Q4 2022 Shopify Inc Earnings Call
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Good afternoon, and thank you for joining shopify fourth quarter in fiscal year 2022 conference call Toby look a shopify CEO Harley Finkelstein shopper, Vice President and Jeff Hoffmeister, our CFO are with us today.
After their prepared remarks, we will open up for your questions. We will make forward looking statements on our call today that are based on assumptions and therefore subject to risks and uncertainties that could cause actual results to differ materially from those projected.
We undertake no obligation to update these statements except as required by law you can read about these assumptions risks and uncertainties in our press release this afternoon as well as in our filings with U S and Canadian regulators.
I'll also speak to adjusted financial measures, which are non-GAAP and are not a substitute for GAAP financial measures reconciliations between the two are in the tables at the end of our press release and finally, we report in U S. Dollars. So all amounts discussed today are in.
In U S dollars, unless otherwise indicated with that I will turn the call over to Harley.
Thanks, Amy and good afternoon, everyone.
2022 marked another strong year for our merchants and shopify.
That reflects the resilience of our business model and commerce operating system.
Our revenue grew 21% for the year, reaching $5 $6 billion as we added nearly $4 billion to our top line since 2019.
The growth rate, we saw in 2022 is particularly noteworthy when you realize that this growth was on top of the incredible 57% growth we saw in 2021 and 85% growth in 2020.
Against this backdrop, we continue to see data supporting the strength of entrepreneurship and new business starts. According to the U S census Bureau applications for new businesses had been approximately $5 million a year for 2021, and 2022, which is a step function above the 4 million per year average for the previous five years.
Shopify is penetration of the U S. E. Commerce market is currently 10% with this year's GMB, surpassing 197 billion as <unk> has grown more than three times since 2019.
Since our inception shop by his power over half a trillion dollars in global Commerce as we increasingly become the platform of choice for brands of all sizes.
This past year, our merchants had their most successful black Friday, cyber Monday, selling period ever generating $7 $5 billion in sales over that period, our growth of 21% year over year on a constant currency basis.
For that 40 period, approximately 52 million consumers worldwide purchase from brands powered by Shopify, representing a 12% increase from the same period in 2021.
The breadth and velocity of the new products and enhancements to existing products that we shipped in 2022 are truly incredible and will give you. The highlights of the key solutions, we released last year before diving into our main investment themes.
We launched shop by audiences Shopify Collabs P. O S go tap to pay integrated Twitter shopping and Youtube channels.
And continue to build out the shop at some merchants can more easily connect with and build relationships with buyers.
We launched shop by markets and markets pro to lower the barriers for our merchants to sell globally, while also making it easier than ever to start a business internationally with localized subscription pricing now available in approximately 200 countries.
And third we made it easier for businesses worldwide to go from first sale to full scale on shopify, helping merchants succeed at each stage of the growth journey.
We also made fully available to merchants shopify functions hydrogen and oxygen and expanded our back office merchant solutions to more countries to allow greater customization and last month, we introduced our large enterprise solution commerce components by Shopify.
Also in January we announced an update to the subscription prices on our basic shopify and advance plants.
The prices that we had been charging for access to the best tools and commerce have largely remained unchanged for the last 12 years. This will enable shopify exceptional value to continue as we solve more of the most difficult problems in the industry and empower more people to become entrepreneurs. These.
These new prices went into effect immediately for new merchants and will take effect on April 23rd for existing merchants in.
In short in 2023, we will not slow down we are committed to simplifying commerce. Even further this year as we innovate and invest to future proof, our merchants businesses and allow them to extract greater value from shopify.
Let's now talk in greater detail through three investment themes that we think about as we help our merchants grow.
Helping them attract more buyers going global and first sale to full scale.
I will start with how we help our merchants attract more buyers through more channels qdoba.
Key to our brand success is showing up everywhere their customers purchase from a channel perspective as customers have moved back to shopping in stores. We've continued to see outsized year over year growth in offline G. M V, which was up 25% in Q4 and up over 40% on a full year basis as.
As more retailers seek to modernize their point of sale software are world class offering continues to gain traction with brands of all sizes.
During Q4, plus merchants accounted for approximately 27% of all point of sale pro sales an increase from 12% from the same period a year ago.
Also during the quarter fast growing brands, including Todd Snyder to Covid, and vre expanded to new retail locations with our point of sale Pro solution. Additionally, we were thrilled to power the global retail expansion of culture Kings as the Australian Street wear giant opened a new flagship store in Las Vegas.
Focusing in on the point of sale product, we continued to increase its scalability.
If I can now power retailers with up to 1000 physical locations, we rolled out both shop pay in installments to point of sale in limited beta so in store buyers at the point of sale can now benefit from the same payment options and payment flexibility that we offer online driving greater integration of sharpie and point of sale remains a big opportunity for us.
And we're excited to scale this more broadly in 2023 and beyond point.
Point of sale go our first in class mobile hardware device. It takes the merchant and customer experience to the next level by offering buyers of Super smooth and quick checkout.
I want to sell go which launched in September is an all in one fully integrated point of sale system barcode scanner and card reader that accepts tapped chip and swipe payments.
A key selling point of point of sale go is as proprietary operating system, which allows shopify to control the end to end experience on the device from App updates to permission ing to point of sale Onboarding.
At $399 per device point of sale go brings incredible value to larger more complex retailers, who are buying these devices in multiples.
The initial response to this cornerstone product has been exceptionally strong and we're excited to drive even greater adoption in 2023.
Integrating commerce into more services is another way, we can help merchants strengthen the relationship with buyers and discover new customers.
The shop App is an excellent example of how we're helping merchants increased customer lifetime value by deepening their engagement with existing customers. While also finding new buyers.
Since we introduced the shop App in early 2020, it has grown from an accelerated checkout and order tracking utility to become an important driver of many of our merchant business performances.
Shop gives merchants new ways to stay connected with their buyers like in App offers and notifications when their favorite products are back in stock in a nutshell shop enables a shopify merchant on their first day to have a storefront in a native mobile app, that's very powerful.
In 2022, we shipped dozens of enhancements to shop, including discounts and expanded search function personalized shopping experiences and embedding shop cash our loyalty program that is currently in early access.
With tens of millions using the App every month, we're able to match the right merchants to the right buyers, creating personalized shopping feeds for the buyer segment and a new customer acquisition tool for merchants shop.
Sharp is still in its early days, but it's one of the ways, we're investing to help merchants win over the long term.
A key feature of the shop out is sharp pain or accelerated checkout feature it continues to make commerce better for merchants and buyers alike with.
With well over 100 million buyers opted into shop pay our accelerated checkout facilitated $11 billion in GMP in Q4, and accumulative $77 billion at year end since its launch in 2017 shop. It makes for a seamless shopping experience and one of the main reasons why more merchants of all sizes are adopting.
Shopify payments.
Additionally, sharp pain unlocks our buy now pay later product sharpie installments for consumers.
As the highest converting checkout on the Internet, we want more businesses to benefit by offering shop each of their customers, which is why we've integrated sharpei on social services, including Facebook Instagram and Youtube.
As a result, <unk> through our native checkered integrations with our key partners more than doubled over Q4 last year as.
As part of helping our merchants attract more buyers through more channels, we launched shopify audiences in early access in May as an essential feature for our plus merchants.
As we continue to enhance audiences in Q4, we expanded the scope of audiences to support merchant objectives across the marketing funnel from expanding reach to driving more convergence.
We also launched audiences for Google during the quarter, allowing merchants to reach high intent audiences from their own store across Youtube, Google search Google display network and Gmail within our February 9th additions, we announced the launch of audiences for Pinterest, which operates similar to the med integration, where plus merchants can use the tool to find high intent buyers.
Cross Shopify and upload to Pinterest for better targeting with these partnerships. We continue to invest in marketing platforms, where merchants are actively looking for their buyers most.
Most importantly merchants are telling us how much they love audiences in Q4 luxury fashion designer, Jonathan <unk> turned to shop like digital marketing partner Ms. A market for health and using audiences. They achieved the six six times return on AD spend and an over 80% higher conversion rate and over a 50% decline in.
Cost per acquisition.
Next is going global lowering the barriers to entrepreneurship globally is a massive opportunity for shopify and for our merchants.
At the end of 2020 to approximately 45% of our merchants where base outside of North America, making up approximately 27% of our revenue.
We expanded our offering in country with Shopify payments now available in 22 countries Shopify point of sale in 14 countries Shopify shipping in seven countries and Shopify capital in four countries. We also rolled out our localized subscription plan pricing to approximately 200 countries and localized billing to make it easier for merchants to start and grow.
Their businesses on Shopify.
Looking ahead, we're focused on helping our merchants reach consumers no matter, where they're located we wanna make selling internationally on day, one as easy as it is to sell locally.
In 2020 to Shopify enabled approximately $28 billion in cross border sales capitalizing on the surge of international interests with nearly 28% of all traffic to shopify stores coming from buyers outside of the merchants home country.
Our solutions allow merchants to sell globally and provide a localized experience from a single Shopify store that makes multimarket management easy with a single dashboard that lets brands sell ship and scale internationally, while keeping the merchant team and their overhead lean.
Our products are built to boost conversion with capabilities like local currency language translation with the translate and adapt app payment methods and an import duties calculator.
Our latest addition to our merchants global toolkit is market's probe, which launched in Q3 and early access and is built on top of the market's product.
The unique differences that pro is a fully integrated merchant of record solution and provides a complete end to end global commerce solution, whereas markets allows merchants to selectively choose only those features that suit their needs.
Even in early access we've seen the impact markets broke in half as we have seen evidence of cross border conversion improving by up to 36% and we can't wait to bring this tool to even more brands shortly.
Third, enabling our merchants to go from first sale to full scale.
After our merchants get started and find product market fit with their initial sales they need the right tools to advance.
That's why we continue to enhance and build new tools to simplify and support merchants journeys for every stage of growth.
Our merchants continue to recognize the adaptability and flexibility of our platform and in 2020 to approximately 25% of all plus additions came from the plus self serve upgrade experience.
Another example of how we evolve with our merchants is shopify capital capital has acted as a lifeline for merchants, especially through the pandemic and this tough macro environment, allowing them to conveniently access capital when they need it most capital is now available in four countries and our machine learning algorithms to underwrite merchants keeps getting better.
In Q4, we advanced nearly $400 million up 21% from the same period last year, bringing the cumulative amount since we launched off by capital in 2016 to nearly $4 7 billion.
More merchants excepted capital in Q4 compared to the same period last year, including a greater number of plus merchants and we're seeing incredibly strong renewals from previous borrowers.
Speaking of plus in Q4 Shopify continue to prove that we are the commerce platform of choice for merchants of all sizes.
<unk> Tiger one of Canada's largest retailers ripped out their entire tech stack and replace with Shopify plus they needed a commerce platform that would up level their customer experience and deliver the flexibility of their customers needed between both online and physical store.
Our out of the box platform modernize this massive department store, we integrated more than 260 locations across the country with their online store and enabled giant tiger to offer buy online pick up in store to meet the omnichannel expectations of their customers.
This is another example of how shopify is increasing the go to platform for department stores and large scale merchants.
The diversity of brands on Shopify, plus continues to expand shopify made meaningful headway in the luxury space welcoming French fashion and perfume house long vent to the platform as well as Italian footwear brand, Sergio Rossi and Swiss fashion designer Bali.
Consumer favorites, including hockey equipment, and skate retailer Bauer hockey and home appliance and tool manufacturer Black and Decker both launch in Q4 as did Butcher box, which began its migration to shopify with the launch of their Ala Carte business.
We also continue to increase our geographic footprint in key international markets, launching Italy, Reebok Super dry Sony Music Entertainment Skechers and additional Nestle brands in new markets in Q4, not to mention the migration and launch of Mattel's full suite of brands and Supreme both of which I will.
About shortly.
Shopify continues to be the go to place for celebrities to launch their unique brands with our roster continuing to expand record producer and wrapper Pharrell launch a second brand Jupiter on Shopify, which is a global digital first auction House Shopify is also the platform of choice for creators fueling the creator economy with brands like Prime by Youtubers and.
Logan, Paul and Ksi launching on Shopify, this quarter, where not only the preferred partner for online, but also offline with Kim Kardashian hosting her first pop up in L. A for her brand skin as well as Eminems Moms Spaghetti pop up store in New York City, both of which were powered by Shopify point of sale.
We closed out 2022 with more merchants growing their businesses on shopify and the caliber of brands choosing shopify is not slowing down.
In Q1, we've already welcomed the iconic street wear brand Supreme to Shopify Supreme is one of the world's biggest flash, though retailers hosting more than 50 flash sales each year that are alive for no more than a few minutes, which makes shopify the ideal platform for Supreme to continue growing their business.
The tailwind for brands, joining shopify plus are only growing as huge businesses choose to go direct to consumer and migrate to shopify already in Q1 Mars one of the largest CPG companies on the planet with over a century of history signed the global Green with Shopify.
With over $35 billion in sales the company is a global business that produces some of the world's most beloved brands. This global agreement will pave the way for more Moores brands to build and scale their businesses on Shopify and is a positive signal for others in the industry as Morris joins the ranks of other large CPG brands that are already using shopify include.
Heinz and Nestle.
Our commitment to making commerce better for businesses of all sizes is only growing to kick off the year. We made a major announcement that we were launching our enterprise retail solution commerce components by Shopify or Ccs.
Commerce components is a modern composedly stack, where retailers can choose the shop like components, they want to integrate with their existing systems and create incredible customer experiences one of the first brands deploying Ccs is the toy and entertainment industry leader Mattel Mattel is a merchant with over 400 brands in their portfolio they will be.
Bring into shopify.
Testament to the durability and scale of our commerce platform Mattel needed an enterprise partner that could deliver incredible speed endless flexibility and the ability to pick and choose the parts of shopify infrastructure they needed as well as execute its flash sale model, while it's still early days extending our reach into the enterprise will be a key investment focus in 'twenty two.
Three.
As part of our enterprise strategy in 2022 sharply signed business partnership agreements with Accenture, Deloitte, Ernst <unk> young and KPMG to enable greater opportunities for larger brands to adopt shopify and last month, we formed an alliance with IBM consulting we considered a great testimony to the power of Shopify, that's such a premier group of system integrators.
So quickly building teams to help enable shopify for large enterprises. These systems integrators will be a critical element in helping us reach more enterprises and in a way, which is an extension of our core customer acquisition efforts.
Also in Q4, we launched Shopify tax a new product offered to U S. Based merchants that takes the stress out of sales by simplifying tax compliance early data shows that merchant adoption has ramped quickly speaking to the trust that merchants have and shopify as we work to solve their toughest problems. Our merchants are eager to utilize more of our products.
Turning now to shop promise and Shopify fulfillment network merchants repeatedly tell us that providing greater visibility and confidence in delivery dates can help improve their store conversion.
This is why we launched shop promise in 2020 to a consumer facing badge that provides reliable and accurate delivery dates across the merchants online store checkout and on the shop App.
I play it looks at merchants shipping performance to identify which Brent consistently ship reliably to determine their eligibility for the program.
Merchants in the program have seen up to 25% increase in conversion rates as part of our additions released last week, we are working to expand shop promise to all eligible U S merchants over the next few months with Shopify fulfillment network merchants have access to shop promised by default.
Over the past six months, we have made significant strides in integrating deliver into S. F. N. We're creating one unified network that enables data driven inventory distribution and access to our logistics services compared to Q4 of 2021, we've seen a 40% increase in orders per merchant, while deliver has achieved over 50% growth in units.
Filled and more than doubled its services outside of fulfillment services like freight b to b parcels and returns in.
In 2023, we will continue to integrate <unk> with deliberation and discipline the team plans to broaden our logistics offering optimize our network performance and deliver an enhanced fulfillment experience for merchants I know, we've covered a lot and that's because we've accomplished a lot due to the hard work of our exceptional team.
Millions of merchants around the world recognize and value the rich set of mission critical solutions that we provide shopify E. Commerce operating system is the backbone powering brands all over the world since the very beginning we've been merchant obsessed and have had their backs when often no one else did.
Our merchants testimonials speak for themselves simplicity reliability speed and security and the list goes on we've earned our merchants to trust over the years and it does that trust that supercharged our mission to continue to make commerce better for everyone and with that let me turn the call over to Jeff.
Thanks, Charlie as this is my first official earnings call. Let me start by mentioning how excited I am to be part of Shopify is an incredible collection of talent and I look forward to helping this deemed capture the opportunity in front of us.
Let's now talk about how black Friday, cyber Monday, and all the great product introductions and developments at Harley mentioned translated into a strong Q4 for our merchants and therefore shopify.
Our merchant <unk> in Q4 grew to 61 billion up 13% year over year or 17% on a constant currency basis outpacing overall U S retail growth of 6%.
Our strong Black Friday, cyber Monday was a key driver of this Q4 <unk> outperformance, we saw strong growth in <unk> in both our online and offline businesses.
Revenue for the fourth quarter grew to $1 7 billion, 26% year over year growth or 28% in constant currency, which represents the highest growth rate of any quarter in 2022.
Driving this performance with strong merchant solutions growth on the back of robust GMB growth.
Moving now to our merchant solutions business during the fourth quarter merchant solutions revenue was $1 3 billion, increasing 30% year over year or 32% on a constant currency basis.
Our growth in the quarter was primarily due to the increase in G. M. B, a higher penetration of shopify payments and the contribution from deliver.
$34 2 billion of <unk> was processed on shopify payments in Q4, 23% higher than in the fourth quarter of 2021, the penetration rate of shopify payments as a percentage of GNP was 56% for the quarter versus 51% in Q4 of the prior year and up 210 basis points quarter over quarter.
Several items drove our gross payments volume for the quarter, particularly strong performance by those merchants on shopify payments and increasing percentage of which our shopify plus new merchant adoption across the globe expanded penetration in shop pay an increased footprint of our point of sale hardware in brick and mortar stores subscription solutions revenue was 400.
<unk> up 14% over Q4 of 2021, driven primarily by an increase in the number of plus subscriptions higher variable platform fees from plus merchants and the higher revenue shares from ecosystem App developers.
Our total attach rate, which is defined as revenue divided by GMB represents a key gauge of our ability to drive greater value for our merchants. Our total attach rate has grown to $2 eight 5% in Q4 of 2022 up from 2.55% in Q4 of a year ago.
Monthly recurring revenue or <unk> exceeded $109 million up 7% year over year strong gains in MRI from Shopify, plus and Shopify point of sale offset the near term deferral and MRI from new entrepreneur is participating in our trials.
During Q4, we also saw an increase in standard merchant MRI as a significant portion of margins bypass the paid trial status and converted directly to full price status.
Contribution from our plus merchants to total <unk> increased year over year to 33% from 29% in Q4 of 2021 as larger volume brands joined the platform in thousands of additional retail locations began using point of sale pro as we mentioned in our Q3 call merchants participating in our Onboarding trials are immaterial to our <unk>.
<unk> until they convert to one of our fully paid plans.
Early signals from these trial experiments have shown encouraging positive increases to merchant engagement.
These trials help us attract more merchants and provide merchants a better onboarding experience that gives them additional time to unleash the power of our platform to drive their business.
For 2022, our MRO per merchant remain relatively consistent with 2021, excluding those on our free and paid trials, we expect to see some incremental benefit to <unk> in 2023 from the pricing changes, we announced last month.
Gross profit was up 15% to $799 million and gross margin was 46% for the quarter compared to Q4 of 2021 gross margin was primarily affected by the dilutive impact of deliver.
Gross margin for Q4 2022 was also impacted by greater revenue contribution from lower margin shopify payments as well as pressure within shopify payments due to plus and a shift of greater credit card usage versus debit cards.
Operating expenses were $987 million for the quarter, which includes a real estate impairment charge of $84 million.
The increase year over year is primarily due to the incremental head count from deliver and the implementation of our new compensation system.
Of note when you compare the operating expenses of Q3, and Q4 and remove the one time items that impacted both periods, we were able to keep our operating expense dollars relatively flat and still deliver strong revenue growth quarter over quarter.
A key driver of our stabilizing the opex for the quarter was a decline in head count from Q3 to Q4.
We also have several other key initiatives already in process in order to help us manage operating expenses, including greater focus on our cloud infrastructure spend heightened scrutiny of the performance of our marketing programs and their associated payback periods and in general an increased emphasis on better leveraging technology internally to automate previously manual processes and thereby.
Improve the speed accuracy and efficiency of delivering great products and solutions for our merchants.
These operational improvements serve as a good indicator of our commitment to make shopify nimble lean and highly adaptable.
Goals that will persist for us well into the future and are not short term cost fixes stock.
Stock based compensation for Q4 was $142 million compared to $98 million for the same period, a year ago, primarily driven by deliver and higher head count.
<unk> operating income for the quarter, excluding the real estate charge was $61 million the decline compared to Q4 of 2021 was primarily a result of lower gross margin year over year and higher operating expenses, driven primarily by increased compensation expenses, including our employees shift to more cash versus equity for their total compensation.
For the quarter, we delivered cash flow from operations of $97 million in cash flow from operations minus capex of approximately $90 million as we held capex in Q4 to less than $8 million.
Turning to our balance sheet, our cash and marketable securities balance grew sequentially from Q3 up to $5 1 billion as of December 31, largely as a result of cash flow from operations in Q4.
To recap, we delivered strong fourth quarter financial results, we grew revenue, 28% on a constant currency basis and her total attach rate increase of 2.85%.
We held our operating expenses essentially flat from Q3 to Q4, excluding onetime charges and delivered cash flow from operations less capex of $90 million.
Turning to 2023, I'd like to spend a moment talking about two key items affecting our profitability expectations. This year.
Our compensation leveling exercise in 2022, and the expense run rate of Shopify fulfillment network following our acquisition would deliver.
Starting with our new compensation framework.
Along with enabling our employees to allocate their total compensation split between cash and equity. We also changed the overall compensation system to be better aligned with the market. We went through an extensive benchmarking exercise to help us make sure that within shopify. The right people are getting paid the right amount.
This process resulted in higher compensation expenses, starting in September of 2022, primarily in R&D.
Given the timing of when we initiated these changes the year over year comparability will be impacted during the first three quarters of 2023.
Moving to the Shopify fulfillment network. We currently expect S F and to be a headwind to gross margin and a significant contributor to operating expenses in 2023.
This impact on year over year comparability will be most prominent in the first half of 2023, given that to deliver acquisition closed in July 2022.
Before I turn to our outlook, let me first make a few comments regarding the macroeconomic backdrop and its implications on shopify, our perspectives on outlook assume that inflation remains elevated pushing consumers, who discounted and non discretionary purchases.
As mentioned previously we had a strong black Friday, cyber Monday, and continuing to outperform the broader e-commerce market, but we are mindful of the environment in which we are operating now.
Let's turn to our outlook for the first quarter of 2023 first on revenue.
We historically have experienced a sequential seasonal decline from Q4 to Q1 due to the strong holiday selling season.
We anticipate a similar trend this year and expect Q1 revenue to grow in the high teens on a year over year basis.
We expect Q1 gross margin to be slightly higher than our gross margin for Q4 of 2022 overall the same factors that impacted our gross margin in 2022 are expected to continue in Q1, including the annualized impact of the deliver acquisition and the continued growth of shopify payments.
We believe that our Q1 operating expenses will be up in the low single digit percentage versus our Q4 2022 operating expenses when excluding the onetime charges that we had in Q4.
Stock based compensation for Q1 is expected to be in line with Q4 of 2022.
Finally, we expect capital expenditures for Q1 will be in line with what we spent for the full year of 2022.
In closing 2020 to Mark the year, where shopify introduced several significant new products and product enhancements and we look forward to those solutions, adding more and more value for our merchants, we delivered strong financial results for the year, we recognize the challenging macroeconomic backdrop and her focus on carefully balancing our growth investments with strict operational discipline, we remain enthusiastic regarding the <unk>.
<unk> merchant solutions and the value that they will bring our merchants and therefore, our investors I'll now turn it back to Amy and open the call for any questions.
Thank you, Jeff we will now open the call for your questions. Please use the raise hand, featuring zoom to ask your question. If you are dialing in by phone you will need to press star lines joined the queue and stars it's still on mute yourself. Thank you in advance for limiting yourself to one question.
With that our first question will come from Richard So at National Bank of Canada. Please go ahead.
Hey, Thank you.
Clearly you have a lot going on here and you've got a ton of vectors of growth. When it comes opportunity if were to step back a bit how would you rank your biggest priorities here over the next 12 months.
Yeah, Hey take.
Next question.
I mean, the priorities are.
I think these other times there.
USPS has learned a lot I've talked in previous calls around about the.
Titan feedback loop b to spend through our recent additions.
Release of.
You mentioned.
Maybe.
<unk> showed that.
The increasing pace.
Pace of shipping.
Hum going deeper in.
Product areas that we have.
Shopify is known for and.
Really bringing focus and.
I didn't think the quantity of the developer platform and.
Two.
Especially address the needs of.
The larger merchants.
Or even move into commerce component.
As a result of us as well.
From a company.
I mean.
Thanks Chuck.
Yeah.
One thing I would like to remind people.
Internally usually is that.
Even before as upside and that would be our venture backed.
Tony Shelby five, let's say profitable business and you have been profitable and many times and.
The Ah <unk>.
As they.
Normal for us to be operationally matched and look at cash flow and operational efficiency. In these kind of things I think is that times are they.
Useful to get back to that then like really.
Deepen our.
Efficiency of the business so <unk>.
Another priority is.
Specifically through the tail end of a boom time, so over the last decade.
Uh huh.
We grew along a couple of vectors.
Now, we can bring in automation and optimization.
Which will help a lot and I think this speaks of the kind of things that makeup business, there's a lot more.
Set them up.
For the next time, we get into boom times whenever that might be so those are the priorities deepening product into.
Into Columbus really varied, finishing a lot of.
Hum.
Great projects that we've started.
And.
Yes.
Yeah.
Hospital company.
The space.
Thank you.
Our next question will now come from Bob <unk> Shah Deutsche Bank. Please go ahead with your question.
Great. Thanks for taking my question, just kind of focusing on the enterprise opportunity.
Neither Harley or Jeff or Toby can you just maybe elaborate on what type of merchants you see best entering the shopify ecosystem from Commerce components, and then how should we think about the monetization opportunity.
This type of merchants, how does it differ from traditional shopify plus.
Hey, it's Harley I'll take that question look the cool part about commerce components is that it effectively uses all the things that we've perfected over the last two decades things like checkout for example, which.
Currently powers something in neighborhood of like 10% of our e-commerce in the west and it but it obviously is a very large merchants use large brands and established brands to combine the best parts of Shopify with things that they already have in house and I mean from a business perspective. It allows us to expand our market because we can go further up the stack of large enterprises, but it all.
So does the thing that we think we're best known for which is we provide flexibility so whether they you know things like storefront or the checkout or the data and compliance are shipping infrastructure. They can pick and choose the things that they need and combine them with things that they already have and so we think that it becomes frankly, it would be it becomes a mistake not to use commerce component.
<unk>, if you're a modern large scale brand who wants to future proof your business. The cool part also is that post launch in early January the response and the level of interest has been fairly it's been a really great and I think part of it is that a lot of these large enterprise retailers and merchants are used to working with these legacy systems that are not flexible that have massively long <unk>.
Integration times, and we can get them up much better much faster than they could have something that will continue to evolve over time. So in the case of Mattel for example, who was one of our launch partners for Commerce components. They are 400 brands and their vault they want to be able to take these brands and get them up and running fast, but they also want to be able to do things like massive flash sales on mattel creations or be able to <unk>.
Launch new functionality around some of their hot wheels, or Barbie sites. So we think this is an opportunity for us to go further up market even in Shopify plus at the same time I mentioned this in my opening remarks, but shopify plus continues to really do well, we're not only seeing merchants automatically upgrade on their own from a core product in our core plans to shopify plus.
But we're also seeing other brands leave existing platforms to come to shopify, plus as well so they come to us for plus they want everything that shopify offers whereas commerce components. They can pick and choose using is composed of the commerce stack and we think it just it's going to be it'll be really interesting for us to see who were able to bring on but so far the response and the reaction from them.
Enterprise market has been incredible.
Our next question will now come from DJ Hynes of Canaccord. Please go ahead with your question.
Hey, Thanks for taking my question.
So we are hardly I wanted to ask about your relationship with Amazon.
I'm curious how that might be evolving and how are you thinking about managing relationships with merchants and agencies that are interested in using bioscience.
Yeah, I'll take that question.
Look we've said this before but anything that's going to make our merchants more successful help them sell more help them too to convert more of their browsers into shoppers and virus. We think it's a great thing we have a long history of partnering with technology companies. Paypal for example, with something that many years ago, we integrated with because we thought it would help our merchants sell more and we continue to.
Integrate with Paypal when it comes to buy with Prime we think any company, it's going to make the infrastructure available to merchants to sell more is a great thing. We we like it we're in talks with Amazon now to make that work, but it has to be done in a way that we think is important for merchants to have a relationship with their with their end consumer and so there's no update at this time, we're still talking to Amazon about that but again anything that's going to make.
Our merchants' lives better and make sure that their business is future proof new technology that comes out we want to make available to them.
Thank you. Our next question comes from Keith Weiss of Morgan Stanley . Please go ahead with your question.
Thank you for taking the question guys.
I was hoping to get a clarification. It told me it sounded like because it's a weaker macro environment and you guys are going to focus more on efficiency and profitability. When I look at the Q1 guidance honestly I'm not sure if that looks for profitability you had a nice profitability in Q4 I think about it.
It is 18% revenue growth, 3% sequential growth in.
Operating expenses I get back to a loss position.
How should we be fundamentally thinking about sort of that balance of growth and profitability. Specifically for 2023 or are you guys planning on running the business profitably for the full year.
Yes, sorry.
Thanks Vivek.
A question on the clarification I was making statements that are more direct.
Declarative Directive then.
Our guidance.
Profitability as a consequence of Av.
<unk> and efficiency combined over time.
Hi.
Don't book towards the quarters I'm trying to get a company.
And the main thing like comedy.
I wanted to make was that.
I do think that the.
Companies.
Happy to.
Okay.
Like companies are swimming in the waters of our market and are definitely affected by by them to play. The game. That's currently on the best you actually have to change your behavior quite a quite a bit.
And boom times, there is a sudden behavior that looks best and weather allows you to get the most out of it and to some degree you actually necessitated some behavior because of.
[laughter], what everyone else does.
And growth times.
Chief credit as a certain way to play or is it the idea of the way.
I think that.
And but more of a successive times you might not I'm not making a statement about this being a recession, but like I think.
In these times.
Compensation of a feedback loop lengths et cetera, much more towards.
Trying to figure out like how to be the best company given for opportunity that's really in front of you and.
I believe that over time profitability will take care of itself. If this is the kind of type of company you are building and I think I intended to.
I think shopify has.
Played boom games, ideally I intent to have shopify flavor.
More recessive times similarly.
Similarly, well.
I just want to add to that in terms of one thing that I think a lot of you that have been inside of the company for a while now.
Is that one of the best trades some of the best quality about shopify is our ability to navigate through different macro environments different consumer trends different business changes pre COVID-19 you saw operating with a particular with a particular efficient efficiency, but also a particular ion growth during COVID-19 when things shut down we went to work to help merchants move on.
Wine, we also simultaneously during COVID-19.
Went to work on building the greatest point of sale product because we knew at some point post COVID-19 stores are going to reopen and when stores did reopen we went hard and replacing all of those legacy systems with ours. So I think we've always operated well in any environment, but that flexibility.
We can adjust to that and I think economic environments like the one we're in right now potentially is when merchants need us most shopify lowers the barrier to entrepreneurship and were packed with value just to repeat something Toby said, because it's very important we will not raise in venture capital like a lot of other companies, where if you look at our seven years since IPO, we were profitable five out of the seven and we lie.
Being profitable and we're going to work towards that we were cash flow positive in Q4, we were.
Positive in Q4, which was the highest quarter of the year and we're going to continue to push towards greater efficiency and be mindful of Capex. That's just the way. We operate we are incredibly resilient as a business and as a company and we'll continue to do that.
Our next question will come from pod Coupland CIBC. Please go ahead with your question.
Yeah.
Great can you hear me okay.
Yes, yes, great. Good evening, everyone I wanted to ask about the impact of the price increase of your plans.
Obviously, it's not going to impact Q1, very much. So if you could give us.
Some color on that and the expected cadence through the year that'd be great. Thanks, a lot.
Sure, It's Harley I'll take that one again.
Our planned pricing has pretty much remained unchanged since I got here 13 years ago.
In time, we have added significant value to our subscription offering to our merchants and we want to keep making commerce better and so I think the pricing increase reflects.
A fair value exchange, but it also allows us to keep solving really really tough problems and empower more people to become entrepreneurs and so it's still early days. We're watching this closely but I think people view shopify as incredible value, whether you were just getting started or you're a much larger merchant on plus our Ccs and so.
Again, the value to cost ratio across every single shop by product and Shopify plan is very much on the side of value and so I think that I think merchants understand it and I think that the merchants that paper shop late every month believe theyre getting incredible value from us.
Our next question will come from Tim <unk> at <unk>.
<unk> Suisse. Please go ahead.
Great. Thank you Amy I wanted to talk a little bit about the shopping accelerated checkout button. So the penetration gains clearly impressive now approaching about 20% of GMB I wanted to touch on two minor item or quick items. The first one is the 100 million number that you mentioned in terms of the opt in could you talk.
A little bit about the percentage of those or maybe just give a number that or a rough directional number that are more of a monthly active user and then the second part is around yes, you've mentioned using Facebook, Instagram et cetera, going off platform with social platforms, but what about the possibility of the shop pay button appearing on.
Other non shopify merchants, meaning traditional maybe enterprise retailers that are not working with shopify.
It's a great question and specifically I guess, because <unk> is becoming consumer takeaway to checkout.
We won't go into any more details just in terms of the exact numbers, but we did disclose that 100 million buyers how opt into checkout pay we have.
We have now seen about $11 billion in GM V go through shop in Q4 alone cumulative of about 77 billion since its launch in 2017. So we know that consumers really love. It we know merchants really like it because it increases speed and increases conversion rate.
So in terms of what we're going to do in terms of our focus for 2023, we want to make it easier as possible for more merchants and more consumers to use it in terms of moving beyond just Facebook and Instagram and buying Google and we rolled out shall pay on Youtube as well in Q3 of 2022, we'd like to see it in more places and we're now working towards that.
But I think so far shop, Hey, Jimmy increased 43% year on year in Q4. It is now the number one accelerated checkout across the entire shopify platform for millions of merchants. So we think that we have a really a real opportunity to continue to put that in more surfaces and again the more places that have shot payer the more merchants make money, we like that so you'll see more shop.
In more places.
Our next question will come from Clarke Jeffries at Piper Sandler. Please go ahead with your question.
Hello. Thank you for taking the question I wanted to ask for an update.
Learnings on the changes you've made to the sales funnel with the rollout of free and paid trial experiences in the second half of last year and I think in the broader context of the pricing change maybe you can help us understand where we're at in terms of demand or merchant growth in the non plus category do you see that is improving in the coming year.
Year stable or slowly.
Yes, so we have been a couple of things.
This in my in my remarks, I mean, we have a startup plywood, we launched in June which replaced existing light plan. So make it much easier for aspiring entrepreneurs to get up and running on shopify and tested their product market fit we like that because it opens up the funnel for more people to try their hand and entrepreneurship. We also did international initiatives, we did a local localized subscription pricing and then <unk>.
Currency billing again, because we want to take advantage of what we're seeing is demand from international countries.
So we think on the localized pricing it better aligns pricing with our most popular plans and then we can offer that at and as I mentioned 200 countries. It really the impact of that is mostly on the shopify planning the basic plans.
So that again is our that is our desire to expand how many people you shopify and where they're where they're coming from in terms of the free and pay trial.
It allows us to it allows us to get more merchants trying playing with Shopify again. The idea is we're not changing physics youre not every merchant will be successful, but the key for US is that we want shopify to be the place that everybody goes to startup business some of those businesses won't succeed, but the ones that do.
It's in our investor deck on our on our Investor site, the ones that do succeed stay with us indefinitely. They state they take more and more of a merchant solutions I mean, we haven't even got a chance really to talk about our attach rate, which is almost $2 eight 5% this year.
Relative to $2 five 5% last year, I mean that is a proxy for the value and the amount of services and products. Our merchants use so all of these whether it's the paid trial or its international initiative versus the startup plan, we want to get as many people using their hand at shopify as possible and ensure the ones are successful become large merchants in the long run in and those things reflect that.
Opportunity for us.
Our next question will come from Michael Morton Moffett Nathan. Please go ahead with your question.
Thank you for the question with deliver integrated and Capex being the point on <unk> I was wondering if you can share on how you view your return on investment for the money that's going to be allocated in the SFA and going forward and I do appreciate that.
There's a lot of moving parts behind that.
Yes. Thanks, a lot. This is Jeff let me tackle that one so we are.
In terms of backdrop, and where we are on the integration of deliver as you know this was completed in July so we're roughly six months into the us and from a Capex perspective, as we mentioned it was $8 million that we spent in Q4, we want to make sure that we get the deliver integration fully done before obviously, we ramp up capex on that but we are.
And really really mindful I think we've learned some.
With the management team of deliver the technology of deliver the business plan of deliver.
We've been able to do some really interesting things and do some things in a way, which I think is much more capex light than than maybe originally anticipated and that has to do with Harley has talked a lot in the past around the number of skus that we need to manage versus someone like Amazon. It's very very different business model and that allows us to be more thoughtful in terms of how we leverage partners.
I think not only the business model, but also the way we leverage partners is going to allow us to do some things which.
It's pretty interesting in terms of how we think about deliver and this is not even to mention the software, which deliver brought to US which has also proven to be a real differentiator.
Our next question will come from Andrew Bausch.
<unk> Nikko. Please go ahead with your question.
Hey, guys. Thanks for taking the question just wanted to get a sense of your guidance philosophy or not guidance, but the commentary you've made around <unk>.
<unk> seen.
Today and how.
How do you kind of built that.
That high teens number because when we kind of consider.
The initiatives are clearly showing momentum.
<unk> came in a little bit later than what we anticipated.
Yes, let me start with that one.
Reminder of course, one is our seasonally low quarter.
We still feel very good that you alluded to the new products that we introduced last year and we feel really good about the solutions, we had with our merchants, including all the additional solutions that we unveiled last year.
And as you know from our commentary around Black Friday, cyber Monday that was a very good weekend for us and overall when you look at Q4, we definitely outperformed well the market in terms of comparing our results versus the broader e-commerce market.
That said, we're also mindful of this macroeconomic environment and that's just a simple reality of where we are right now but in terms of our own solution in terms of our own our own business, we feel really really good about what we're doing.
We have time for two more questions. Our next question will come from some of the mono.
Jeffrey Please go ahead with your question.
Hi, great. Thanks for taking my question. So I wanted to follow up on the on adding new merchants and then looking at the commentary, but I guess, how should we think about that maybe the different portions of the top of the funnel. The amount of leads that are coming in that are that are trying the product and then just how are you thinking about.
Growth in 2023, especially if there's anything about in the context of the last couple of years, where we've had some very very strong years, Nick on tough comps against that just what is the company thinking as far as bringing new merchants onto the platform and what are you assuming.
I mean, there's.
Part of its <unk> business model that I think I think you know at this point is that there are these on ramps into into the company.
Using shopify and historically the main on ramp where small businesses in English speaking countries. What we've seen over the last couple of years and I think what the results provide for last few years is that we now have multiple on ramps and we have new merchants coming in just your shopify plus now with Ccs that'll be a new on ramp we have now merchants coming to us primarily for point of <unk>.
Well I mean now the point of sale can now power 1000 retail stores, our merchants to come first and foremost for point of sale and then expand to online store as well.
Whether its international markets or it's new verticals. The idea is to simply be the best product out there the best value and the best the best thing you can use to get up and running and then to scale. So just in terms of where these merchants are coming from it isn't just one single vertical or one single type of merchant anymore. All of these on ramps continue to expand and every time, we add a new type of service or product.
That creates a new healthy on ramp for us and so I mentioned in my prepared remarks in the last two years, we've seen a record number at least in the U S of new business registrations, and we think that's going to be good for shopify, but beyond just simply the U S. We also are targeting merchants across a whole different bunch of geographies and in different sizes and that will lead to more merchants.
But the important nuance here also is that if you think about just merchant count on its own it doesn't really reflect the growth of the company. If you think about Supreme or think about Mattel are black and Decker. These are single merchants of course, but they bring obviously a lot of <unk> with them. They take a lot of services with them. They take a lot more of our products and solutions than simply a small business. So.
I encourage you to think about the companys growth not just simply in merchant count, but merchant count <unk>, and especially our attach rate, which really does reflect the amount of value that our merchants are taking in their usage of those products.
And our last question today will come from Ken Wong at Oppenheimer. Please go ahead with your question.
Thank you for squeezing me in just a quick question for you Jeff as we think about Opex I guess first how.
How much of the risk impacted the <unk> operating expenses and then you mentioned low single digits up in Q1 is that the right way to think about the pace of spend.
In Q3, two four.
Well you alluded to the reduction in force that we had earlier in the year, but also keep in mind that in the latter half of last year, we added the employees from deliver.
For me when you think about putting it in context the operating expenses.
We mentioned in the prepared remarks that Q4 versus Q3, when you look at it was essentially flat when you pull out the onetime charges related to real estate and illegal and the sovereigns.
It grew barely from Q3 to Q4 and as we've talked about it in the guidance. It grew just we anticipated growth just a little bit from Q4 to Q1, and so from our vantage point and this is on top of obviously, we delivered very strong growth on Harley alluded to this earlier, we delivered very strong growth in Q4.
We obviously see growth in Q1 on a revenue basis as well so you'll have two successive quarters, where youre growing the topline and keeping operating expenses essentially in line. So we're trying to be very mindful of what we're doing to some of the comments that we've all made on this call.
But that being said, we're going to continue to invest where we should but.
We're being careful on Opex.
Thank you to all of you who have joined US This evening and for your questions. This now concludes our conference call for the fourth quarter and fiscal year of 2022.
And goodbye.