Q2 2022 Shopify Inc Earnings Call
Confident these changes will generate improved cost of customer acquisition expand merchant lifetime values and more importantly increase our merchants odds of success by bringing more of shopify to more merchants.
Last I'll give more color regarding our fourth major investment theme, which is simplifying logistics.
Our vision in building Shopify fulfillment network for the long term starts with simplifying the end to end supply chain at three critical stages that are really hard for close to impossible for independent businesses across freight distribution and fulfillment as inventory moves from port to port.
When this is done well, we greatly simplify logistics for merchants and enable them guaranteed delivery times, which provides a meaningful uplift to conversion.
This also feeds our flywheel of lowering the barrier to entrepreneurship within this domain.
Let's start with freight inbound.
Inbound inventory from suppliers is incredibly difficult for independent merchants to handle on the road today merchants, who manufacture abroad have to work with upwards of 10 vendors to receive inventory from suppliers ship across the ocean and receive it at ports.
Even if a merchant centralizes this through a freight forwarder many of the processes are manual and fractured design for big businesses with large volumes and consistent demand.
To help with this <unk> has launched a pilot program with Flexpath.
Merchants can more easily and cost effectively inbound freight.
It enables merchants to ship inventory at the pallet level versus container level and have just in time access to pre booked containers that deliver goods directly to an asset and hub.
This prevents tying up our merchants' access capital in inventory and allows them to remain nimble to changing buyer trends.
Early pilot runs have shown that <unk> merchants can expect service from origin ports up to 50% faster with cost per pallet much less expensive than average.
Once their inventory arrives at domestic ports merchants have to tackle the second challenge mentioned distribution.
Historically, preparing and routing inventory for distribution across multiple channels has been hard for independent businesses until now.
In July we closed the acquisition of deliver and have begun integrating SFM and deliver software network and operations, which we expect will continue for several quarters.
Through deliver we are accelerating the simplification of the distribution phase.
The first example of this will be at our Atlanta hub warehouse using software and machine learning. These seven hubs leveraging delivers capabilities will unpack scan and inspect all inventory then compare against metadata and shop buys back office throughout the goods to merchants various distribution channels as well as forward position inventory into <unk>.
Spoke direct to consumer fulfillment centers based on expected buyer demand with this software based approach delivers helping us expand to data delivery across F N b.
Deliver already fulfills more than a million orders per month, and it's asset light technology driven service is trusted by thousands of merchants across the U S. We are thrilled to welcome delivers experienced team of software engineers operations experts and merchant champions to Shopify.
Finally, the third and most critical step is to de fulfillment and delivery.
Affordable and timely fulfillment has been nearly impossible for independent businesses to do on their own but it is important just getting buyers confidence that an order will arrive when promised even if it's three or four days is enough to increase conversion by leveraging deliver software NSF and hubs and SSN spoke partner warehouses, all equipped with six river.
Systems technology, we can forward position merchants inventory to support timely fulfillment with a minimal inventory commitment for merchants.
We've also continued arent really access to shop promise, which lets merchants offer two day delivery promises across online storefront and channels like Google Facebook and Instagram.
Deliver data suggests that a shop promise reaches scale, many merchants will be able to increase average conversion rates by more than 30%.
<unk> made other significant strides in Q2 to simplify fulfillment for our merchants, we completed our migration of <unk> merchants to the updated version of our new simplified offering. We also completed our warehouse management system rollout with 100% of SFM fulfillment process using the <unk> system software that is highly integrated into shopify.
Orders with predicted delivery of two days or less have no increase from less than 2% prior to suffer updates to over 70%. After the updates and we are just getting started we are really excited with the evolution, that's underway and fulfillment when merchants and brands can provide accurate delivery timing that's guaranteed consumers.
Gain greater confidence in independent businesses and that is good for commerce overall.
I know, we covered a lot here from a new product standpoint much of this was highlighted in our first ever Shopify additions, which we published on June 20 <unk>.
Featuring more than 100 product releases editions is our semi annual publication showcasing the speed and the breadth of innovation at shopify to build for the future of commerce.
Our platform serves as the backbone for millions of merchants, who depend on shopify for their long term growth and success. This is why every time you talk to our merchants consistently they tell you that they love Shopify, we are committed to solving the toughest problems facing merchants. So we can continue to make commerce better for everyone and with that.
Let me turn the call over to Amy.
Thanks, Harley and good morning, everyone hardly provided you with an overview of everything that we're doing for merchants to succeed in any cycle, including the one we now find ourselves in a high inflation by helping merchants mind more buyers on more surfaces saving them money by passing along our economies of scale and empowering them with mission critical.
<unk> tool I will first provide an overview of our Q2 results and then talk about how we will build for long term success with the same operating discipline that we've always demonstrated.
Before turning first to our financial performance note that our Q2 results were not impacted by the deliver acquisition given it closed this month on July eight.
I'll begin with Dnb as a reminder, last year's second quarter GMB growth was 40% year over year fueled by online consumer spending on goods in large part from Covid related government stimulus checks fast forward to 2022, our total <unk> in the second quarter was $46 $9 billion, which continued to.
Grow year over year, and was up 11% significantly higher than retail growth overall in the U S of about 7%, while the macro environment exited tough COVID-19 year over year comps in mid Q2 consumer spend on services and in person shopping remained high and persistent inflation at 40 year highs.
<unk> online sales globally.
In the face of rapidly escalating prices for essential goods and energy consumers have been favoring discount retailers and reducing their spend on other goods categories are.
Our online <unk> growth year over year was 8% and our offline GMB grew 47% year over year as we continue to take share in both thanks to multiple channels and thousands more Pos locations added in the quarter.
Our revenue for the second quarter grew to $1 $3 billion, 16% higher than the same period last year, given the significant strengthening of the U S dollar relative to foreign currencies in Q2 total reported revenue growth year over year for Q2 was negatively impacted by approximately one five percentage points.
Revenue growth in Q2 was driven by merchant solutions as merchants continue to trust us with more parts of their business in this inflationary environment.
<unk> solutions revenue grew to $928 $6 million, increasing 18% year over year, driven by increased <unk> penetration of Shopify payments Shopify capital and Shopify markets on the back of GMB growth as well as by growing revenue from partners the significant strengthening in the U S dollar relative to foreign.
Currencies was most felt here with merchant solutions reported revenue growth year over year negatively impacted by approximately two percentage points.
Approximately $24 9 billion of <unk> was processed on shopify payments in Q2, 23% more than in last year's second quarter payments penetration of GMB or gross payments volume was 53% versus 48% in Q2, 2021, and up 200 basis points quarter over quarter.
Over the past five quarters, we have seen <unk> benefit from strong performance by merchants on shopify payments and an increasing percentage of whats your shopify plus G. N V new merchant adoption, both in North America and internationally.
Penetration gains in shop pay which has facilitated $58 million in GMB since inception, and expanded availability of our pls pro hardware and brick and mortar stores with integrated payments now being used by merchants in 13 countries.
Subscription solutions revenue grew to $366 $4 million, which was 10% higher than a year ago, driven by more merchants on the platform and the strong growth of Shopify, plus offset by a four percentage point negative impact on year over year growth from the change in App and theme revenue share model for partners that.
We implemented in Q3 of last year.
In May we began making a greater number of localized subscription pricing options available to provide a better experience for our international merchants as Harley explained earlier and while early days, we saw promising traction in select countries. As we exited Q2, we expect this to pay off in terms of more merchants from outside North America.
On our platform, taking more of our services over time in Q2 merchants outside of North America continued to increase as a percentage of total merchants year over year.
Monthly recurring revenue was $107 $2 million up 13% year over year on higher number of merchants on the platform year over year on Shopify, plus which increased its share of total <unk> to 31% from 26% in Q2 of last year and on an increased number of retail locations using P. O S.
<unk>.
Adjusted gross profit was $665 million compared to $627 million in the second quarter of 2021 compared to the second quarter of 2021 adjusted gross profit was affected by a greater mix of our lower margin merchant solutions revenue lower margins and shopify payments due to merchant and card mix shifts.
And increased investments in our cloud infrastructure.
Adjusted operating loss was $41 $8 million in the second quarter compared to adjusted operating income of $236 $8 million a year ago, largely due to investments in talent as well as marketing program spend the additional talent has enabled us to expand and strengthen our R&D and sales and marketing teams.
Significantly step up our marketing efforts internationally and initiate a new offline performance marketing program, while we saw sequential quarterly increase and the year over year growth of operating expenses from Q1 to Q2, we took measures during Q2 to slow spend that resulted in a sequential monthly deceleration of opera.
Waiting expense growth year over year, as we exited the quarter.
Adjusted net loss for the second quarter was $38 $5 million or loss of <unk> <unk> per diluted share compared with adjusted net income of $284 $6 million or 22 per diluted share in the second quarter of 2021.
Turning to our balance sheet, our cash cash equivalents and marketable securities balance on June 30 was $6 $95 billion. This amount does not reflect the acquisition of deliver which closed in July for approximately $2 $1 billion, comprising approximately $1 $7 billion in cash and $400 million.
And class a shares some of which relate to post transaction services that will be accounted for as stock based compensation.
Our strong cash position reflects our approach to prudent capital allocation and rigorous operating discipline, we allocate capital to opportunities that we expect will significantly expand the opportunity set for merchants accelerate our product road map or have strong paybacks from improved operating efficiency.
Consistent with this we're taking actions to recalibrate, our investment spending to build for long term success. We are keenly aware of what's happening around us we anticipate that inflation and the continued softness in consumer spending on goods will persist through the remainder of the year throughout the organization. Our teams are mindful of the Mac.
ROE environment and have been rigorously evaluating and adjusting our spending priorities and we have taken this time to also make adjustments to ensure we have an efficient productive and highly motivated team.
We began by conducting more rigorous reviews of our workforce throughout the organization with the aim of more fully maximizing our team's performance. This had the effect of slowing the number of net head count additions to our team in Q2 versus Q1.
Upon completion of a comprehensive and careful analysis of the company, we identified certain areas, where we can improve our operations and team that resulted in the elimination of approximately 10% of shopify as total head count on July 26. This was an action we did not take lightly given its impact on people both those leaving in those.
Stang, we expect the streamlining of our workforce throughout the company and realigning our commercial organization as Harley described earlier.
Or effectively deliver shopify has value to merchants for the remainder of 2022, we expect a slow hiring to only the most strategic and with the addition of deliver exit this year with only a modest increase in total head count versus the beginning of 2022, we have recalibrated. Our team. So we can continue to operate with.
Rigorous discipline and invest thoughtfully into the enormous opportunity ahead of us.
And we are implementing a market competitive compensation system to recruit reward and retain the best talent in the World. We believe this new framework will also better equip us to manage total compensation, both cash and equity for our global workforce. We expect the increased cost of this new compensation system to be approximately 50 million.
For the remainder of 2022, while the final compensation split can only be determined after employees have made their elections with the guardrails and default settings in place, we anticipate a split between cash and stock fairly similar to the current composition, we will provide more details next quarter after the new framework roles.
Out this quarter.
In addition for the remainder of 2022, we expect to reduce spend and lower priority areas and non core activities that we do not believe would be effective in this environment focus our sales and marketing spend on activities with shorter payback periods and realign our support teams under a more efficient operating model.
Turning to our outlook since our beginning we have grown the business with operating discipline allocating capital to the best opportunities to help merchants grow and have grown our adjusted operating income over the past five years through 2021.
We expect 2022 will be different more of a transition year in which E. Commerce is largely reset to the pre COVID-19 trend line and is now pressured by persistent high inflation.
We expect our multichannel superpowers and strong value proposition will continue to help our merchants in this environment and we are excited about our critical investments like deliver that will position us well for the future of Commerce. We believe we will emerge from 2022 and as macro cycle stronger and our prospects for long term.
Growth and profitability remains significant given the long term growth trajectory and expansive opportunity set that commerce presents and our leading position within it earned over years of providing the best technology at merchants and partners build their futures on.
Our financial outlook for the rest of 2022, which includes the impact of deliver and our new compensation system assumes that higher inflation will persist for the foreseeable future and combined with rising interest rates will pressure consumers' wallets for purchases of goods.
In light of these assumptions or expectations for our own results for 2022 are as follows.
Our GMB growth, though impacted by persistent inflation will continue to outperform the broader retail market in the second half of 2022 aided by our multichannel capabilities merchant solutions revenue will continue to grow as a percentage of G. M D driven by mission critical tools like Shopify payments Shopify.
Capital Shopify markets shop pay installments, and shopify fulfillment, including deliver and continue to benefit from the growth of partner revenue.
Number of new merchants, joining the platform in the second half of 2022 will be higher than in the first half of 2022 as our localized subscription pricing and other commercial initiatives gained traction merchant solutions revenue growth year over year will be more than double that of subscription solutions revenue growth for the full year 2002.
92, both <unk> and total revenue in 2022 to be more evenly distributed across the four quarters similar to 2021, given the increasing pressure on consumer spending on goods and currency headwinds from the stronger U S. Dollar we are expecting in the back half of this year.
Because of this larger mix of merchant solutions contributing to overall revenue and deliver which we expect to be dilutive gross profit dollar growth will trail revenue growth and operating expense growth, excluding severance to meaningfully decelerate in Q3 and again in Q4.
Factoring in these expectations, we expect to generate an adjusted operating loss for the second half of 2022 with Q3 adjusted operating loss, excluding severance costs expected to materially increase over Q2, reflecting time needed for the streamlining of our operations to take it back the implementation of our new <unk>.
<unk> framework, the first quarter of deliver operations, including approximately 450 team members and related integration costs and up to an estimated $50 million for certain other operating items associated with these and other areas.
As we significantly decelerate operating expense growth into Q4, and with Q4 as higher seasonal GSV and revenue. We expect an adjusted operating loss in Q4 that is significantly smaller than in Q3, but larger than in Q2.
Finally, the estimates of stock based compensation and related payroll taxes, Capex and amortization of acquired intangibles are now $750 million $200 million and $62 million, respectively and.
In closing, we're ready to keep building the future of Commerce, we will continue to prioritize building the software and solutions for merchants to enable entrepreneurs and independent merchants to compete in a world that realize increasingly on technology to succeed and we will continue to be nimble and adjust our plans to exit this cycle with improving profitability.
Our investments will help independent brands get started and compete bring more modern selling tools for our larger brand and equip merchants around the world with a richer set of capabilities all of which fortify our long term competitive position and value proposition.
Overtime the investments we make now will become an integral part of our commerce operating system is shopify advances to be a 100 year company with sustainable profitable growth I'll now turn the call back to Katie.
We will now open the call for questions as you did last quarter. Please use the raise hand featuring zones ask your question, we will take them in the order we see them come in if you dialed in from a phone you will need to press star six two on mute in order to ask your question. Thank you in advance for limiting.
Yourself to a single question. So we can get to as many people have questions as possible.
Our first question comes from DJ Hynes at Canaccord Genuity.
Hey, good morning, guys. Thanks for taking the question.
With the investments you guys are earmarked for us and I think we've talked about 1 billion.
Five year cash neutral plan and then now 2 billion on deliver what percent of <unk> do you think that will give you the capacity to manage I think investors are trying to wrap their arms around.
Full scope of potential investment here, so any color along those lines would help.
Sure. We've said from the very beginning of launching savanna doesn't change with with.
Over the we expect it to be able to address.
The majority the vast majority of our no good.
<unk> at scale. So today we're.
A subset of a subset as we as we build out and make sure that we're focusing on merchant delight.
Obviously, the deliver acquisition.
Add more fulfillment volume and more merchants.
Starting in July which is great and we will continue to build.
The integrated network and operations and scale that over time to be able to address.
At G M D.
Thanks T J.
Our next question comes from Mark's goodwill from benchmark Mark go ahead.
Thank you.
Regarding your commentary on second half growth in merchants over first half.
I'm curious sort of what the mix looks like there I know you had earmarked some incremental marketing spend our acquisition spend at the lower end or the entrepreneurial segment.
And I just wanted to get a sense of how that has progressed and all that hence trail, obviously, you've had pretty strong cost growth, but just curious.
That mix looks and how youre seeing or what progress youre seeing on the entrepreneurial segment and how important that.
<unk> is in terms of broadening out your merchant base. Thank you.
Yes, so we.
We talked a little bit in the opening remarks about some.
The commercial initiatives that we have been working on namely the localized.
Reising and billing and markets outside of North America, We're really excited about that launch it was late.
May around May 25th so it's very early days as we exited Q2, we saw good traction.
And select international markets. So continue to be excited and as I said earlier international merchants continue to increase in the mix year over year.
So we our expectations were built into our outlook for the second half because of that and yes, as you said plus.
It continues to do extraordinarily well and keep in mind. That's just that's not just new merchants coming to plus that's standard merchants upgrading we're still seeing a healthy number upgrade to plus we expect that to continue into the back half.
And then our POS pro locations are increasing in.
In the thousand year over year, and we expect that to continue to increase into the back half.
One thing I would just add to that I think some people missed this often but the reason that I think pluses has been successful is not just because it is the best place for existing brand side that go direct to consumer for the first time or scale or modernize their retail operations I mentioned, some big household names in my opening remarks, but it's also because we have an unfair advantage that.
Shopify is where people go to start businesses and those that are successful and in some cases very successful they migrate up to plus and stay with us indefinitely. So the fact that we have both existing large brands coming on but also have the feeder from the small businesses that are successful it makes plus especially compelling.
Yeah, and I might just add one more thing on the Pos side.
We're seeing more merchants take Pos.
S from our existing merchant base. The majority of those those ads are coming from the existing base, but we're also seeing a healthy number of new merchants come to shopify for our Pos.
And so there are multiple levers there that are growing our Pos business.
Great. Thank you Mark.
Our next question comes from Thomas Forte from D. A Davidson.
Great. Thanks for taking my question. So when you think about the longer term growth rate for your mission to enable merchants to exploit commerce related opportunities on a global basis. How do you think about your relative growth rate for head count.
In other words, if that market is growing at a 10% CAGR do you think you need to increase your head count at that rate or a higher one for lower one thanks.
Yeah.
Hum.
Suddenly the times that we are thinking about head count.
This week.
Okay.
Yeah.
Thanks for the company wants to.
The highly effective company is not interested in having.
India growth.
At least that's about an ambition that is.
We want this to be sub linear.
And.
It's hard to say what like the natural sizes.
Sizes of it.
Would be some kind of formula that tells you exactly what's needed.
Right.
This victory of course had to say goodbye to some.
Remark of individuals have you been broken partly because he got the.
Exact number of people, we need for the concentration from so.
Honestly I bet.
First thing to think about this is.
Yeah.
We are building capability.
To take advantage of opportunities.
And.
Everything Thats off the company does it's about productivity everything with the tougher company doses.
Be able to automate things.
That's.
Need to be automated and especially like shopify.
<unk> has been the last two years very much heads down.
Lots of focus on R&D roadmap shipping as you can see with additions release and.
Now we are going to take the principles of organization and.
Tooling again to broader company and looking at all the systems may be found huge.
Efficiencies and deposits and things like on the right thing for.
Our capital product and all this.
Areas.
And so we view this is what we're going to invest in and.
Hum.
How to have a specific number.
But <unk> is committed to being operationally extremely efficient.
There are also a bunch of things just to add to Tony's point on some of the automation as we can do here in May for example, we introduced local localized subscription pricing plans over 200 countries that automatically reflects this country's purchasing power and also it just makes it easier to sign up for Shopify, we added things like point of sale and shopify payments new areas Shopify shipping in places like France.
Example, so there's a lot we can do in terms of getting more international merchants onto the platform that don't necessarily require more head count or rather require us to think a little bit differently, but the software and that's been that's something that we're currently working on you'll see more of that in the future as well.
Okay. Thank you Tom.
Our next question comes from Colin Sebastian at Baird.
Colin.
Our U a E.
Did you meet your phone.
Sorry can you hear me now getting.
Yes.
Okay, yes, so sorry about that thanks and good morning.
Just hoping you could talk a little bit more about that balance between maintaining the longer term product initiatives, while recalibrating operations.
I guess the question would be are you sacrificing anything from the roadmap given the adjustments you're making to the macro backdrop or is your view that you can still achieve these milestones even on a lower expenses.
Yes man up sacrificing.
And if anything in this.
Okay.
Thank you Colin our next question comes from Paul Treiber at RBC.
Paul you can go ahead.
Yeah, Thanks, very much and good morning in the prepared remarks, you mentioned that shop on make strategic bets that your merchants demand of you know once the biggest strategic bet that the company is making right now.
But sort of vertical integration.
Logistics.
Yeah.
With that and the various things that we're doing.
On sharp.
Uh huh.
I think it's worth saying.
It is a characteristic of.
Innovative companies that they think and bats in general like I mean heavy.
Starting any company as it benefits you have some insights.
<unk>.
There's some inside so that's like a different from orthodoxy, but you know something better or.
No thats something is needed in the market that currently doesn't exist.
First bed.
And I think.
I've found out run companies in general tend to be very.
That's driven.
Before.
The growth patterns are different right.
Oh yeah.
Especially.
This week I feel it's Hawaii.
A more managerial around companies tends to not engage and embeds mathematically they make a lot of sense, obviously, you ought to take a 20% chance at a 10 X increase but.
<unk>.
You feel when they don't book and it tends to be somewhat public thing so I know.
There's generally not a lot of appetite for this kind of risk taking but.
I think our company, especially as defined by.
Not <unk>.
Following some kind of order books playbook the snow.
This is how you build shopify on behalf of Boston Lager, and you have to make it up on the fly and for that.
We try to have a really really good model for work and.
Macroeconomics.
And friends and.
If a if that's hopefully a lot of data points from history that are influencing these things because you know history is you might be heavier right up in front of you for inspection.
Allows you to understand how things might evolve in the future and based.
Based on this you make choices in our case.
As it relates to our retail and E Commerce I think it's maybe.
It's a very very big easy bet to make.
Humans to be engaged in entrepreneurial activities.
That's our best is going to be a lot of trade a lot of retail a lot of.
Products.
People innovative and that other people once again, so all these kind of things that are long term with us no matter.
What happens and so <unk> wants to make sure that we are helpful in any kind of way and shape mistakes.
And we.
We would like shopify to be.
Ubiquitous.
Really helpful.
Our contact center and so.
This is how we make our decisions would be given one of them is.
One such path.
And.
Some of them fail.
But that's.
So that would be extraordinary voice to be.
Invested into a company that isn't sometimes failing.
Because that just means they're not terribly ambitious I would say.
Thank you Paul.
Our next question comes from Gabriela Borges at Goldman Sachs.
Hi, Good morning, I wanted to follow up on the commentary.
Normalized headline highly appreciate bought shopify can outgrow the industry would love to hear a little bit about your medium term planning assumptions on what youre expecting for e-commerce industry.
What are you hearing from your industry ecosystem partners that informs that planning assumption. My mom is there any risk that we grow below the top line for a little bit jaded macro before they come back up to Trump.
Okay.
So I think we mentioned this on the call, but what we're what we're seeing at Shopify is both on offline retail and online retail we are growing from a JV perspective year on year.
The larger market Shopify now is around 10% of all e-commerce in the U S and we continue to take a larger market share in terms of the sort of recalibration of retail obviously with things. We opened last year, we saw more more retail shift away from e-commerce directly to you to physical retail.
But one of the things we prepared for it and we did this pretty much when the pandemic started was we knew that physical retail was eventually going to reopen and so we went to work building. What we think is the best point of sale physical retail product in market and we were able to add new functionality to it would be creating new hardware for it. We also able to expand locations said more merchants can use our <unk>.
<unk> product and more and more areas, but even if you sort of just look back the last couple of weeks announcements, we've made whether it's selling across new new new surface areas like like Youtube for example, or increasing our partnerships with.
With companies with other surface areas like social media companies, what we're doing right now with with Tic Toc and what we're doing right now with Instagram, We believe the future of retail is retail everywhere and I think that when you come to shopify. What we're doing is we're future proofing your business. So that no matter, where the additional increase in retail is coming from where the momentum is.
You can do so directly from shopify, and so whether or not.
Retail.
E Commerce in particular, obviously.
It continues to grow it's still somewhere around the 15% markup to our retail in the U S. But in places like the U K, we're seeing far more.
Far more increase in e-commerce and that is that is very very sticky, but what we are trying to do is make it. So when you come to Shopify you never have to think about where to sell because you were able to sell across every single surface area, where you may have customers and that is important that is not something that you see at other companies.
Thanks Gabriella.
Our next question comes from Daniel Chan at TD Securities.
Hi, good morning, Thanks for taking my questions. Let's say you guys have done some work on your <unk> to say that your <unk> outpaced the growth of overall retail just wondering whether you could share some of the findings of what Youre GMB is composed of in particular, whether you can share how much of your JV. You think is more discretionary spending versus non discretionary. Thanks.
I'll take that one.
So, we obviously track our G&A by consumer vertical categories.
<unk>.
Apparel.
Cosmetics and beauty.
Hum goods have tended to be the the mainstays in the majority.
Of the of the G M D.
We saw every category continue to grow.
In the quarter year over year.
And what was really kind of interesting is food and beverage, which really took off during COVID-19 actually.
Grew sequentially quarter over a corner, so youre kind of seeing the robustness of the platform ability to sell multiple kinds of goods and different environments.
And so it's the combination of of those in the.
And the Ah <unk>.
Fast.
Hum.
Variety of merchants that we can serve successfully I think it shows the power of the platform and that in addition to the multichannel capabilities that Harley just talked about.
Thanks Kim.
I'm sorry, Thank you Daniel Tan.
Our next question goes to you.
Great. Thank you very much Katie.
So just a question around the reduction in force one thing I've been getting asked a lot is should investors see it as a deeper change in management's operating philosophies with perhaps a more balanced approach to growth.
Or is this simply a right sizing of expenses to lineup with the lower revenue run rate that's expected because of the normalization.
Yeah.
Aye.
Well it is.
We didnt come up with from a fan perspective trying to hit.
This is this as we build capacity for them.
<unk>.
Dealing with potential growth rates.
The negative if an accelerated eco Mrs are.
Our growth rate.
In my letter there is a chart of course, which we share about.
E Commerce.
Penetration.
As a percentage of all of retail.
If you look at that chart.
You'll see.
That's why we needed to jump ahead and had gone too because their bus.
Except for perhaps for instance, a lot.
Business that created and specialty of those times, where everyone had millions of questions right. So like just from customer support.
Inbound and all these kind of things we needed people to two head offices and.
Without that demand like we will converge on.
Yeah.
e-commerce penetration rates, having normalized back to the trend line.
<unk> going to a staffing level, maybe would be if COVID-19 wouldn't have happened.
It's this.
The reason that's why it wasn't.
Obviously, it hits the expenses because of course.
Payroll and some growth, but like that wasn't the goal of imperative.
Thanks, Ken.
Next question comes from Bob <unk> Shah at Deutsche Bank.
Great. Thanks for taking my question just following back up on SSN, given the change in pace of head count investments along with the evolving macro backdrop is there any change in the amount or timing of the 1 billion in capex for us at that over the next few years and along those lines can you remind us of the other costs associated with the build out such as leases.
And then any change in pace of the investments of these costs as well.
No there's no there's no change in the in the current.
Investments that we plan for S. A fan and deliver them I want to just remind you that.
The Capex that you referred to relates to.
A handful of backbone self operated hubs in key geographies that will serve a multifunction capabilities that we believe actually brings operating costs down.
And makes the network really efficient.
And with the acquisition of deliver and their Forti partner warehouses will act as <unk>.
Spokes.
Spoke warehouses as well as sort centers and so this is a very capital efficient.
Plan.
We'll have more to say in the coming quarters as we.
Bring those networks together.
But there's no there's no current plan right now to change that view.
Thank you Barton. Our next question comes from Josh Beck at Keybanc.
Yeah.
Thank you for taking the question I wanted to ask a little bit about the embedded assumptions for the second half with respect to merchant certainly it sounds like you're having good momentum with some of the commercial initiatives that you've put in place I am sure Thats part of it but I'm also curious on how you thought about.
Business formation and retention as we do get into a little bit.
A tougher macro.
Yeah, I think we kind of largely answered. This question earlier with respect to the commercial initiatives and our excitement about localized pricing and billing and some other things that are.
We began towards the end of Q2 that we think all provide lift in the second half in addition to plus and and Tos continuing to contribute.
Significantly.
So.
I don't think our answer changes there.
You know really continue to believe that we will see more merchants coming to the platform in the second half than we saw in the first half.
New business formation.
It has been shown to actually increase sometimes and in recessionary environments.
We don't think that would be any different and shopify is an amazing place for merchants to be and inflationary or recessionary environment because of some of the things that we said in the opening remarks about passing our economies of scale on to merchants to help them.
Make every dollar count and that type of a market.
The same thing goes also for the Shopify plus merchants the existing brands that are migrant over shopify plus many of them now are using this opportunity to recalibrate and rethink exactly what they need from us from a from a commerce partner in some cases, it's obviously cost effectiveness cost effectiveness in other cases, they just want to modernize our systems and Shopify plus is the best place to do that.
Just back to your original question just around merchant growth remember, though that it's not just more and more is coming to shopify. It's also the merchants on shopify or taking more of our products. When we talk a lot about this sort of product usage metric, which is merchant solutions revenue divided by <unk> now that continues to increase and we believe that you will see sequential increases from this quarter and next.
Quarter and certainly into next.
Certainly year on year, and that's not just because of delivery that is happening also because of organically, adding more features and solving more problems I mean, you've seen things like capital, obviously increase in and sharply installments and shopify markets Shopify payments all of these things makes shopify more and more the most important piece of software that these millions of.
Merchants use and so it's not just more merchants. It's also more merchants, taking more from shopify and we are and we are the heart of their businesses and that matters. It allows us to not only solve more problems, but it also is very good for our business.
Great well, thank you very much Josh and everyone else for joining this morning that does.
Conclude our conference call for the second quarter of 2022.
Thanks again, all for dialing in.