Q4 2021 Shopify Inc Earnings Call
Of 2021, our merchants had their most successful black Friday, cyber Monday, selling period, generating $6 3 billion and <unk> significantly outpacing growth in the broader e-commerce market.
In 2021, nearly 600 million shoppers made a purchase from a shopify merchant up nearly 31% from 2020.
Seven companies that grew their businesses on shopify reached a new threshold for growth by becoming publicly traded and we got stronger growing shopify team to 10000 people enthusiastically taken on the big opportunities ahead of us.
Chuck Vice impact comes from the combined power of our total offering our infrastructure platform merchant solutions and our partner ecosystem.
This is coupled with our belief that the work we do creates value not just for merchants, but for everyone who has the privilege to interact with them our partners our communities our shareholders and more.
Our merchant first product led approach keeps us at the center of Commerce and building the future for entrepreneurs and today I will discuss four key investment themes for 2022 to further future proof, our merchants by giving them superpowers.
First in building by our relationships.
Second going global.
Third growing from first sale to full scale and finally simplifying fulfillment.
Starting with building strong by our relationships.
As the lines between on and offline commerce, blur and consumers seek direct relationships with brands. We will continue to innovate some merchants can meet buyers and serve their customers wherever they are.
As you saw last week Shopify merchants in the U S will be among the first to be able to accept contactless payments simply by using iPhone and.
With our point of sale pro offering, which we introduced in 2020, our merchants can seamlessly connect their offline operations to their centralized dashboard given them a single view of their business across every sales channel.
This allows merchants to offer buyers and easy way to shop, whether that's buy online pickup curbside.
Or shopping in person at their favorite store.
More merchants benefited from these features with the number of locations subscribing to point of sale pro nearly doubling in Q4 2021 versus the same period in 2020.
In 2021, we expanded availability of our new Shopify point of sale hardware with integrated payments to retail merchants in the U K, Ireland, Australia, New Zealand, the Netherlands, and Germany and have entered Belgium, Denmark in Spain, So far in 2022.
In Q4, we saw healthy adoption of our point of sale hardware in North America as well as in the new geographies, we entered last year.
And with more merchants around the world using our world class point of sale system <unk> from point of sale ended the year at its highest level ever.
With our integrated payments hardware ready to be rolled out to even more countries. This year more brands will be able to meet their customers on main street, while continuing to strengthen those relationships online through own channels like their online store E mail campaigns and social media.
As customer acquisition costs rise and new privacy restrictions reduced the efficacy of advertising embedding commerce into more apps and digital services is critical to help our merchants discover new buyers.
Social media and search will play key roles in shop, if I made great progress on both in 2021.
In August we introduced Tictoc shopping, bringing organic product discovery and shopping tab to tick tock. Following the launch of our Tictoc marketing channel in October 2020, and in October last year, we launched our Spotify channel for musicians.
Since introducing our ticked off channel more than 100000 merchant creators have installed the channel and merchants are starting to sell via our Spotify integration.
Craters selling through these channels have more power to connect directly with their buyers in inspired moment and offer them a great shopping experience via shopify secure checkout, while owning their brands.
Our checkout using shopify payments is also directly integrated with Google Facebook and Instagram, enabling merchants to seamlessly sell across these channels.
With more channel to sell on merchants are able to manage orders returns in payments all from within the merchant admin.
This reinforces the strength of our back office and Shopify is positioned as a multichannel leader.
In Q4, thousands more merchants use these three channels compared to the previous quarter getting them in front of billions of potential new buyers.
While still early social commerce is growing with sales via social channels expected to double in the U S by 2025, presenting a huge opportunity for entrepreneurs.
More buyers are following recommendations and inspiration from our people They trust and social media and discovering new brands to fall in love with <unk>.
<unk> is equipping our merchants for this future by creating a fantastic shopping experience for buyers with sharp pain or accelerated checkout now available on Facebook and Instagram.
In Q4 more buyers use shop paid at checkout on Facebook and Instagram with sales volume growing four times quarter over quarter for Shopify and non shopify merchants.
We plan to begin rolling out our fast and frictionless shop pay checkout on Google to Shopify merchants over the coming months, making it available to all shopify and non shopify merchants selling on Google later this year.
The benefits of shop pay also extends to our shop at our digital shopping assistant that offers buyers a delightful end to end commerce experience.
In addition to <unk> checkout with sharp pain, and our buy now pay later product shop, <unk> shop provides buyers with a real time order tracking and delivery updates and relevant product recommendations from their favorite brands.
In Q4 millions more buyers enjoyed fun and easy shopping on shop and by the end of the year shop. They had facilitated a cumulative 43 billion and <unk> since its launch in 2017.
The benefits of shop pay also carryover to shop pay installments, the most transparent installments product on the market with no hidden fees and no late fees.
<unk> through shop installments more than doubled quarter over quarter as did the number of repeat buyers using our products I.
I am pleased to report net shop installments is now the largest installments provider for shopify merchants in the U S. After only six months of being generally available.
Next helping merchants go global.
Since the dawn of humankind, the greatest hurdles and opportunities for commerce have come down to geography.
Digital Commerce offers a completely new way to navigate these boundaries.
But with different laws regulations and customs in different countries selling globally is incredibly challenging.
What shopify does best is to make the complex simple, which is where shopify markets comes in.
Optimizing international selling for merchants to improve sales conversion and create a better customer experience.
We began rolling out shopify markets in late January and already thousands of merchants are using shopify markets benefiting from features like currency conversion language translation of store content as well as calculation and collection of duties and taxes. We are excited to see the difference it makes to merchants.
Also in January we launched the JD marketplace sales channel opening our merchants up to the biggest e-commerce market in the world.
China's E Commerce market is estimated to be worth three three trillion by 2025.
It is five times larger than the U S market.
This channel integration opens up the China market to our merchants, who can now reached <unk> 550 million active users.
This enables our merchants to start selling quickly while providing end to end fulfillment from J D. U S warehouses directly to consumers in China.
It also provides them smart price conversion to local currency based on foreign exchange rates and intelligent translation of product names and descriptions.
This integration Rus barriers to one of the most important e-commerce markets and is a major step in solving cross border commerce for our merchants.
Third growing from first sale to full scale.
After a merchant gets started and find product market fit with their first sales they need the right tools to move from one phase to the next and that's why we continue to enhance and build new tools to simplify and support merchants journey from start to scale.
An example of this is simplifying business finances.
In January we rolled out our money management product shopify balance to hundreds of thousands of eligible merchants in the U S.
<unk> balanced helps merchants manage their business finances and their business all in one place. So they can better manage the cash flow and plan for the future.
Thousands of merchants are already actively using it.
As merchants build momentum inventory and marketing needs to grow alongside it and.
And this is where shopify capital comes in.
<unk> merchants the funding they need to expand their business.
In Q4, we advanced nearly $324 million.
Up 43% from the same period last year outpacing our overall revenue growth for the quarter and bringing the cumulative amount advance since we launched shopify capital in 2016 to over $3 billion.
Once the merchants reach scale the challenges they face are different shopping.
Shopify plus helps brands continued our growth journey and reach for the stars at scale in.
In 2021, we introduced our global ERP program. So high volume merchants can seamlessly manage the complexity of their business operations at scale.
We also partnered with globally to simplify cross border commerce for our merchants with more complex global operations offering them, a fully outsourced solution to conduct international sales on their behalf.
With our scalable and flexible enterprise offering we saw diverse slate of brands from a broad range of verticals, including food and beverage.
Apparel entertainment furniture, and medical devices launched shopify, plus and our fourth quarter, including Canadian dairy giant <unk> <unk>.
Global fashion retailer French connection.
Dental device company Invisalign.
German meal kit company, Hello, fresh and <unk>.
American furniture retailer, our house and manufacturing company color.
Brands by some today's hottest musicians from label, Sony UK, and Warner Elektra Atlantic Adele Cardi B.
Brands from French Spirit company, Remy Cointreau westbound distillery, Ms umbrella and Champaign Tel months.
Pleasing, our celebrity brand by senior Harry styles, and more brands from CPG Unilever.
And of course, just last month, Tom Brady launched Brady brand. His line of performance apparel designed for athletes by athletes on Shopify.
In 2022, we will continue to innovate on behalf of our merchants, bringing more exciting opportunities and capabilities to these brands enhancing their ability to sell in new and creative ways, such as selling entities.
Selling and it teams on Shopify, which is currently in beta creates a new way for brands artists and creators to engage with their communities by selling their own ftes across multiple washings.
And fourth and final key theme simplifying fulfillment.
Since most of what merchants sell are unlike NMC and need to actually be handled and delivered we are building shopify fulfillment network.
We are excited to update you today and what we've learned how far we've come and especially on where we're heading as we move out of the prototype phase and into the build phase.
We are consolidating our network to larger facilities will operate more of them ourselves and will unify the warehouse management software that we've been building and testing over the past 18 months.
We expect that these changes will enable us to deliver packages in two days or less to more than 90% of the U S population, while minimizing the inventory investment for <unk> merchants.
Well, Amy will go into more detail as to what our evolved vision looks like from a financial perspective, I can tell you from a merchant's perspective, shopify fulfillment can be life changing for their businesses.
We hear from merchants that fulfillment is only something you think about when it isn't working well and they were thrilled that they now never have to think about it.
The stock outs and preorders that took the shine off strong demand for their new releases largely became I think in the past with shopify fulfillment and just recently I heard from a merchant who tells me that he sleeps, even better because shopify fulfillment just works.
Comments like these fuel our ambition and we will continue to explore opportunities to give merchants more visibility and control over their most important assets.
In addition to the progress we've made with <unk> in 2021, we also invested heavily in our extensive partner ecosystem.
By eliminating our Rev share on their first $1 million of App and theme earnings annually, we made it even more enticing for developer partners to build on and for Shopify.
By the end of 2021, our App development partners grew their earnings on Shopify by 76% to $411 million and the number of App developer partners that had an app used by merchants in 2021 grew by nearly a third over 2020.
Over the past 12 months 40000 partners referred at least one merchant to shopify.
I'm thrilled by what we accomplished and eager to see the amazing solutions, our partners helped build with US this year.
We could not have made the strides we did last year without the strength and talent of our amazing team.
Thousands of engineering commercial and support talent around the World joined Shopify last year to help build the infrastructure of commerce on the Internet and enabled more entrepreneurs around the world to reach for their economic independence.
As part of this we welcome three great additions to our leadership team Alan.
In line, one as Chief Technology Officer.
Just hurts as general counsel and Jonathan <unk> as our first Chief Information Security Officer.
With their rich domain and leadership experience, we are excited to see them take their teams and shopify to the next level.
I want to welcome all the new members of our team to a rocket ship and thank everyone on board for bringing the best game, even on the tough days.
We have an incredible bench of talent more than 10000 strong building the future of commerce together with our partner ecosystem. We are working relentlessly to bring more shopify to the world and make commerce better for everyone.
Thanks, Charlie with commerce evolving faster than ever after the step change brought on in 2020, our merchants adapted and continued to prosper in 2021, our past investments and execution to build the most modern technology for the future of retail paid off with shopify and our merchants rounding out an incredible year with a strong <unk>.
Fourth quarter <unk>.
And our fourth quarter grew to $138 billion up 41% over the same period last year.
Subscription solutions revenue of $351 $2 million grew 26% year over year, largely due to strong growth in monthly recurring revenue.
<unk> grew 23% year over year to $102 million in Q4 as more new merchants joined the platform and the number of retail locations using Pos pro increased shopify plus added a record number of merchants in Q4 from continued strong upgrade and new merchants and continued to grow its mix of merchants outside of north.
With America, contributing $29 8 million or 29% of <unk> compared with 25% in Q4 of 2020.
Subscription solutions year over year revenue growth was also impacted by the first full quarter for our new App and theme revenue models implemented in Q3 and by a change in the way we recognize themes revenue from gross to net which reduced subscription solutions revenue by $21 million in Q4 2021 pardon.
Italy, offset by strong shopify, plus variable platform fee revenue growth.
Merchant solutions revenue grew 47% to nearly $1.03 billion in Q4 compared to the same period in 2020 exceeding $1 billion for the first time in a single quarter. This growth was driven primarily by strong merchant sales with dnb up 31% year over year to 54.
$1 billion in the fourth quarter.
This high level of Q4 <unk> was the result of an extended Black Friday cyber Monday shopping season, which began 28 days ahead of cyber Monday compared to 19 days in 2020 strong online and offline consumer spending and higher average order values in North America.
Robust growth in merchant sales as well as increased penetration of our expanding menu of products drove merchant solutions revenue with growth led by Shopify payments Shopify capital and Rev shares from partners. We also recognized $21 million of revenue in the fourth quarter relating to noncash consideration for merchant solution.
Product performance obligations to strategic partners.
$27 7 billion of <unk> was processed on shopify payments in Q4, an increase of 45% versus the comparable quarter in the prior year payments penetration of <unk> was 51% versus 47% in Q4, 2020 and up two percentage points over Q3 2021.
One <unk>.
Gross payments volume growth was fueled by strong performance by merchants on shopify payments, new merchant adoption and shop pay penetration gains plus merchants significantly expanded payment penetration as well as their share of GTA V year over year and with our Pos pro hardware with integrated payments available in eight countries.
<unk> as of Q4, shopify payments penetration for our POS channel expanded further ahead of overall payments penetration.
Adjusted gross profit grew 37% over the fourth quarter of 2000 $20 million to $706 million, reflecting strong revenue growth and a significantly greater mix of our lower margin merchant solutions revenue versus the prior year.
Adjusted operating income was $132 million in the fourth quarter compared to $200 million in the fourth quarter of 2020, as we accelerated our investments over the prior quarter, adding more engineering and commercial talent and executing on our marketing programs.
Adjusted net income for the quarter was $172 8 million or $1 36 per diluted share compared with adjusted net income of $198 $8 million or $1 58 per diluted share in the fourth quarter of 2020, finally, our cash cash equivalents.
And marketable securities balance was $7 77 billion on December 31.
Nearly 1 million margins have launched businesses on shopify since 2019, bringing with them a surging demand for our commerce solutions to thrive in a sea of opportunity. The investments we made in the years, leading up to 2020 prepared shopify and our merchants for this unprecedented wave of digital commerce that pulled forward the need for <unk>.
Modern retail technology and drove our exceptional results.
Our consistent track record of growing our base of merchants and overall GNP is evidenced that our formula to build for the future of Commerce is working now that we've turned the page to this new era of ecommerce the road in front of US is teaming with opportunities that we must act on now to add more momentum to our flywheel.
Therefore in 2022, we're moving full steam ahead with investments that build on the foundation of our commerce infrastructure that will further power our base of merchants to expand becomes stronger and succeed now and on the other side of this digital commerce transformation.
We addressed the why behind our four key investment themes earlier, so I will build on each of them from an investment perspective.
First building by our relationships in 2022, we plan on extending ways for merchants to connect with more buyers deepened by our relationships seamlessly operate their businesses across more channels and offer a memorable shopping experiences while maintaining control of their brand.
I'll talk briefly about two areas shop and Shopify Pos.
In 2021, you made excellent progress with making shop, a great place to shop on top of the features Harley went through we added a host of curated list and made our product recommendation algorithms better to help buyers with brand first product discovery.
2022, we will continue adding more features and creating fantastic shopping experiences to buyers want to keep coming back to their favorite brands.
As the world emerges from the pandemic physical retail is making a comeback in person selling is one of the best opportunities for merchants to deepen relationships with buyers through experiences services and often a shared community.
As there is still a huge opportunity ahead of us to bring our leading omnichannel capabilities to more retail businesses. In 2022, we will increase our investments to put shopify Pos into the hands of more brick and mortar merchants and more geographies.
Which brings me to our second investment theme going global this.
This means we plan to do more in 2022 to help merchants thrive in their local markets and reach buyers globally.
In 2021, our base of merchants and <unk> outside North America increased as part of our overall mix compared with 2020, as we improved product market fit and introduced more of our solutions to our focused regions.
We plan to continue this in 2022, bringing shopify, Pos and shopify payments with local payment methods to even more countries. We also expect in 2022 to introduce more local currency subscriptions, which we began testing in 2021, and we intend to expand our sales and marketing investments in these markets.
To make it obvious that shopify is the solution of choice to launch a business worth and succeed.
Finally, Harley noted some key examples of ways. We will continue to help merchants also reach buyers outside of their local markets in 2022, notably extended global reach via Shopify markets and our partnership with J D Dot com.
Moving to our third investment theme grind from first sales to full scale in 2022, we will keep making the important things easy and everything else possible for entrepreneurs, who are just getting started this means continuing to lower the technical barriers to launch a business such as making onboarding easier and then helping them define prada.
Market bet. So they can achieve their first sale as merchant scale. Their journey is simplified by features like Shopify shipping and Shopify capital.
As shopify plus merchants like Albertsons things have demonstrated brands can show up as their authentic selves on shopify and grow to the next stratosphere never having to re platform and 2022 enhancements to products like Shopify balanced shopify capital and B to B for direct to consumer merchants will keep powering growth.
Journeys on Shopify.
And finally, our fourth investment theme simplifying fulfillment, we're moving into a new phase in 2022 for building simple and fast fulfillment for our merchants.
Over the past 18 months, we built a prototype to makes it sound that more simple and seamless we honed in on direct to consumer hyper growth self shippers, who met criteria that made him a good fit we began building out our self operated leased warehouses in Atlanta and conducted pilots with simple inventory Onboarding and management, a buyer experience fully integrated with <unk>.
A buy across channels and network with two day delivery coverage for more than 90% of the U S population simple return and simple pricing.
The result of these actions was encouraging as a percentage of surveyed merchants, who are very satisfied more than tripled by the end of 2021 relative to the end of 2020, informing us that we're on the right path in building a solution that helps merchants easily manage their products orders and inventory from the shopify admin and gain control of <unk>.
<unk> ability and confidence in fulfillment.
So as we look ahead to 2022, we will continue building our solution by operating more major hub warehouses ourselves, while still leveraging high performing partners, where it makes sense we.
We will also unify the network with our own warehouse management software, while still using partner software in some cases, the highly integrate with shopify as back office and checkout. So merchants can seamlessly offer and achieved delivery promises.
Over the next three years through 2020 for our planned investments expand the merchant value proposition, even more including increasing one day delivery coverage in the U S and increasingly enhanced returns functionality and we are planning to be able to handle progressively larger merchants with a broader set of needs as we build through 2024, when we launched.
<unk> fulfillment network in mid 2019, we said that we expected to spend $1 billion over five years through 2021 about halfway through the original asset light plan, we spent $117 million, which includes funding cash operating losses, and a small amount of capex in conjunction with our updated more direct approach.
We will take this opportunity to reorient you on our expectations going forward first of all our expectations for Shopify fulfillment network revenue operating expenses and capital expenditures will be incorporated in our overall shopify outlook as they are for 2022 and second we are providing today are one time view.
Our expectations with regard to Capex and scale under this updated approach.
Capex related to Shopify fulfillment network will start to ramp in 2022 with an expectation for 2023 and 2024 of approximately $1 billion in capital expenditures over those two years for self operated leased warehouse hubs in key U S geographies.
To make the transition from prototype to build while still maintaining the merchants delight. We've achieved we expect fulfillment volumes to progressively scale towards the back of 2023 and into 2024.
These investments enabled the merchant value proposition and network build we described earlier, while this requires higher upfront spend it pays back through operating efficiencies over time and allows us to achieve our desired margin profile more effectively and solely via partners.
Note that these expectations are based on a set of assumptions that I have described for the next three years.
Investments above this would be based on allocating capital to opportunities that either significantly expand the opportunity set for merchants and shopify or have strong paybacks from improved operating efficiency we.
We are pleased with our progress on Shopify fulfillment network proud of the team. We've assembled it's been doing groundbreaking work and confident that what we are building will help merchants in ways never thought possible.
With these important areas of focus and investment in mind, let's turn to our outlook for 2022, we believe that change behaviors adopted by merchants and consumers in 2020 in 2021, driven by Covid of expanded the prospects for entrepreneurship and digital Commerce and these past few years have been game changing for shopify with our merchant.
Phase <unk> revenue as well as the size of our team doubling over 2019 levels. This momentum sets us up to expand our ambitions on behalf of merchants in the 2022 as the world continues to find normalcy living with and moving beyond Covid.
Our outlook for 2022 assumes continued secular tailwind for entrepreneurship and digital commerce transformation against a more measured macro environment relative to 2021.
While we believe that the COVID-19 triggered acceleration of e-commerce that spilled into the first half of 2021 in the form of Lockdowns and government stimulus will be absent from 2022, and there is caution around inflation and consumer spend near term for the full year, we see economic growth supporting the continued penetration of retail.
By E Commerce.
Against these bigger picture secular and economic assumptions, our financial outlook anticipates revenue growth for the full year 2022, that's lower than 2021, 57%, but still rapid and outpacing the growth of e-commerce , driven by our many growth drivers, including expansion of our services to more merchants and more.
<unk> the growing contribution of newly added products and our strong value proposition for multichannel Commerce, which offers independent brands of all sizes, a way to build a strong low friction presence across the internet in apps and in person.
For 2022, we expect year over year revenue growth to be lowest in the first quarter of 2022 and highest in the fourth quarter of 2022 due to three factors first we do not expect the COVID-19 triggered acceleration of E. Commerce in the first half of 2021 from Lockdowns and government stimulus to repeat in the first half of 2002.
Two it's worth noting that revenue growth in Q1 of 2021 was our highest ever as a public company at 110% year over year.
Our new terms with App and deemed developers create a couple of differences from last year's first quarter.
The elimination of our Rev share on their first million dollars of revenue annually reset on January one and the switch from gross to net revenue recognition for the sale of themes as a result of revised contract terms with our theme partners.
Since these terms didn't come into play until the second half of last year. These will be a headwind to subscription solutions revenue in the first half of 2022, particularly in the first quarter.
And third we expect certain commercial initiatives in sales and marketing investments will gain momentum over the course of 2022.
Subscription solutions revenue growth to be driven by more merchants around the world joining the platform then in 2021, as we introduce new commercial initiatives and aggressively invest in sales and marketing to expand our addressable market and more deeply penetrate existing markets. Our objective in 2022 will be on optimizing our efforts around getting more.
Merchants on the platform and to success.
Merchant solutions revenue growth to be more than twice the rate of subscription solutions revenue growth year over year as merchants make greater use of our offerings and we expand existing products into new geographies and rollout newer features like shopify markets. The increase in merchant solutions and our overall revenue mix means gross profit dollar growth will trail revenue.
Growth.
The evolution of retail to digitally empowered commerce is far reaching ranging from new ways for merchants to improve buyer discovery and loyalty to new commercial opportunities and social channels to a data enabled revolution and shipping and logistics to keep independent brand at the forefront of this revolution shopify intends to reinvest.
Back into our business aggressively throughout 2020 to deploying all of our gross profit dollars back into the business and research and development, we expect to hire more engineers than in 2021, despite an exceptionally competitive market for top talent in sales and marketing we are accelerating hiring in sales initiating a new offline.
Performance marketing program and stepping up marketing efforts internationally.
Lastly for 2022, we anticipate capital expenditures of $200 million stock based compensation expenses and related payroll taxes of $800 million and amortization of acquired intangibles of $28 million.
In closing Shopify is building in 2022, we are building the infrastructure of commerce. So our merchants can continue to compete and lead in the future of retail a future in which commerce happens everywhere across digital services physical spaces and global regions. The value of Shopify lies in its simplicity for merchants to easily start in scale.
Their business so much so that merchants fall in love with our solutions and never once a week no matter how big they get.
They understand that as they grow and confront new challenges Shopify and our partners will solve their problems. So they can take their business to the next level that is the power of Shopify flywheel. We had shopify are energized to tackle the opportunities that this new phase of commerce brings for making commerce better for everyone.
I'll now turn the call back to Katie.
Thanks Amy.
Before we open the call up for your questions today I'd like to remind everyone to please limit yourself to just one question. One can we open the lineup for questions.
Of course as a reminder, if you would like to ask a question. Please press the star followed by one on your telephone keep US now if you turn your mind or your questions have been answered already please press the star followed by number two when preparing to ask a question. Please ensure your phone is on mute it locally.
On the first question comes from Thomas Forte from D. A Davidson. Please tomasz. Your line is now open.
Great. Thanks for taking my question. So technology shares had been under pressure. The past few months Theres published reports that Amazon is increasing its cash comp to secure and retain tech talent in a competitive market. How should we think about shopify strategy regarding cash and stock comp to secure and retain tech talent. Thank you.
Okay.
Yeah. Thanks for the question.
Tech talent is in high demand across the technology sector.
And so.
We obviously want to remain competitive.
And attracting the best talent in the World.
And so as you can see from our stock based compensation outlook that we provided to you that does incorporate both.
<unk>.
It reflects the full year impact of hiring from last year as well as hiring that will do this year and some expected adjustments that we will make.
I continue to believe that based on the hiring that we did last year that.
We were able to more than double our R&D hiring year over year and.
Shopify remains the best place in tech to work.
Compensation.
Clearly plays a factor in that but I.
Would say equally as important are the exciting things that we're doing and our continued innovation.
And.
Thank you.
Obviously tech technology.
I mean, that's tight.
If not less.
<unk> has not made enough engineers.
David for rapid.
Sure.
We've gone through with Covid and so on.
So.
<unk>.
Like the money component is a big component and sell component of the component.
Amongst about 10 companies in the world.
Both things.
Leasing lead time.
Grabbed types of companies that have other things to offer like for instance.
Perfect growth is just incredibly important everyone gets that most of the return.
Here comes in the future, especially when Youre pretty early and right out of universities. So just.
Just some of the company valued lithium question Donna.
Look really really well in this way I think people can get an enormous amount of experience here that can engineers can report for an unbroken chain of other engineers are way too.
Great.
The board of directors and for me.
People like under design side.
Company is the company with one big sweat at VITAS.
That's really really appreciated by people and bad crop.
The product discipline Super well established maybe thinking about Africa oil teaching, but I've learned over the last 17 years. So.
A lot of people.
There is a big.
Talent scramble and devote.
There's a lot of shuffling going on shopify on the good side of the chuckling at Samsung.
Well, it's really really well for the MX merchant.
Our building for every day.
Thanks, Tobey Thank you Tom.
Thank you. Our next question comes from Matt Pfau from William Blair. Please Mark Your line is now open.
Great guys. Thanks for taking my question just wanted to ask on the decision to operate more fulfillment centers.
Cells, maybe just some more detail on what drove that decision and specifically leveraging the asset light model, where you're having quality issues or issues scaling and so maybe that's what drove the decision to bring more of those operations in house.
Hey, Matt its Harley ill take that question. So a couple of things in terms of the <unk> model. So we are shifting the network model really to larger larger capacity hubs and we want to operate more of them ourselves because things like better control control quality, but also on costs here as part of this we're also unifying the network across.
With the warehouse management system and so we think that will also continue to optimize things, but the goal here is clear we want we expect to enable two day delivery coverage to more than 90% of the U S population and at the same time, we want to obviously minimize inventory investment for us and if needed.
Amy talked about the additional spend we expect spend to be about 2 billion through 2024, including that $1 4 billion in capex, but really if volumes are what we expect them to be we need to have enough capacity. That's really important but also the capacity has to be a very high quality and that is what we're comparing for now.
Now we've run larger hubs.
Backbone, but we're also taking advantage of partners. It's not as if this will be entirely shopify owned but we want to match shopify warehouses with partner warehouses, and we expect that quality will increase in the capacity will increase because of this change. So a good way to kind of think about it is that.
We were.
We were in sort of this prototyping stage for <unk>. The last couple of years, we've learned a ton we have the insight we got great feedback and now we're really going into the build stage of this but we're very optimistic.
Alright, Thanks, Charlie Thanks, Matt next question please.
Next question comes from Ken One from Guggenheim Securities. Please Ken Your line is now open.
Great. Thank you for taking my question I wanted to dig into the fulfillment side, a little more as well. So you highlighted the capital expenditures through 2024 in the past you guys laid out a road map.
Aggregate revenue with largely aligned with your total investment spend should we think about the revenue coming in at a similar pace to your investments.
Kind of a new roadmap.
Yes.
Let me just.
Claire file a little bit first on the investment.
So we said Capex would start to ramp in.
In 2022.
In 2023, and 2024, we expected to spend about a $1 billion on on the warehouse hubs that Harley spoke about.
So.
During.
2022.
We're transitioning from prototype into build and during that transition we will continue to focus first.
First and foremost on maintaining high merchant delight that we've worked so hard to achieve that I talked about earlier, that's that's critical.
And scaling in 2022 with that in mind and when I said also was that.
In the back of 2023 and into 2024, that's when we expected we would start to see scale of the site, where we can really start to optimize.
The cost of the network and so largely that's how you would think about revenue ramping as well.
Thanks, Ken next question please.
Next question will come from Paul <unk> from RBC capital markets. Please Paul Your line is now open.
Alright, thanks, very much and good morning.
A question for Tobi here and this is like the age old question for software platforms, which is how do you choose.
Between what you incorporated into Shopify is core platform versus what you delegate to the ecosystem and in the past and the only things like payments.
<unk> fulfillment it looks like a year or two.
Do it more yourself now how do you how do you really make that decision there.
Yes.
Maybe I'll ask the question is one of those.
File you'll have in <unk>.
And first of all with this space.
<unk>.
Without trying to like given the SA on it.
Here for your arithmetic basically like maybe thats, the best way to compressors.
If I'm interested something mode.
Sure.
If most of them are just need something most of the time it goes into core alright.
That's sort of a first stab at that.
And that changes over time.
For a while.
Okay.
Most people needed support for a payment gateway I'm talking like ancient history here at some point most of the need for a payment gateway.
So disappointed a lot of them and then it just looked like.
We knew eventually payment gateway, the new executive would need to support and then be built one.
Included with everyone, but before then if I can just sort of choose another one if any.
It's sort of a voice.
But.
The contours of what Chubb referred to us in the dresses is not really defined by industry. Like this is the burden of interesting at some point I would like to point of sale industry.
Our next door industry.
Logistics industry and they are all separate but like I think verticalizing food.
Through all of this.
Really important step here because.
Again, just kind of need to have both the clinic program.
So first we need to take it.
You need to get their product into the cloud and then from there everywhere right into every channel and Thats like integrating our rollout of assistance systems together.
Just the complexity of that.
We'll limit the potential for growth.
And thinking.
Some of them about.
Logistics.
So fairly bright lines around like physical shippable products.
Kind of our bread and butter and.
That's a huge market, it's incredible how often in my career.
Had conversations thats kind of.
But difficult to have partly because.
Is it just kind of underestimate the size of the retail industry.
And then also massively underestimated the size of the printer.
Given the travel advice at the intersection of Pulpwood thing.
There's always been a very very large opportunity, but also like lots of opportunity for us to get distracted.
You bet. Thanks.
Since the last two years.
Really really focused on.
Not.
Getting too many adjacencies and being shared with our partners what it is.
We want to accomplish.
And.
Just really really really sweating with you because of the core parts of the business. So I think if you're trying to predict the direction we're going.
Just imagine like us.
I think the toward everyone roughly rich parts of.
Is this basically want to solve.
And we are going to get better and better and better in both parts and.
Sometimes a little bit deeper integrated wherever I bet, it's a big product advantage, but this is.
Part of that it's really case by case.
And very very complicated conversation.
Involving assumptions about what the future looks like.
It takes like this again.
Hi, Ken.
Really really big topic fascinating bundle.
Thank you Paul.
Next question please.
Next question comes from Bob <unk> from Deutsche Bank. Please <unk>. Your line is now open.
Great I guess for Hollywood told me you guys continue to innovate on the shop, App, adding more and more search functionality. How are you guys thinking about ways to potentially monetize or scale here.
Also balancing the need for merchants to kind of remain control of their brand.
I'll start it's a Harley here. So look I think the shop App is certainly getting more and more attention now.
Really the value prop that we've always talked about around it is strengthening the merchant relationship with buyers.
In an effort to increase customer LTV. So.
It offers things like real time order tracking and at checkout with shop pay shopping installments as product recommendations post purchase marketing. It really is a great way for for for merchants to better engage with their end consumer in terms of how we how we continue to evolve that I mean look in.
In Q4, 2021 alone millions more buyers signed up a new shop app to make purchase directly from the App during the holiday season, and that obviously continues as well the other thing to sort of think about is as we as our consumer decides that they like a particular brand. This is something this is a way for them to go direct to that brand again, when they want to buy either more products that they want.
Re byproduct they've already purchased and when you combine that with shop pay which as I mentioned in the opening remarks is now facilitated $43 billion in GMP since it launched its four times faster. It has a $1 seven X higher checkout right. It is becoming a consumer's favorite way to shop and defer further favorite brands so well.
And innovate on that from a product perspective.
In terms of the monetization of that look the more the more ways that merchants can sell the higher LTV becomes obviously shopify is business model as a flywheel of entrepreneurship and the better our merchants through the better we do and so that's really where we're focused.
Okay. Thank you Bob next question.
Yeah.
Next question comes from Colin Sebastian from Baird. Please call in your line is now open.
Alright, thanks, and good morning, everybody.
I apologized by adding another question on the on the fulfillment.
And I guess the question is what was the three year investment cycle give you in terms of capacity I mean, the context, there being the amount that we're seeing other platforms like Amazon spending per facility.
And if within that capacity ramp is are you embedding anything related to transportation, either middle mile or last mile, which is which is also part of that.
Compared to competing logistics offerings. Thank you.
I would say that.
I mentioned some of this earlier on but the goal is is now that we have a sufficient amount of insight and information and feedback from merchants. We really we want to continue to build these foundational features for <unk>. So what we're focusing on is how do we offer this fast and simple fulfillment that will enable them to delight their customers.
Part of that will be things like testing.
Fees across like one simple fee across things like inbound again pick and pack and storage and supplies, but what we're trying to do is just enabled it. So as I said in my opening remarks that merchants don't have to think about fulfillment again being able to offer this to 90% of the U S. Today affordable shipping that really is the goal and there is mix between self owned warehouses, but also leveraging part.
<unk>, we think is the best way to get there, but look this is complicated stuff and this is stuff that does not it does not is not easy to do that sort of where shopify shines. We've always shine when we take things that are really complicated.
We simplify them for small businesses in our larger business as well. So our plan is really to again move into this phase of build scale of these operations figure out where we can find greater control over efficiency layers, where we can find automation, there's obviously cost levers as well here, but the goal is to make fulfillment something.
Our merchants, particularly in the U S for now don't have to think about that cycle.
Yeah, and I think I would just add.
In there that.
Again us running operating some of the larger hubs.
Back bone.
<unk>.
Continuing to work with partners.
Four.
Our spokes for sort centers.
And kantar.
Continuing to iterate on how this evolves looking at middle mile transportation anything that increases.
The the speed and efficiency of the network on behalf of our merchants, we absolutely will consider in the next going forward.
Okay, great. Thank you Colin.
Thanks next question please.
Next question will come from Samad Samana from Jefferies. Please <unk>. Your line is now open.
Hi, good morning, Thanks for taking my question.
Maybe one for you I'm wondering how should we think about the brick and mortar GMB represented by your existing merchants that have both a physical presence and an E com footprint and at what percentage of that has been penetrated by the sharp point of sale offering.
Yeah, I mean, we don't disclose the particulars, but we know that there's a large percentage of our existing merchant base.
<unk> has both.
And so when you look at our Pos performance.
As Harley said not only did it have its best quarter ever in Q4 from a <unk> perspective.
But we are we have continued to increase the number of merchants and the number of locations significantly and in that.
Addition of merchants, we're seeing healthy penetration of our existing merchant base.
The number one driver of increasing merchant in Q4.
Followed by new merchants coming to Shopify. So we're successful on both.
This is a significant opportunity for us and as we also indicated.
<unk> and <unk> geographies now as of the end of Q4 for Pos with integrated.
Payments and we've already launched three additional geographies already in Q1 of 'twenty. Two so this is <unk>.
Major opportunity for us going forward. We're also beginning to see just add on the retail point of sales side of things. We're also starting to see some really larger merchants to start using this as well whether French connection in the UK or campus in Italy FC Copenhagen in Denmark, all birds parachute Brooklyn, and what we're seeing is that a lot of our lot of the brands, we talked about e-commerce .
Perspective are really making shopify point of sale part of their offering in a physical location and so.
Retail is unequivocally growing its impact on the shop side business and as more markets open up post pandemic I think youre going to see a lot more a lot more there, but we're really proud of it was the best quarter ever for our retail business onshore plant.
The general tolerance for that software.
Going down across.
Everywhere I think people just.
Experienced for Covid lockdowns in all the kind of things.
<unk> people quality of consumer software everywhere and how that can be solved in a business context.
So as people like like everyone's looking at.
<unk>.
Better on our sales systems, and 5% was really really good so.
Suddenly happened.
Okay, great. Thank you so much we have time for it yes. Thanks, we have time for one more question.
The next question come from Gabriela Borges from Goldman Sachs. Please Gabriella your line is now open.
Good morning. Thank you for taking my question I wanted to follow up on your comment on payback period as it relates to Africa and ask a little bit of a broader question, which is when you have the team. When you think about internal forecasting of a longer term could you give us a little bit of color on how you're thinking about ROI on the ink.
Momentum of Capex and Opex.
Timing to realize our own time relative to perhaps what your typical attempt math looks like pre Covid and then just one clarification on reinvesting all the gross profit dollars does that mean, we should take Opex plus capex equaled our gross margin just a little clarification on how exactly that reconciled with piano. Thank you.
Well on the <unk> commentary about investing levels above what we provided in our outlook.
Sure.
Yeah, we're not going to get into the details of.
The payback or ROI, but what we can assure you is we've always been strong allocators of capital to the right opportunities to grow the various parts of the business at the right time.
This is no different.
So the outlook that we provided you.
Any investment above that would be based on <unk>.
Things like.
Volume growing significantly that would have sufficient payback to justify the investment and that would be a very good thing to have that kind of volume. So that's how we're looking at it the space investment gets us to a certain level of scale.
That we think allows us to start optimizing costs and increase the number and types of merchants that we're serving and anything above that really is driven by success.
In terms of investing all of our gross profit dollars back into the business.
That's exactly what it means.
<unk>.
And.
Well, we'll leave it there.
It means we see a significant opportunity in front of us to continue to go after digital commerce transformation.
And there are parts of the business today from an adjusted operating income perspective that are positive and we're deploying all of those those profits back in to grow the businesses like international growth.
POS that we just talked about the shop App and <unk>.
Great Alright, thanks, Gabriella and alright, thanks, everybody for dialing in today.
This concludes today's call. Thank you so much for joining you may now disconnect your lines.
Goodbye.
Yes.
Yes.
Yeah.