Q2 2021 Shopify Inc Earnings Call
Thank you for standing by this is the conference operator, welcome to the Shopify second quarter.
2021 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.
Quarter 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 are glad you can join us for Shopify <unk> second quarter 2021 Conference call. We are joined this morning by Tobi.
Conference at 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 could cause actual results.
To differ materially from those projected we undertake no obligation to update these statements except as required by law you can read about these assumptions risks and uncertainties in our press release this morning, as well as in our filings with the U S and Canadian regulators note that adjusted financial measures. We speak to today are non-GAAP measures, which are non as substitute.
Toby for GAAP financial measures reconciliations between the 2 can be found in our earnings press release from finally, we report in U S. Dollar. So all amounts discussed today are in U S dollars, unless otherwise indicated with that I'll turn the call over to Harley.
Thanks, Katie and good morning Shopify.
Shopify as momentum continued.
And our second quarter, a strong commerce trends prevailed and more merchants join and succeeded on our platform.
In fact, <unk> reached its highest level ever at physical stores more regions reopen their doors in the early days of the post pandemic recovery and as buyers continue to value the convenience that online tools bring to shopping Jason.
Point in places that have begun to reopen like the U K Jimmy grew faster than our overall <unk> 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 <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.
Whether it's online in store or through your favorite apps.
Our brick and mortar merchants illustrated this as they adapted to the accelerated shift to digital commerce in 2020 and are now 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 Jim be.
Even on these higher G&P levels at physical stores reopen and merchants are better equipped with our upgraded hardware and software.
More locations adopted point of sell pro and our second quarter for its modern omni channel features like buy online pick up in store, which was adopted by 63% of brick and mortar merchants in English speaking.
And 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 fact 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.
Ron apps, we continue to expand key partnerships we.
We deepened our partnership with Google in Q2, making it easier for our merchants to sell on Google through a simplified onboarding process and extending our accelerated checkout sharpei to all U S merchants selling on Google whether they use shopify we're not.
Buyers love using shop day to check.
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.
Traction for shop pay on Facebook, and Instagram with more buyers opting in and a larger share of <unk> 3 day services 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.
Continue shifting to mobile devices mobile shopping from Shopify merchants has to keep getting easier and more fun if they were 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 <unk>.
By customizing their store profiling 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 discovery on shop for local businesses, LGBTQ, plus owned 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.
Dollars 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 makes shopify and our suite of solutions, even more valuable as a result merchants from making greater.
<unk> merchant solutions.
Shopify capital is a great example, we funded more merchants 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 <unk>.
Use of <unk> for us in capital.
Us 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 its other.
Record growth, namely Shopify shipping apps themes 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.
Their solution being and Shopify fulfillment network complete the car to door 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 shop, our fulfillment network to benefit from our full service fulfillment offering.
Merchants and their buyers.
She also making use of our newer merchant solutions 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 onboarding available to existing merchants.
While.
G M V transacting through sharp pain stomach more than tripled in Q2 over the prior quarter as more buyers are using our product to checkout. 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.
Another great quarter as large brands continue to turn to Shopify plus to help make the complex simple in Q2 more merchants on standard plans upgraded the shopify plus and more international brands joined Shopify plus to grow their businesses.
The list of brands that launched on Shopify, plus recently is stellar global entertain.
Payment 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.
Famous coffee brands Stumptown.
Cash and Peet's coffee children's clothing brand Justice.
And more CPG brands from Nestle and Mccormick.
For us 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 debt.
Copper focused partner conference Shopify, unite 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 our merchants can build their stores quickly without touching code, while giving Max code access to developers, allowing.
<unk> developed a 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 or scalability.
A faster and more powerful checkout designed to give each individual shop, the ability to handle as much sales volume as we served.
Allowing them cross all of Shopify at the peak of Black Friday Cyber Monday in 2020.
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 themes store developers on their first million dollars of revenue annually starting in Q3.2000.
'twenty, 1 making it even more attractive for tech talent to want to build the future of commerce with Shopify.
Our teams at Shopify had been heads down innovating over the past year during the plot from updates announced at Shopify unite to life.
Their incredible work has formed an even stronger commerce infrastructure for developers to build on we look forward to seeing.
Being the hard problems they will help us solve for our merchants.
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.
But over the past 12 months up 53% year over 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 entre.
Entrepreneurship remained strong and opportunities to thrive in a modern retail era.
Shopify tools are boundless.
Thanks, Harley 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.
With the Ram Shopify exceeded $1 billion in a single quarter. 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.
Recurring revenue <unk> growth.
Celebrated the 67% year over year to $95.1 million as more merchants join the platform and the number of retail locations using P. O S Pro increased.
Remember M or are in the second quarter of last year was impacted by the 90 day free trial on staff.
First time plan offered until may 31st and that we experienced a 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 quarter compared with Q1 <unk> added in Q2 was more normalized as economies reopen.
Standard Shopify, plus contributed $25.2 million or 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.
Through faster benefitting from a significantly higher number of 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 'twenty 'twenty.
<unk> $785.2 million. This 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.
<unk> capital and shipping and partner related revenue compared with the same period last year drove revenue from these solutions higher.
<unk> $23 billion of <unk> was processed on shopify payments in Q2 up 51% versus the same quarter last year shopify payments penetration of <unk>.
So 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 euro per year.
Merchant solutions revenue also benefited from the.
With sufficient of revenue in Q2 associated with non cash consideration or warrants we received from our strategic partnerships with a firm 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.
Recognize valued at the start of the prospective commercial contracts are deferred and then recognized into revenue ratably over the expected life of the contracts.
There are other revenue components to these products the non cash consideration component from those commercial agreements added approximately 3 percentage points.
2 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.
And in 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.
Adjusted operating income was $236.8 million in the second quarter.
<unk> compared with adjusted operating income of $113.7 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 or $1.05 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.
Value upon in subsequent to the company's IPO.
Finally, our cash cash equivalents and marketable securities balance was $7.76 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.
<unk> advantage to retain this financial flexibility, we filed 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 merchants succeed. This is reflected in our 3 key areas of investment.
It's fair to 'twenty, 1 shopify fulfillment network shop and international 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 introduced features that help merchants manage and organize the products to sell.
By our network via the merchant admin and improve shipping speed 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.
<unk> had another strong quarter continuing to deploy its the film and 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 gift.
Give buyers a great mobile shopping experience.
Our third key area of investment is international expansion, we introduced new retail Pos hardware that is integrated with shopify payments in the U K and Ireland in Q1 and in Australia. In May. This is helpful to gross payments volume as P. O S co locations.
<unk> trend upward and more importantly helpful to merchants, who are 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.
Them.
That merchants are able to reach a human who can help them navigate an 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 affirm 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.
Look our outlook for the remainder of 2021 is 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 20.
Money.
In view of these factors and Shopify is performance 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 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 in 2020, but higher than any year prior to 2020.
The growth rates of subscription solutions and merchant solutions revenue to be more similar to each other than in the recent past as we do not expect a surge in G. M. B that drove merchant solutions in 2012.
<unk> 'twenty to repeat and merchant solutions revenue growth to be driven by continued GMB growth from existing merchants 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.
H O 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.
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 the year over year growth in operating.
Being expenses accelerating in Q3 and again in Q4 <unk>.
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 team.
Operator, we expect to ramp up our go to market programs and events in the second half of 2021 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 2021.
Due to the sustained momentum of digital commerce trends in the first 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 2021as.
As a result, we now expect full year 2021, adjusted operating 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 merchants succeed in the years ahead and make commerce better for everyone.
I'll now turn the call back to Katie.
Thanks, Amy before we.
We open the call up for questions I'll remind you to limit yourself to a single question that way more people will get a chance to ask a question on the call. This morning.
Hey, Al can you take the first question. Please.
Certainly to join the question queue. Please press Star then 1 on your telephone keypad.
You will hear a tone acknowledging your request if you're using a speakerphone. Please 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.
Questions.
So 2 questions 1 around payments regarding.
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.
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.
<unk> is now powering a large global brand in Brazil.
Has 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 is while international remains an important part of our of our business and our 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 Q2.2020.
'twenty 1 so we're seeing more international merchants that are joining and they are succeeding on shopify and obviously, we're stepping up our growth marketing our sales and 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 are looking for a retail operating system and shopify.
<unk> is it.
As a favorite of theirs.
We're able to help them sell in a way that they want in terms of sort of 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.
Certainly 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 probably you can take us beyond for.
Sorry.
Platform.
I think for reasons I shall pass then for successful.
Highly bespoke to particular visual content platform like we can bid and based on the assumptions that you can make a bunch of emotions and debt capabilities, because stay up because of a vertical integration.
Do you have no.
I think.
Quickly if you go beyond a ramp for platform for its customers than we would have to lose a lot of a differentiation Vasco fast no that would be an adjacency for it for the product and we have no such plan.
Okay. Thank you so much.
Our next question.
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 dollar revenue for developers and shopify and lowering your take rate after the first $1 billion to 15% from 20%.
Yeah.
The change in the App store and theme revenue model that was announced at unite are not material to shopify is 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 developed.
Developer partners.
And we are committed to our developers and believe this is the right long term benefit for our merchants and our partners to.
To help them be more innovative and creative on behalf of our merchants and to keep more of the dollars in their.
Pockets and so that any short term.
Losses of revenue in the back half is immaterial to us and well worth the long term benefits.
Alright, Thank you for your time.
Our next question comes from Ken Wong of Guggenheim Securities.
Go ahead.
Great. Thank you for taking my question.
It's once a prep for for Tobi or Harley.
Over the past month, the company has introduced a search and shop App conversion of ads and in the partner App store, you know and we've seen theoretical headlines like an audience network out there how are you thinking about advertising.
As a as a product category and in what areas do you think makes sense for shopify to potentially monetize on the on those products.
Yeah.
There's no 1 like.
Like approach for you I think you what are you hearing about it for a lot of my early experimentation.
I I mean, the nature of advertising is like.
Conduct a test that no 1 fees because I don't think that would be.
For data so that's a.
A bit of learning and public going on.
And.
We always look back with some value.
Oh merchants, obviously 1.
2.
Deepening our relationship with existing mm bye.
Biobased shop, it's specifically really good and which nature of the bridging that gap is.
Currently what we are trying to discover.
And.
They're taking advantage of some opportunities again.
Yeah.
No companies out of journeys for products that journeys from that you don't quite know where it leads suddenly didn't when I started thought that people would be building fulfillment warehouses.
Or do loans and to a degree.
And advances to the degree that you are doing now so.
Again I. Thank you.
You'll see a very early.
Presentation of early attempts there and we really have no line of sight on what that does to revenue and for US is certainly not trying any other things.
B B.
Figure out what the right mix of process for our new merchant towards trying to build a business and reach for independence.
And if advertising from us put us in some means is part of that.
Hopefully no this over the next yes.
Thank you Ken.
Our next question comes from city Pentagon of Mizuho. Please go ahead.
Hey, Thanks for taking my question.
It's impressive to see this record G. M. D. I know you guys don't disclose much sense, but how do you say the trains in GMB for motion.
Train this year and also especially in July what what do you see and then what's your expectation.
On that trend.
For the remaining of the year.
Yeah, and the productivity of our merchant has remained strong on the platform as its Harley said in our opening remarks are the $42 billion of G and beyond the platform was was a record.
And so GMB per merchant remains a strong year over year, and it's really the combination of what Harley talked about pls, our physical retail GMB has.
Has had 4 consecutive quarters of acceleration is now back to you.
The percentage mix pre COVID-19 on much higher G M D levels they.
So we're seeing strong 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 and so we.
We use the UK as an example of 1 of the economies that reopened first and our UK GMB grew faster than our average suggesting that when we equip merchants with multichannel.
They do better in a very fluid commerce environment, we also.
<unk>, social DNV increase substantially.
It's a it's still small as a percentage of our mix, but 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 <unk> per merchant is strong.
So sad in Kansas City.
Our next question comes from Trevor Young 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.
In light of IBSA, we're hearing a lot of noise around that so I would just be helpful to hear how it's impacting your merchants and by extension <unk> growth and then how you're adapting to enable that targeted advertising. Thank you.
Thanks, Scott Trevor So I think we mentioned this on previous earnings calls, but just you know.
In the near.
We do think it will reduce the efficacy of some adds but I think it further.
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.
Near term across the Internet and in person, whether that's re targeting or its apps like shop, they give more control to the buyer who is actually opted in merchants on shopify has.
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 next 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.
There is 2 economies reopening in physical stores reopening 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.
<unk> of overall, <unk>, which again as Amy mentioned on the last question is on much higher G. M V. So its physical stores reopen and merchants are better equipped with our upgraded hardware and software if they're 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.
We're making great progress in places like UK, and Ireland as well. So we're trying to enable merchants in these regions to seamlessly bridge their online business and their offline commerce.
Jamie's point earlier that day.
Should not be mutually exclusive.
We also saw that 63% of our brick and mortar merchants in English speaking geographies for now using some form of.
And 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.
I'm going to just add but base fares and other effects that to about just for point of sale product, it's not very very good.
It was.
Previously it's.
Most differentiated feature of let's just set it for attached and right for the same real time databases.
And so it was very valuable and so on right, but like we really.
Local lot seriously I think for you on rewrite.
Rewrite and before at this point.
It started just because.
So there's just a lot of learning and.
Our initial vision for point of sale of a absolutely.
Oriented.
What's the point of sale industry has been doing but previously electric line.
Better implementation I think then.
But off the existing patents.
I think for 1 effect youre seeing in a lot of spaces is that.
The sort of second third fourth wave of software and for being more.
Italy native like let's actually use exactly what Blake for policy for Apollo Internet polo.
Across devices.
For in Regulus case, too to enabling exactly what line.
What they can bring instead of just making a touch version of a.
Oh, It tech space point of sales system.
I'm very very happy with their point of sales.
It's really really ready.
Total would be adopted.
On the platform and I think about it from.
The addition, accelerant for that too.
Our next question comes from Colin Sebastian of Baird. Please go ahead.
Thanks, and good morning, everybody I'm wondering if you could expand.
On plans for Shopify, 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 mentioned in my paired remarks, but but Q2 was a great quarter for plus.
For 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.
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 case, it's incredibly favorable on the net new on the competitive front. It is important to remember the <unk>.
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.
Easier.
To make changes quickly, which is something that a lot of merchants want even the largest of merchants.
And also the total cost of ownership is still lower relative 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.
New ways that you can actually get into the code base.
Shopify and be able to customize it 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.
So we think that shopify, 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 Simmons savanna of Jefferies.
To do is go ahead.
Good morning. Thank you for taking my question. So maybe just on the cross border side of the business. We were wondering if you can 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.
That's how it operates.
When in the early days of Shopify, you started to sell in your own backyard in your own country and 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 and things of that nature. We.
Please that in order for us to be the plot from of choice for the most important merchants and brands in the world day by default need 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 <unk>.
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.
<unk>.
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 to 3 to 5 years do you see the social channel 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.
Of Covid here.
Yeah.
Listen I think.
Inc.
Yeah.
The social channels are becoming increasingly important part of the way commerce.
Is happening and will happen.
The rank order of our G. M D. Max continues to be the online store.
<unk> line.
As second and then all social channels and marketplaces third.
And the social channels and marketplaces today represent a small percentage of the mix, but growing very rapidly. So it will take.
Some time before it becomes a.
<unk> part of our.
Our G M V necks.
But having said that I mean, I think that's the beauty of <unk>.
<unk> the multichannel aspect is we can be anywhere commerce.
Moving to in the future to be flexible on behalf of our merchants.
Pos 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 in a slightly different way that benefits their business.
The best and so our aim over time will be.
And 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.
Our national just for.
For 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 other.
If he is around the world in 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 merchants in that geography, but it's also making sure that debt 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 it 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 is.
Because we do have demand from 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 last second quarter and that ramp I'm, just kind of curious as we kind of anniversary that.
What the sort of sense of retention is amongst other new merchants that were brought on thanks.
Yeah. The the retention of 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 the 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 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.
2 ex 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 a from the base tiers to Shopify plus.
Talk a little bit more about your expectations on how that can drive merchant growth and retention.
Yes.
North of Toronto.
From a social that they gave us.
A lot of things for all of them.
And to the same thing.
I wouldn't put it in terms of it.
It made anything new possible like that for them.
For for launch.
It is a launch of a template language, which allowed for caterpillar.
For people, who can design Ishmael 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 like for a reason why.
Shopify Shopify store you might do if you basically say how to tell that is for shoppers are still behind Hum.
That video quality on so that's about all that's there.
Thing that shifted with on a third 2 O is how much of that is possible to do without reaching into quote. So it's really a step function and how many people can engage in with branding and customization and.
In the online store just so too.
To tell the story that you want to tell you Brian wants to tell.
It is now a more.
Like a better mix between what the designers and for seem to find enough interest ecosystem can can do and what the 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.
Dialed them.
The nature of Shopify.
Let's just call. It if he gave people a lot of rope and some managed for hanging in sense of it it's a day.
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 visit relative to have come.
They answer for App ecosystem about the performance impact of that particular solutions.
And for new themes that we launched are just extremely fast in the word of commerce that's quickly loading.
It's really really leads to better conversion, it's a little bit weird to talk about it but like.
I like it.
If you go into an extra physical store in a boutique, let's say and for floor, so squeaky or like it's just it's just like.
Obviously sort of subtle human things about but that just kind of make that experience and that's not good.
Like flow lot of times are back on the Internet. So they matter, if you're trying to better relationship with them.
Net new business that you have just covered so.
I'll answer 2 basically.
Underneath there was 2030 different projects for a lot around etch 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.
Think as best possible way for the millions of businesses that are on shopify. So.
But the answer for question.
Thanks again.
Our next question comes from Chris Merwin of Goldman Sachs. Please go ahead.
Okay. Thanks, so much for taking my question.
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.
Okay.
The shopify payments.
The option 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 where to shop.
As well as multi currency and other things. So it is it continues to be 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 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 know, it's a big partnership.
Agreements this quarter 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 other partnerships, you're referring to or 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 are on the Internet and our offline as well and they're everywhere and so it's important that wherever consumers could be potentially looking to purchase that shopify merchants show up there.
In terms of how long 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 for work on Instagram or it's on all the other channel operations, 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.
To make sure that merchants can access those to those customers and of course as more as more of those services.
Come to life that increase the complexity of commerce in running a business a modern day business and that also increase the value that I think that shopify provides to our <unk> to our customers in terms of 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 at a world class level and there are some times, where it's faster and better and more effective for us to partner with another technology company. We've developed a really good relationship I think in the market for being a company that built incredible software and particularly have been really good partners, but there are other times, where we just.
Just need to build it ourselves because it's just mission critical and we think that we can actually deliver.
For 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 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.
Any 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 from merchants 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 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, we're 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 merchants can hide products and variants that are no longer being sold are fulfilled with SFA and so that enables merchants to keep product in various skus organized the second thing was we improved 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.
I have a better sense now of who the SF and target customers are again, we are still in this product market.
And so we know that.
<unk> 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're where we're spending our time.
Right now the volumes in 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 and 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, a question here for hardly on the online versus offline commerce opportunity.
The vast majority of Shopify GMB is driven by powering online commerce, but you talked about kind of Pls pro being very robust.
Bust for quarters 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 here.
What is shopify doing to capture and enable more offline commerce, specifically is it going to be tied to the Pos 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 off line. 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 and 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 merchant that are started off line 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 in and frankly for for the next the next 100 years is going to be omni channel talking.
Any channel going forward will be like talking about color television every business by default will be omni channel and shopify is the plot from that enables that so I think the opportunity for point of sale is there again back to Toby to comment about the.
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.
He went 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 and it'll continue to grow.
Thank you, Brian and thanks, everybody for dialing in this morning.
This concludes today's conference call you may disconnect.
Thank you for participating and have a pleasant day.
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