Q3 2021 Shopify Inc Earnings Call
With shopify, its all new point of sale software supporting in store retail like no one else merchants can transition seamlessly between online and offline selling to give their customers an omnichannel shopping experience that is simple and that's convenient.
And now the point of sale pros available on Android devices more merchants around the world can benefit from our most advanced point of sale features.
This past quarter <unk> through our point of sale once again expanded its share of our overall GMB.
The launch of our integrated point of sale hardware in Germany, and New Zealand in Q3 contributed to this momentum.
With point of sale supporting the irreplaceable in person channel and keeps our physical main streets and town squares vibrant digital town squares and mainstream can be enriched in much the same way by embedding commerce into more services.
This allows merchants the ability to offer their buyers and organic shopping experience wherever they are.
With this we saw two more merchant problems brand ownership and building direct relationships with customers.
Social commerce can play an important role here, while adoption of social Commerce is still early it is growing fast for shopify, because we have been and continue to be at the forefront of multichannel selling.
In Q3, we expanded our relationship with Tic Toc, introducing organic product discovery and shopping tab, where products are linked directly to our merchants online store for checkout.
Since announcing our partnership with Tic Toc in October last year merchants have embraced selling on this channel.
And just last week, we launched our Spotify sales channel integration, allowing artist entrepreneurs to think their product catalogs and showcase their products directly on their Spotify profile.
As a platform shopify enables merchants to connect with buyers through social and search and a number of different ways.
While this most commonly happens via traditional ads placed more merchants are finding value using a shopify integrated marketing app or integration that takes buyers directly to checkout.
In fact, Jimmy generated through these valuable integrations for social grew more than tenfold from the same quarter last year and double digits sequentially.
More merchants integrated with our Facebook Instagram and Google channels in Q3 positioning themselves to be discovered by billions of potential buyers we.
We saw the share of Jimmy from these channels expand its contribution to overall <unk> quarter over quarter by several basis points.
Increasing sales conversion is a central problem businesses encounter that shopify is well positioned to solve shop.
<unk>, our accelerated checkout has been our primary tool for merchants to increase conversion and it is now available to U S merchants on Facebook and Instagram, whether they are on shopify or not.
Seeing early traction with a number of buyers checking with sharpie on Facebook and Instagram growing and orders ramping up on these services for shopify and non shopify merchants.
We remain on track to add shopify payments as the processor for all Shopify merchant transactions on Facebook properties by year end.
We expect this integration with Google, where shopify and non shopify merchants alike will be able to offer shopping at checkout to be completed in the fourth quarter.
<unk> is also the accelerated checkout for our digital shopping assistant shop, which helps merchants strengthen the relationships with buyers with the goal of extending buyer LTV.
As of Q3, we have brought the innovation of shop and its latest features to all the same 17 countries shopify payments.
Adding fast and easy checkout through shop in shop pay installments, both of which have proven to increase sales conversion and checkout speed as well as order tracking merchant and product recommendations and a growing number of curated shopping lists.
Both the number of shop registered in monthly active users, which includes both buyers that have opted into sharp pain as well as users of the app surpass all previous quarters in Q3.
And by the end of September sharp pain had facilitated more than $35 billion in cumulative <unk> since its launch in 2017.
Shop installments or buy now pay later product also leverages the power of sharp pain. So merchants can offer their buyers are flexible and convenient way to make purchases.
Shop installments, which has proven to boost repeat purchases among for some customers by 23% is clearly resonating with buyers.
In Q3, the number of repeat buyers quadrupled and the growth of <unk> transacted via shop installments accelerated over the previous quarter. Following the products released to all U S merchants in June.
One of the hardest problems entrepreneurs face as they scale is selling internationally.
That's why we're supercharging, our merchants cross border commerce capabilities with the launch of Shopify markets.
With 28% of traffic to merchant stores from international buyers Global Commerce is a major opportunity for our merchants to grow their business.
Shopify market's removes complexity for our merchants ladies them easily sell to buyers around the world from a single store.
Merchants are showing strong interest in chocolate markets. During this early access period with tens of thousands of merchants joining our waitlist.
Okay.
We're getting incredibly positive feedback on shopify balanced from merchants, who say, they're saving on fees and now have separation between personal and business finances.
They're getting faster access to their money saving time, and earning cash back into the rewards all of which goes directly back into their business to.
The axis innovations like Shopify balance sharpie installments, and shopify markets local pricing currency and payment features merchants need to be using shopify payments.
As more merchants, including Shopify, plus and retail merchants are adopting shopify payments penetration continues up into the right accounting for nearly half the Jimmy transacted in Q3.
Well no longer new shop like capital is no doubt among the innovations merchants cherish on shopify.
Shopify capital had another record funding quarter as we help merchants by inventory and get ready for B F. C. M <unk>.
<unk> increased the amount financed merchants, 56% year over year and cumulatively funding $2.7 billion since its launch in 2016.
Another established Mercury solution that makes growing our business easier and more affordable for our merchants to shopify shipping, which we expanded to the U K in Q3 <unk>.
<unk> is also making commerce easier for larger brands through Shopify, plus we're equipping high volume merchants with the ability to move fast and tell their own unique brand stories through the flexibility of our platform.
All for a lower cost of ownership.
In Q3, more merchants join Shopify, plus with a healthy balance of brands upgrading from center plans and coming into the platform.
Some exciting international brands that launched in the quarter included French beauty retailer Lexington.
Swiss computer manufacturer Logitech.
Japanese minimalist retailer muji.
Dutch fashion label, Scotch <unk> soda and healthy life, the health and wellness business by the giant Australian retailer Woolworths.
Celebrities and creators are also joining shopify to share their passion and own their brands.
Superstar actress, Jennifer Aniston launch for sustainable Air care branded low Levy and basketball Star Jimmy Butler launched his big faced coffee brand to our creator program, which helps creators match their influence with ownership.
Some other notable brands that launched in Q3 were Shapewear Trailblazer Spanx.
Casual apparel brand dockers.
Apparel and accessory brand Franken oak.
Children's equipment manufacturer even flow.
Home storage company Tupperware.
Unsubscribed by lifestyle clothing brand American Eagle.
Luxury fashion House, Kenneth Cole and more CPG brands from Nestle and General Mills.
Retailers looking to modernize their operations by leveraging the customization capabilities and the flexibility of our platform go to Shopify plus case.
Case in point, essentially old Florist network F T D.
Since its days as a telegraph delivery company for flowers in the early 19 hundreds at TD has successfully evolved with the retail landscape and is now again modernizing its retail technology with shopify plus to provide intuitive and streamline shopping experiences.
We're excited to work with F T D to help them and their extensive partner network bring beautiful flowers and memories to their customers.
Shopify builds the essential internet infrastructure for Commerce, we've made it easier and more attractive for a talented partner ecosystem to support our merchants by building on and for Shopify earlier.
Earlier this month, we launched our global ERP program with ERP heavyweights, such as Microsoft Oracle, Netsuite and bright Pearl building integrations into the Shopify App store.
By integrating these apps are more complex merchants can seamlessly connect their workflows saving them time, and money and giving them direct control over their data.
Another. Good example is roku, which is working to launch the first ever television streaming advertising app on the sharply appstore expected in time for the holiday shopping season, making easier for small businesses to afford advertising on television.
Our partner ecosystem also helped more merchants to start their journey on shopify with over 43000 partners, referring at least one merchant over the past 12 months.
As our merchants gear up for the busy holiday shopping season, Shopify and our partners are ready to help them capture opportunities to build their brands and sell their products to buyers wherever those interaction may happen.
As part of our commitment to empower our merchants, we extended our far reaching support for our merchants in August opening our second brick and mortar space in New York City. In addition to reopening our L. A space in October.
These spaces help address another problem common for entrepreneurs, it's lonely works.
By giving them a one stop destination to access community education support and creative spaces merchant can level up their knowledge network and their business.
Before I hand, it over to Amy if my long list. This morning of the many challenges faced by our merchants makes entrepreneurship sound hard that's because it is.
It will always be hard that's the nature of entrepreneurship, but the good news is that all of these features I just laid out are all the areas, where we're making things not just easier but better. This is how we make commerce better for everyone.
Thanks, Charlie we're pleased with our progress this quarter as our outlook for the year unfolds as we had anticipated with consumer spending on services in physical retail expanding in the corner as most markets began their post pandemic recovery. The shift was more pronounced in July with travel and entertainment spend increasing in the beginning of summer.
And online spend dipping in July as a result, and then improving in August and September as kids went back to in person school and people started to return to their workplaces.
As the World begins to return to some normalcy in the extreme levels of online shopping over the past year make way for more in person retail and experiences ecommerce as share of overall retail has reset lower than the peak last year, but still several points higher than it was two years ago and is poised to resume a more.
<unk> rate of growth and continue its share gains of retail over the long term.
It is in this new normal that shopify serves as the essential internet infrastructure for commerce for our growing base of entrepreneurs around the world, where commerce happens online offline and everywhere in between.
Amidst this backdrop revenue in our third quarter grew 46% year over year to $1.1 billion driven by strong performance from both our subscription solutions and merchant solutions segments.
Subscription solutions revenue increased 37% over the same period last year to $336 $2 million largely due to strong growth in monthly recurring revenue.
<unk> grew 33% year over year to $98 $8 million as more merchants joined the platform and the number of retail locations using P. O S Pro increased.
Shopify, plus contributed $27 $2 million or 28% of <unk> compared with 25% in Q3 of 'twenty 'twenty.
Subscription solutions revenue in <unk> year over year growth were impacted by the double cohort effect in our third quarter last year, and which users of both the 90 day extended free trial on standard plans offered until May 31st and 14 day free trial converted into paying merchant in last year's third quarter.
Subscription solutions year over year revenue growth was also impacted by our new App and theme revenue model implemented in August and September respectively of this year, which reduced subscription solutions revenue by approximately $11 million in Q3 2021.
This represents about 1% of our total revenue and while not material to us is material to our developer community over the long term.
Merchant solutions revenue grew 51% over Q3 2020 to $787 $5 million. This growth was driven primarily by G. M. D expansion, which was up 35% year over year on a much higher base of G. M b to $41 $8 billion, bringing the G N V generated.
<unk> in the first three quarters of 2021 above what our merchants did and all of 'twenty 'twenty.
Our aggregate level of GMB held burn quarter over quarter. Despite the increase in consumer spending towards travel and entertainment I mentioned earlier at the start of summer 2021 and government stimulus in the U S that benefited Q1 and Q2 anticipated in Q3.
Within the quarter GSV performance mirrored broader consumer spending month by month in Q3 any impact of G. N V from supply chain issues or Apple's changes to idea Fe are harder to discern.
<unk> inventory levels and delivery times were consistent versus Q3 last year and <unk>, followed the same macroeconomic patterns regardless of operating system.
However, it is hard to be certain that cost increases whether to materials labor shipping or advertising had no impact on G. M D.
We believe our software and services better position merchants to have room in their margins to absorb these inflationary pressures and engage buyers across multiple sales channels and merchants remained resilient in the quarter as a result.
Our merchant segment had solid growth in the quarter with G. M V outside of North America, Shopify, plus G. M. B N P. O S. G M b, all gaining share quarter over quarter and year over year.
Our strong year rare growth in merchant solutions revenue was driven by increased G. M D penetration of shopify payments compared with the same period last year on strong growth in merchant sales in Q3, 2021, combined with new revenues from several strategic partnerships, namely affirm and global E relating to merchant services.
Product performance obligations, which we began highlighting in Q2 of this year.
$25 million of <unk> was processed on shopify payments in Q3 up 47% versus the same quarter last year Shopify payments penetration of Jan B was 49% versus 45% in Q3 2020 with gains realized across channels merchant segments and geographies as we have rolled.
Out our Pos hardware with integrated payments to more countries shopify payments penetration for our P. O S channel is now higher than our G. P V overall and more high volume Shopify, plus merchants adopted shopify payments, which also introduced incremental levels of G. P V.
Adjusted gross profit dollars grew 49% over last year's third quarter to $616 $4 million.
Adjusted operating income was $148 $2 million in the third quarter compared with adjusted operating income of $139 million in the third quarter of 2020 in Q3, we accelerated our opex spend stepping up our hiring of R&D and commercial talent as plan and executing on growth.
Marketing initiatives adjusted operating income excludes a $31 million impairment relating to the planned termination or sublet of additional lease agreements for office space that we ceased using in the third quarter, resulting from our decision to work remotely permanently, which we announced in our second quarter last year.
Adjusted net income for the quarter was $102.8 million or <unk> 81 cents per diluted share compared with adjusted net income of $148 million or $1.13 per diluted share in last year's third quarter. Adjusted net income in Q3, 2021 excludes a one.
$3 billion unrealized gain on our equity investments.
Finally, our cash cash equivalence and marketable securities balance was $7.52 billion on September 30th compared with $6 three $9 billion at year end.
Shopify is well positioned to continue building the commerce infrastructure independent merchants need to compete with the biggest retailers around the world Our key investment areas Shopify fulfillment network shop, and international expansion strengthen our merchants toolboxes and puts these capabilities into the hands of more entrepreneurs.
In Q3, we continued to build the foundation of Shopify fulfillment network to offer simple fast and affordable fulfillment to our merchants. We added features that reduce complexity and help merchants sell more including product bundling regional tax setting and tracking inbound transfer shipments of inventory or shopify fulfillment network.
Team has also been heads down preparing for the upcoming Black Friday, cyber Monday shopping weekend, which typically kicks off the busiest shopping period of the year for our merchants ramping up services at our fulfillment centers. In addition, we're educating our merchants on how to optimize their operations in time for the peak selling season while.
<unk> supply chain, uncertainties and increased shipping demand through a combination of webinars blog posts merchant newsletters and events.
Six River systems warehouse fulfillment solution is ready to help effectively manage the influx of volumes at our network nodes as well as at their customers' warehouses demand for wall to wall fulfillment technology remained strong in Q3 with six river systems' revenue more than tripling year over year as bookings increased.
We ramped up our pace of deployment.
Turning to our second key area of investment shop hardly highlighted earlier the significant progress we've made in expanding shops reached 17, new countries, where we offer a shopify payments. We're also working to position our merchants for a successful holiday shopping season, we're making it easier for buyers to discover new products.
The merchants they loved the more curated experiences while enhancing the utility of shop through features like shop pay installment and order tracking.
Our third key area of investment is international expansion Shopify.
Shopify is making it easier for merchants to sell almost anywhere we announced shopify markets in September Shopify markets gives our merchants the backend tools to scale their businesses internationally and the front end tools to offer buyers. The most intuitive experiences and serves as a great complement to our offering with our partner Global E.
Which gives merchants the option for a more full service outsourced solution.
In addition, the expansion of Shopify P O S to Germany, and New Zealand gives more merchants around the world a unified commerce experience with best in class Omnichannel capabilities.
As we improve the product market fit of Shopify, and our focused region more entrepreneurs are joining shopify and our merchants are succeeding as we saw our base of merchants and G. M. B outside North America increase as part of our overall mix in Q3 compared with the same period last year.
As a reminder, we are building a portfolio of growth initiatives with different return time horizons that we expect will contribute to shopify is growth over the long term.
Initiatives like international expansion and shop by P. O S, which we embarked upon a few years ago are further ahead in product and market development and some of our more complex and groundbreaking initiatives like Shopify fulfillment network and shop, which are still in their early stages.
We are excited about all of our vectors of growth and the opportunities they offer to our merchants.
Turning to our outlook.
The economy remains resilient consumer spending on services and offline retail is expanding and ecommerce after easing from its peak share as a percent of total retail is growing at a more normalized pace relative to 2020.
In view of these factors, 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 revenues to be more similar to each other than for 2020 or any year prior to it as we do not expect a surge in G. M. B that drove merchant solutions in 2020 to repeat and merchant solutions revenue growth to be driven by continued G. M D.
Both from existing merchants, new merchants, joining the platform and expanded adoption of Shopify merchant solutions.
We continue to expect the fourth quarter to contribute the largest share of full year revenue and that the revenue spread will be more evenly distributed across the four quarters than it has been historically, while the commerce market, both online and offline maybe impacted by supply chain delays or increased costs for materials labor shipping or advertise.
In the fourth quarter and spending on Black Friday, cyber Monday may be pulled forward, we expect our G. N V. In the fourth quarter to continue to grow substantially faster than the commerce market.
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 slightly in Q4. After excluding the Q3 impairment charge as we expect to hire more engineers and commercial talent and.
Ramp up our go to market programs and events.
Finally, we expect stock based compensation and related payroll taxes to be approximately $400 million and amortization of acquired intangibles to be approximately $22 million for 2021 and we continue to expect full year 2021 adjusted operating income to be above the level, we achieved in 2020.
Some final thoughts to leave you with.
Please go ahead.
Hi, Good morning, So you touched on this in your prepared remarks, but I still think it's the most important question. So I'm gonna ask it what is shopify doing to help merchants address challenges caused by supply chain issues and logistics inflation.
Yeah. Thank you have a question that swimming definitely [laughter].
Most important thing right now uhm.
Well <unk> <unk>, they're talking about the one have you uhm on a on a platform.
The changes of course, <unk> that precious and supply chain.
Increasing statistics, coughing and things like that and.
And inflation is hotter too fast fast gosh. They are all based on confectionery things going on they have no idea, if I shut down or longterm uhm intense I missed like it's I think the road trip if a place is even more important right because they are over a million small business.
It says on the platform Uhm. The nice thing is you can show up and a as a unit uhm and we can have our customers to these times and and a lot of surprising base that'd be be tend to find and that's what they're doing so sofa.
Because the good news is that that's Martin and a participant that'd be <unk> I do think a bunch of people buffering some off of increases in costs in the modern and be a little just spoke with a community to see how I'll I'll just gonna continue and how we can help.
Our next to my head.
Our next question comes from Ken One as Guggenheim Securities. Please go ahead.
Fantastic. Thank you for taking my question that's.
Look at this the past quarter and some of the recent announcements you guys launched shopify markets signal for a newbie to be offering in the first half of of 22 at your college plus a then and it also announced this global Yeah P program shall we viewed the culmination of these are answers as shop, aside making a real push for the largest of the law.
Large retailers or is this just consistent with with with how you guys have been playing.
Playing the market.
Thanks for the question can't it's hardly here. So a couple of things I think when you look at things like Ah Shopify markets for example, which really is going to make it so that any merchant user shopify is defunct global from day. One it's not just about margin merchants. We we think that commerce is not just going to be done across every country, but it also can be under across every surface area. The reason why you're here is <unk>.
And about things like Tiktok for example, or Spotify her okay. Because we think that the future of retail is gonna happen everywhere and if we want to be the central retail operating system for the best brands and the best retailers. That's how we have to show up so I would say that when it comes to things like Shopify markets. The idea really is to make it really easy for anyone to access a global consumer base and and it's.
Not just for the larger brands when it comes to things like ear P. For example, there's there's two things. The first thing is yeah. Some of our homegrown a success story some of those merchants that started their mom's kitchen table <unk> grown from cradle to scale. They are now going public you saw things go public and you see companies like all birds do incredibly well are only so we want to make sure that there is.
No ceiling on what you can do on Shopify that you can start with us, but you can go really really large never have to leave the platform on that same note would you also seeing is more established brands are also coming to to shop. If I mentioned some of those brands earlier in my prepared remarks, but when you see these more established brands that are migrating.
From existing company like Dockers for example, Kenneth call or or Spanks. Her lucky can they want to make sure that that they can do everything they they need to do with shopify and not have to look elsewhere and so these European integration simply allow larger brands more easily migrate onto shopify and that's happening now at at an amazing pace. So all these things are are.
Are meant to make it easier for small business to get bigger, but it's all submit that larger businesses continue to future proof their business and do it all with shopify.
Alright, Thank you can.
<unk>.
Our next question comes from city Panic grassy of me too. Please go ahead.
Thanks for taking my question I want to ask him about this wholesale commerce. Good this quarter and also you talked about the social networks as a good channels 40 or more chance to onboard their buyers. So essentially heard recently this challenges from privacy Sue at Apple ATT changes, that's even making it difficult for socio thoughts on for targeted.
Ads and you're much answer to rely on those platform and third party data for customer acquisition. So how should we think about the impact on your much on topics due to these days.
These challenges and how could you what could you do to help you more chance circumvent this challenge.
Thanks City.
So I think it's quite clear at this point the shops I really believe the future of commerce is going to be everywhere and the demand for more services to conduct commerce will can you to grow and so as entrepreneurs grow and succeed they will need multiple channels. We are seeing more commerce happened through shopify on social channels that includes Facebook channels, Pinterest, tiktok snap as well and ask.
Surely the GMB contribution from social channels grew year over year GMB attributed to social channels grow with several times out of online channels and and more shops were successful making sales for those channels. In Q3. This year versus Q3 of last year part of the reason also we're introducing things like Tiktok shopping is that it's not just a new channel, but allows is organic product.
Discovery right into the shopping right into the videos and also creates these new shopping taps. So you will see shopify show up in more of the surfaces, where commerce can be conducted in terms of the on the AD side of things look near term.
Near term these changes they may reduce the efficacy of that we think that these changes will further incentivise mercy to try other ways to connect with their buyers on top of ads of course get increasingly expensive.
I think google's earnings on shoes. They made it very clear that there are still very effective ways to emerge as defined buyers longer term. We expect the merchants are actually going to benefit from it further embedded in commerce.
Itself into other services and from things like Retarding tools like shop for example, and give more control to the buyer and that's why we continue to announce new partnerships and so we actually think that by connecting more merchants on our platform with more buyers directly through these channels, they're not necessarily going to be affected by these changes in the long run.
Thanks City.
Next question please.
Our next question comes from Deepak massive Anan at Wolf Research. Please go ahead.
Great. Thanks for taking my question guys Uhm, just one quick one so Amy <unk> any color you can provide them with government. What is the primary reason to keep it get it and there's the 1 billion investment go over several years still the plan for fulfillment. Thank you.
Yeah. So.
There's been no change in direction on shopping sites, it's on that network, we continue to.
Spelled fast reliable simple to use fulfillment.
And we're still in the product market based at private market fit phases. We said, we would be this year heads down building software and optimizing the network. We've made no changes to the assumption on on spend wildly iterate and learn and we always said that we would update you if if those numbers.
Materially changed so we're happy with with our progress and this is we're not dating based on demand and demand as there were gaiting on building iterating and keeping our quality standards high and making sure that we can delight.
Delight, our merchants with our fulfillment offering, but the right product market fit at this particular time and.
Continue to make progress and really excited about the.
Friday cyber Monday preparation, that's that's underway.
Thanks to attack next question please.
Our next question comes from some at some manner of Geoffrey's. Please go ahead.
Hi, good morning, and thanks for taking my question. So yeah during the quarter the company announced Shopify markets I think that sounds like an exciting any way to tackle cross border, which I think the company known it was about $20 billion of G. M. B last year, how should we think about the path to monetization for shopify markets and how does it differ from your partnership with glue.
Billy.
So the past him on his nation for for markets is there is a <unk> order transaction type fee for the calculation of duties and taxes. It's all on our website you can go see those fees, there's Wednesday if.
You're on Shopify payments in a in a slightly higher E. If you're not and then keep in mind that and the typical transaction for Uhm Shopify markets. There's also an FX transaction fee that would go along with that as well as a payment fee and so and all of that is.
Is gross with an offsetting costs to serve that shows up and gross profit net.
I'll also just add to that the idea here I mentioned this earlier, but this idea of making a global like being global by default available on Shopify. The idea is again, we want more of our merchants to access the global consumer base and so things like local currency. Some payment method things like local languages things like local domains with automatic SCO optimizations a D.
Duties import taxes on behalf of the buyer. All these things are are really important if you wanna be default global when you sign up when you sign up sharply and launch your store and all of US I think also compliments to globally offering for merchants as well so what you're seeing here again is is is the theme where we believe that Congress is going to happen everywhere in every country across.
Three border, but also in every surface online and offline and that's the reason why we came to make these things much easier.
I'm sorry to pile on all three of US on one question, but like it's.
It's a really good example, here like a lot of course.
The market is.
[noise] my <unk> in the bundle of a subscription fee, but like it's a wonderful example of where.
Oh, a company for alignment.
<unk> with a stripe if I have to go with a order of <unk> of course, the the best way to monetize anything on top of five of them is to have all of all of it has to be more successful and barbiturate too, especially for smaller businesses earlier too and the more formative times too.
Learn how to sew this the rest of the planet and how to make strategic decisions about which strategy youre doing in bits territories and being able to take advantage of those sudden burst of interest in in in markets that you might not have imagined would be market for your product. All these things are going to be no happening earlier you hope.
And therefore become more part of a firmament of but there's a strategy and you are going to make that simpler and therefore family successful and that's been fee also of course participate because of some extra services.
I'm Gonna put illustration of a cool concept of a company.
Eight thank you so much.
Next question please.
Our next question comes from Collins Sebastien of Bird. Please go ahead.
Thanks, Good morning, everybody I wanted to ask about Sharpei and the digital wallet space your ambitions for the product.
On one hand, we're seeing three to four digital wallet options at checkout on many shopify site. So there's clearly a lot of competition there, but I know, we're also gonna see sharpei off of the Shopify platform as well, which opens up town. So maybe if you could sort out a bit the competitive landscape. The differentiation and then plans to drive usage of Sharpei both on it.
And off platform. Thank you.
Hey, Con so just to kind of level set so by the end of September Sharpei had facilitated more than 35 billion in the D. M V. It since launch rent, which happened in 2017, but really this is a primary tool for our merchants to increase conversion. It's now available in the U S of course, but also to merchants on Facebook.
Instagram, whether they are on shopify or not we are seeing early traction with the number of buyers checking out with <unk> pay on Facebook and Instagram growing and orders continue to ramp up on your services again for both Shopify, a non shopify merchants, but the idea is we think the sharp pain is just a wonderful way for consumers to check out if anyone on this call is used it you know that there really is no better way to do it it's fast it's.
Convenient it's incredibly safe and so by expanding shop pays footprint beyond just shopify services to places like Google, which we made available later this year and of course on Facebook and Instagram, We think that more Americans can have more sales, it's not only faster, but again the conversion rate. We know is also higher. So I think you will continue to see sharpei available in more places it's also <unk>.
One of the reasons that I think <unk> a lot more people are beginning to realize that shopify is the company behind their favorite brands. We have been the brand behind the brand for a very long time, and we play really well in that space, but now when more merchants are seeing shop pay available across across the internet across their favorite buying experiences and they sort of begin to associate those brands with sharp.
<unk>, it's becoming quite clear that shop with ice powering consumers favorite brands. So that's sort of the will where we're going with that and I think you'll <unk>, you'll you'll need to see sharpei available more places.
Thanks for calling next.
Next question please.
Our next question comes from Daniel Chan of T. D Securities. Please go ahead.
Hi, Good morning, you mentioned that the share of G. M V from offline expanded can you provide a little color on how much of that you think was the result of changing spending transit you commented on how much of that was from higher sales. Thanks.
Yeah. So we we did say that G. M. B from offline continued to expand so offline did particularly well and the third quarters economies reopened in more and.
Person.
Spending occurred and and I want to just added it did increase in our GMB next quarter over quarter and year over year quite substantially Asa much higher aggregate levels and that was due in part to what we saw overall and consumer spending is economies reopened.
And you know we're so we're just we're super delighted with that but also hardly mentioned all of the things that we've been doing and entering new countries, Australia U K, Germany, New Zealand you saw more I've taken more more location.
And and so all of these things played into just a spectacular quarter for offline GMB in in particular are P. O S.
Performance.
Just to sort of give it a little more color on point of sale because I I do think Q3 was was was our best quarter for the retail business retail G. M. V had all all time high but we are bringing shopify very efficient go to market model to the P. O S industry, we're not leaning on establish networks of of partners, but rather we're doing this in a really efficient way and.
<unk> beginning to see momentum with things like you know shop by retail for plus merchants, we're starting to see retail growing its impact on the shop My business generally again retail G. M. V is the second largest contributor to overall G. M V behind the online store. We also saw point of sale with Shopify payment you can you need to expand globally. Amy mentioned some of those locations point of sale.
Always available now across more devices like Android devices, and we're beginning to see you know much larger <unk> physical retail businesses, a golf magazine used us at the Ryder Cup. For example are Hickory farms using us across 70 retail locations. So I think our point us a product and has gotten really really good I think it's best in class and I think the way we are taking it to market now.
<unk> is doing is being done in a very efficient way relative to pretty much every other cloud point of sale system and so I think you'll <unk>, you'll continue to see a lot of growth in that point of sale retail area of our business.
Thank you Dan next question please.
Our next question comes from Mark cigarettes of Rosenblatt Securities. Please go ahead.
Thank you I was just hoping you might be able to flush out the G. M. B headwinds that you wouldn't witnessing and three Q versus expectations that.
As we looked at <unk> and no perhaps a differently Amy you quantified essentially commerce mix of retail coming down and three Q I was just wondering if you could.
Quantify how much whether you'd expect the you know the same or greater decline in four Q as you.
Quantify for three Q. Thanks.
Yeah, and as I said in my opening remarks, I think one of the things you have to take into consideration is that Q1, and Q2 benefited from pretty significant U S stimulus and anticipated by the time, we got the Q3, So obviously Q4, we'll.
Be similar without those tailwind behind it but let me just kind of step back and reiterate what what I said about what happened in the corner, we really didn't mirror, what happened and overall consumer spending and in particular, what happened with retail, especially in those countries that reopened like the us and UK and I'll talk.
Mostly about about the U S. So what we saw as consumers spend on services and physical retail as I. Just said also expand pretty much throughout the corner is vaccine right.
Increase in June and July people, just moved about more often and they spend on services recreation entertainment or back shopping in stores.
And so as a result in July we thought overall retail actually that and that was because e-commerce deaths as as folks were moving about.
And.
And our G. M D. As a result depth in July with that E Commerce overall death.
But then we saw rebound in August for E. Commerce in N. R. G M D, which is attributed to.
People going back to physical work spaces and kids returning to in person learning.
And then we saw another tech from August September and R. T M B followed that trend.
And I want to just point out a couple of other points of evidence here in terms of consumer vertical apparel and accessories, which is our mainstay actually performs better than our average G. M. V grows and that's consistent with people refreshing their wardrobe to go back into in person at school.
And workplaces. So it really did follow what we saw in consumer spending also to add to that in countries that didn't reopen like New Zealand and Australia in Australia, there they're G. M. B actually grew faster than our average G. M D. Because they never saw that e-commerce that they can.
<unk> and Lockdowns in e-commerce remained strong and actually our our P. O S. Retail G. M D did well in those countries as well further consistent that that that was the main driver of our G. M B and Q3 as we head into the queue for we <unk>.
R. G M D to continue to grow driven by E. Commerce. It has reset but it is growing in a more normalized pace now and we expect it'll continue its share gains a penetration of overall retail we expect more in person shopping because restrictions are lower now.
Then they were this time last year and we expect our our global merchant days continue to grow and be the underpinning of our GMB gross.
Eight <unk>.
Thank you Mark.
Next question please.
Our next question comes from Tim <unk> of Credit Suisse. Please go ahead.
[noise] great. Thank you. Good morning. Appreciate you taking the question I wanted to dig into the pricing on shop pay installments, so to take right charge to the merchant really not not the absolute level, but if you could just share how the pricing is presented to the merchants when they're opting in is it dynamically done is it based on the size of the merchant the vertical with the average order.
Value are are larger merchants, maybe negotiating this how does that work mechanically.
So ah our partner a firm on sharp pain installment actually.
Vantages that aspect of it and it's it's it's based on a percentage of the of the sale. That's charged the merchant that's consistent with the industry and as we've always said, we we haven't take right on that given that affirm manages.
That transaction on our behalf.
And it's it's accounted for night versus payments is gross but if you look at net.
Two shopify, it would be slightly higher than like a payments margin typically.
Great. Thank.
Thank you Tim next question please.
Our next question comes from Josh back of Keybanc capital markets. Please go ahead.
Thank you for taking the question I wanted to follow up.
Earlier question about the ear P integrations, obviously, you're working with the next week's Microsoft et cetera of the world. So I'm curious does it significantly alter your go to market as you think about those more established brands that might require a bit more resources.
Integration, maybe with other products et cetera, as you on board that'd be just curious if there's any changes with respect to the go to market.
Josh It really just makes if this offering really unlocks the seamless workflow and allows them to have greater control for for these sort of high volume merchants. The idea really is for them to help transform the data into actual result of this scale on our platform. This was possibly for now it's a lot easier. So what we're trying to do is.
Reduce the amount of reasons that Ah big retailer again century old Flores like F. T V. I mean, they basically created the flower delivery industry, we want to make sure. There are no reason for them not to use us and what we're trying to do is we want to invite them into our version of what his enterprise E. Commerce, we're not necessarily going to do everything for every major large retail.
But we think that our version is something that is very appealing to them at this stage in one of the things that we think we could do to make it easier is integrating with Microsoft and Oracle and and some of these major ear pieces. Some that they're already using I think one of the three sons that I mentioned at the beginning of these calls every quarter someone B C. P. G brands from Nestle in General Mills is because when.
They launch more brands with US for example, <unk> was it blows launches past quarter on shop, if I plus we want to make sure. There is no reason why they shouldn't use us.
Given our view of what we think enterprise ecommerce should be and so that's the reason why we do these ERP integrations in general I think at a higher level around shop, if I plus I mean, shopify plus is an incredible offering notched from a product perspective, but from the perspective of how long to get them to market. It allows them to you obviously have incredible flexibility total lower total cause.
<unk> of ownership and as you know things like new channels, whether it's social media or it's things like like Spotify are available they want to access them and they know that if they you shopify their future proofing their retail business and so we're just trying to reduce the barrier to entry for these larger branch you Shopify I think we're doing a good job of that.
Alright. Thank you Josh next question please.
Our next question comes from Paul Schrieber of RBC capital markets. Please go ahead.
Oh, thanks, very much and good morning, there's just been some recent discussion in the media around potential industry consolidation along the theme of Super Ops I was just hoping to get your thoughts on Super <unk>. What do you think of the rise in Super apps and what your view is shopify competitive position against Super apps.
Yeah, Yeah, I mean, that's a trend if so it seems about especially in the east Uhm, which is incredibly <unk> most active and.
Uhm so services.
I I think you'll see more of that uhm in there with two and I think observing a bunch of people.
<unk> platform economics end up being a little bit different than what we've seen cenovate used but.
From our perspective like such as like the <unk> type of strategy that we want to make it feel that that on foreigners can big businesses and Gibson retail behind ideally every icon on any ordinary.
<unk> <unk> phone screen.
And so have you ever been with people, who are putting the soup apps and it took I mean it turns out.
You know obviously the monetization of almost all of these systems advertising, but usually to retail products. That's that's that's the most what type of feedback loop.
Most of a sectional environment for my profession. So.
There's a lot of conversation, but then you'll see us lunch. Thanks for all the time and.
<unk>, maybe we really do love go open web it is an incredible opportunity space. It's it's a it's a commission as part of the Internet. It's it's been giving rise too heavy of like large companies off today, we hope that people will keep the.
That browsers and the open web in their home screen.
And in the future.
Except.
Philip if the online store Bitches, one you access through your Safari Okra, Mike and of course.
But if you're just not dependent on this because I think that you you have a very big thing going on good relationships and of course, the connect if they've seen that integration point 4 million stuff for best <unk> for for the people, who I'll bring this about uhm to market and do you expect.
The the <unk> to like to.
Move quicker like I said, there's gonna be like a a potential time <unk> Allegra Annapolis.
Pop of that 101 point and then five years later it might be a completely different different one like obviously.
Let's see extremism, social networks already a while ago like the.
Uhm never bit a my space, China, but we would have would have been building channels back then uhm and that would no longer be as important as it might have been doing both times. So this is the way to yeah protein and uhm fofonov effective the the demand and supply is Christy illiquid them on from the.
<unk>.
Uhm, they would like commerce and high quality calmness traffic <unk> that'd be great products on on on on the platform and V. B O have a happy to seven.
Provide that'd be great.
Alright, we have probably time for just one last question area. How can you take our last question Blake our final question.
Question comes from Mark Mahaney of Evercore ISI. Please go ahead.
Our final question comes from Darren Afterheat of Roth Capital Partners. Please go ahead.
Hey, guys. Next question just can you talk about the retention dynamics of the surgeon merchants you guys saw it in the second or third quarter of last year and can I have that compares to sparkle.
Sparkle levels. Thanks.
Yeah actually retention rate.
Have remained very strong.
We're pleased with retention rates as we've moved through 2021 and I also want to just.
Emphasize that it's something that Harley said in his opening remarks.
With respect to plot to keep in mind, we're still seeing.
Levels of standard merchants upgrading to pass that are higher than pre coven level. So does 700000 merchants standard merchants enjoying last year. Many are thriving on the platform and upgrading to plus at at very high levels and and so we're delighted to see that and when.
To continue to emphasize that look at this holistically about standard and plus merchants together and that we're there for the entire merchant journey.
Okay, Alright, well I think that's it for our conference call today, Thanks to everybody for dialing in.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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