the net new on the competitive front. It is important to remember the size of our base relative to others, we add more merchants in a quarter than some of the other enterprise platforms have in total.
And so the Shopify brand affiliation Shopify plus brand affiliation keeps getting stronger.
Now easier to make changes quickly, which is something that a lot.
Both merchants want even the largest of merchants.
And also the total cost of ownership is still lower relative to to most others in terms of the features and functionality. We continue to add more functionality, we announced a number of new <unk> and new ways that you can actually get into the code base of shopify and be able to customize.
Object to do exactly what you want that came out at shopify unite so generally shopify plus is really becoming a favorite for the mid market, but also for some very large merchants I've been working on my favorite T shirt retailer James Pearse for about 60 years to migrate over to Shopify, plus and now it was finally, the right time for them to do it. So we think that shopify.
<unk> plus is really well positioned to keep not only having.
More homegrown stories migrate from from our basic plan, but also migrations from other enterprise platforms in the future.
Thanks Colin.
Our next question comes from Simeon Savannah of Jefferies. Please go ahead.
<unk>. Good morning. Thank you for taking my question. So maybe just on the cross border side of the business. We were wondering if you could maybe share anything around cross border volume is going to shopify merchants and how we should think about the cross border opportunity in the installed base, especially with that globally partnership. Thank you.
I mean, I think commerce in 2021 is is cross border.
How it operates.
When in the early days of Shopify, you started to sell in your own backyard in your own country on your own region that isn't that's not the case and so whether it's with partnerships globally or its more functionality to do currency conversion things of that nature. We.
In order for us to be the platform of choice for the most importantly merchants and brands in the World day by default to sell internationally and we've been working on international whether it was things like activating new partnerships with new agencies, new developers in different countries to make sure that our product is well localized or its new languages, where its new payment.
Our.
Pushing shopify payments into more geographies, we're a global company and our merchants are also global companies and so the way for us to maintain our position and the leadership position of being the retail operating system for the best brands is to make sure they can sell wherever they want.
Thanks for that.
Our next question comes from Josh Beck of Keybank. Please go ahead.
Thank you for taking the question I wanted to triangulate on a couple of the data points you share. So the social channels seem to have been very strong it sounds like there was multiple.
Polls.
Levels types of growth and then point of sale also rebounded close to pre COVID-19 levels. So I'm just curious if you play out both of those trends for 3 to 5 years do you see the social channels starting to approach maybe the contribution to your business.
Within point of sale, just curious if you're maybe revisiting that equation on the other side of it.
Of Covid here.
Yeah.
Listen I think.
Thank you.
Yeah.
It shows on channels are becoming increasingly important part of the way commerce.
Is happening and will happen.
On the rank order of our G. M D. Max continues to be the online store them offline.
As second and then all social channels on marketplaces third.
And the social channels on marketplaces today represent a small percentage of the mix, but growing very rapidly. So it will take.
Some time before it becomes a.
As part of.
Our G M D next but having said that I mean, I think that's the beauty of <unk>.
<unk> on the multichannel aspect is we can be anywhere commerce.
Moving to in the future to be flexible on behalf of our merchants.
Efficient in order to provide.
Additional ways to access buyers.
And so I view it as a positive that we have multi channels in every merchant is going to use those channels on a slightly different way that benefits the business.
On the best and so our aim over time will be.
To to offer multiple channels that you see today and new ones that are created over time.
Thank you Josh.
Our next question comes from Paul Treiber of RBC capital markets. Please go ahead.
Oh, thanks, very much and good morning, just a follow up question on Internet.
National just for.
On your international strategy.
What priority are you putting on securing additional partnerships or building on your partnerships with local marketplaces and channels and bigger picture you know to what degree can you scale and decentralized support for more marketplaces and channels.
So whether it's.
Looks like you know Europe Western Europe for example, place like Germany, and France for its other.
On the other geographies around the world on APAC part of making sure that we have a global retail operating system is to make sure that we not only have local partnerships in terms of our partners seem partners that are building software.
On top of Shopify that actually is relevant and valuable for merchant in that geography, but it's also making sure that that debt the surfaces that consumers in those geographies and want to buy on.
Our integrated into Shopify, so the partnership.
Our strategy around international has always been a part of what we said we were going to do.
Just building software and translating does not sufficient we also need to make sure that it's properly localized in some geographies. There are marketplaces that raki Tinder for example to integrate within Japan would not be relevant as in it as a marketplace.
And in another geography in Latin America, so that localization actually is really important and the good news.
Because we do have demand for merchants and all of these geographies. It is becoming easier for us to develop these relationships with both app developers seem developers, but also these marketplace partners.
Thanks, Paul.
Our next question comes from Darren <unk> of Roth Capital Partners. Please go ahead.
Hey, good morning, Thanks for taking my question.
Brought on a lot of merchants as Covid kind of hit a last second quarter on that ramp I'm, just kind of curious as we kind of anniversary that.
What the sort of sense of retention as amongst other new merchants that were brought on thanks.
Yeah. The retention on the merchants that have been brought on over the past year pass through Covid has actually been a very strong, especially the cohorts that came on.
At the height of Covid, especially in end of Q3 as the 90 day free trial converted.
Good they were those cohorts, where more established businesses rushing to get online other than mix was as.
As we've moved through Covid. The mixes is now shifted back more towards a pre COVID-19 levels with a mix of established businesses and entrepreneurs coming.
Was but but the retention rates are have been stronger than pre COVID-19 levels over the last several quarters.
Thank you Darren.
Our next question comes from Egalet Iranian of Wedbush Securities. Please go ahead.
Thanks, Good morning, everyone.
That's about all my store 2.0, and the impact of having customizable storefronts.
How much of a pinpoint was that for merchant merchants.
You know about this was a big focus for you guys.
Is it do you see it more.
Contributor to shopify plus or overall.
Maybe on the conversion from from the base tiers to Shopify plus.
Talk a little bit more about your expectations on on how that can drive merchant growth and retention. Thanks.
Yeah.
North of Toronto.
On a schedule that they gave us a lot of things for world.
And until the same thing.
I wouldn't put it in terms of that it.
It made anything new possible like that for even more.
On truck for a launch.
And the launch of a template language, which allowed for caterpillar.
Who can design Ishmael on and see if that's what you're kind of thing for them to really build any kind of thoughts we have a great.
Variety come from and.
The reason why I'm.
Shopify Shopify store you might do if you basically say how to tell that is for sure because I'm still behind Hum.
The video quality on so that was always there.
Thing that shifted with on a third 2 O is how much of that is possible to do with out reaching into code. So it's really a step function and how many people can engage in with branding and customization and.
In the on in store just so too.
To tell the story that you want to tell on your brand wants to tell.
It is now a more.
A better mix between what the designers and for seemed to find enough interesting ecosystem can do north of App ecosystem can do and how they all deliver.
The extensions.
Just to Shopify and then.
People can pick and choose how they would like to show up put it altogether and then.
Most importantly.
Make this all happen day fast so 1 aspect before.
That was a challenge as bad debt.
Dialogue nature of Shopify.
This is Scott if he gave people a lot of rope and some managed for hanging on sets of it it's.
They're very big performance issues that came from a sudden app for instance.
This is all a little bit more.
Managed snow, but it allows us to monitor a visit relative to have come.
They answer for App ecosystem about the performance impact of their particular solutions.
And the new features that we launched are just extremely fast in the vote of commerce that's quickly loading.
<unk> really really leads to better conversion, it's a little bit weird to talk about it but like.
I like.
On a station like if you go into an extra physical store in a boutique, let's say and for floor for squeaky or like it's just it's just like.
Obviously sort of subtle human things about but that just kind of make for experiencing rent not good.
Like flow long tons about on the internet. So they matter, if you're trying to better relationship with them.
Net debt for new business that you have just covered so.
On answer to all basic.
On the NIPA was 20 or 30 different projects on a lot around etch for hosting.
And new Vms and whatnot.
But the interest out of it is just it's now really really easy to just show up and what.
We think it's best possible way for <unk>.
Millions of businesses that are on shopify so.
But the answer for question.
Thanks, a gal.
Our next question comes from Chris Merwin of Goldman Sachs. Please go ahead.
Okay. Thanks, so much for taking my question.
I just wanted to ask about the adoption of payments among shopify plus customers.
I think historically, that's running a little bit below what you've seen with core and just curious how the <unk> payment gateways might be helping <unk>. Thank you.
The shopify payments.
Adoption for plus and GPC penetration has continued to increase.
Over time as we've added more value on top of shopify payments, including the accelerated checkout weighted to <unk>.
As well on multi currency and other things. So is it continues to be on a major contributor.
2 the reason why our G. P V numbers and penetration have been increasing over time, and it's increasing in mix year over year.
For.
So that should give you some view it's it's it's it's a it's growing nicely.
Thank you Chris.
Our next question comes from Brian Peterson of Raymond James. Please go ahead.
Oh hi, Thank you for taking the question this is for tobi or Harley.
But you announced a big partnership.
Agreements this quarter on I'm curious what is the north star for Us to think about in terms of partner or build or buy as you guys have scaled just curious to get an update on that thank you.
Okay.
Well in terms of.
We make decision on what to build what to partner with and what to buy look we want to be the most important piece of software that our merchants use we are that centralized operating system.
I think some of the partnerships, you're referring to you Eric with companies like Google and Facebook for example.
Again going back to what we said beginning of the call Commerce is now happening absolutely everywhere.
And we want to make sure that the merchants that use shopify can sell absolutely everywhere.
The town squares.
Modern day, our social media and or on the Internet and are off and our offline as well on their everywhere and so it's important that wherever consumers could be potentially looking to purchase that shopify merchant show up there.
In terms of hand from a merchant perspective, they're all neatly feeds back into with centralized back office, where they can run their business. So whether it's Google search or if on Instagram or it's on all the other channel migrations, we have that as a really important now again over time, you're going to see more of these surfaces show up where commerce is happening and it's our responsibility to make sure that were integrated there.
To make sure that merchants can access those for those customers and of course as more as more of those services.
Come to life that increased the complexity of commerce on running a business a modern day business and that also increase the value that I think on shopify provides to our to our customers in terms of the the methodology I mean look shop we.
And we want to provide what most merchants need most of the time, we want to do that on a world class level and there are some times, where it's faster and better and more effective for us to partner with and other technology company. We've developed a really good relationship I think in the market for being a company that builds a incredible software and particularly.
On a really good partners, but there are other times, where we.
Just need to build that ourselves because it's just mission critical and we think that we can actually deliver.
The best product on the planet.
Thanks, Brian.
Our next question comes from Keith Weiss of Morgan Stanley. Please go ahead.
Excellent. Thank you guys for taking the questions and congratulations on.
A really strong quarter.
And really be almost all inspiring kind of expansion of functionality you guys have been able to push it into the platform over time.
Really impressive to watch I wanted to talk about kind of 1 of those expansion area of Shopify fulfillment network.
And just kind of get an update on kind of where we are in terms of opening.
And the aperture how are you guys getting more comfortable with kind of that program and where are we in terms of the timeline of getting more merchants in there because what we do here in terms of feedback for merchant that are using it as a very positive it sounds like there's a really good feedback on what you guys have put together so far.
I'll start our shut that off so I mean, I think S. F. N is a continued well continue to build the foundations for S. F. N. We have been introducing features to help merchants manage product fulfilled on our network. We're also improving shipping speed or improving accuracy, and we're adding things and managing new preference you know things like staff notifications.
Opening I think there were 3 things that were added in Q2 in particular to SFA, which I think are have added a lot of value..1 is improved inventory management now merchant can can hide products and variance that are no longer being sold are fulfilled with SFA and so that enables merchants to keep product on various skus organized the second thing was we improve shipping accuracy and speed.
We introduced new tools that it validates things like shipping addresses and reduces errors and the third piece is capabilities to manage merchant preferences, I mentioned staff notifications, but these things all in aggregate all create real value. We also are having.
Have a better sense now of who the SF and target customers are again, we are still in this product mark.
And so we know that.
Self shippers that are fulfilling between 10, and 10000 orders a day durable goods with pick pack and ship needs and where brand experience is front and center and they want their brand to look good when the consumer receives it that is really where we.
Where we're spending our time.
Right now the volumes on Q2 were similar to Q1, and we continue to add more more more merchants to SSM, but again. This is still a really important project for us I think we're still on that product market phase a product market fit phase and over time, you'll continue to see more of these functionality come out on more merchants adopt it but it is important to get this right.
Thank you Kate.
Our next question comes from Brent Graceland Piper Sandler. Please go ahead.
Good morning question here for hardly on the online versus offline commerce opportunity.
On the vast majority of Shopify GMB is driven by powering online commerce, but you talked about kind of pls probing very robust.
Bust for quarter of accelerating offline retail G M D.
Clearly there is a blurring the lines between kind of the digital experience for customers want online versus offline I guess my question for you or what is shopify doing to capture and enable more offline commerce, specifically is it going to be tied to the Pls pro product are there new products you can do the.
Capture more offline commerce any thoughts there around just the opportunity and how big offline commerce can be given historically the focus has been on power online.
Yeah remember that historically.
Most business were created offline and then moved online that's no longer the case anymore and so by Shopify.
Shopify being the place where more entrepreneurs gets started every 28 seconds a new entrepreneur gets there for sale on Shopify business are being started online and by making sure that we are the debt.
That retail operating system that you are talking about when they do decide to move offline. If the product is great and as Toby mentioned earlier, our point of sale product is great.
And we've spent a lot of time on a lot of money and effort focusing on making sure that that product is is best in class and so the fact that they may start with Shopify, that's where their inventory is that's where they spend their time when they when they go to work in the morning. They open up their laptop where they start is the shopify admin. It makes it a lot easier for us to be their point of sale partner when they decide to transition.
And in terms of the legacy point of sale market. We are also starting to see more legacy.
Our merchants that are started offline begin to use shopify point of sale as well they are using it because the product is really good but also because every business today and frankly for for the next the next 100 years is going to be Omnichannel talking.
Any channel going forward will be like talking about color television every business by default will be omnichannel and shopify is the platform that enables that so I think the opportunity for point of sale is there again back to Toby to comment about the on.
The point of sale hardware and software in the pro that we put out in the last for a while it's the best we think.
What about on out there right now it will continue to get better we'll continue to add more functionality to it but we think physical retail is a really great opportunity and to Amy's point, it's our second largest channel I don't need to growth.
Thank you, Brian and thanks, everybody for dialing in this morning.
This concludes today's conference call you may disconnect.
That guidance, thank you for participating and have a pleasant day.
Well I'm up here.
Uh huh.
Yes.
So.
For a deeper.
Right.
Yeah.
Thank you.
Good day.
Yes.
Yeah.
Free cash back again.
And that again.
On the margin.
In word zone.
Yes.
Free cash.
Jim back again.
Hey, Kevin.
On the channel.
Or.
Yeah.
Okay.
[music] up here.
Our guidance.
Hi, Chad.
Tom.
[music].
Things appear.
Judy.
Together.
On a day forever.
On the magic baggage.
Yes.
On the job moving baggage.
For you.
We are all for job Badger Badger.
Bad debt.
When you Omnichannel and magic.
Yes.