Q1 2025 Shopify Inc Earnings Call
Good morning, and thank you for joining Shopify's first quarter 2025 conference call. I am Carrie Gillard, head of investor relations, and joining us today are Harley Finkelstein, Shopify's president, and Jeff Hoffmeister, RCFO. After their prepared remarks, we will open it up for your questions.
We will make forward-looking statements on our call today that are based on assumptions in their first subject to risks and uncertainties that could cause actual results to differ materially from those projected. Undyreliant should not be placed on these forward-looking statements.
We undertake no obligation to update or revise these statements, except as required by law, you can read about these assumptions, risks, and uncertainties in our press release this morning, as well as in our filings with the US and Canadian regulators.
We'll also speak to adjusted financial measures which are non-GAAP and not a substitute for GAAP financial measures Reconciliation between the two are provided in our press release And finally, we report in US dollars so all amounts discussed today are in US dollars unless otherwise indicated with that I will turn the call over to Harley And finally, we report in US dollars for GAAP financial measures Reconciliation between the two are provided in US dollars
Harley Finkelstein: Thanks, Carrie, and thanks to everyone for being here today. Let's start with the obvious. Today's market is uncertain, as the platform that powers global commerce were of course monitoring for potential slowdowns.
Harley Finkelstein: But, our data through April shows a little evidence of that. It's still early to assess the full impact of the current trade environment. However, Q1 saw our trend for consistent quarterly growth continue, and more on that in a minute.
Harley Finkelstein: First, I want to say this, Shopify is built for agility and in many ways these days are just like any other. We're here to help merchants of all sizes absorb change rapidly and at scale. This strategy does not change as the landscape underneath us continues to shift. [inaudible]
Harley Finkelstein: So as we sit here today, we cannot predict what administrations around the world will do, but what Shopify can do is to be the guardians of our merchants. We show up, we build, we ship, and we make commerce better for everyone from entrepreneurs to the largest of enterprises. [inaudible]
Harley Finkelstein: Now, it is not hyperbole to say that businesses do better on Shopify. It is a fact. Since 2015, growth rates for 38th at a 39th of reportedly merchant cohorts have outperformed the overall e-commerce market. I want to repeat that.
Harley Finkelstein: 38 of 39 quarterly Shopify cohorts have outpaced the market when it comes to growth. [inaudible]
Harley Finkelstein: Think about that in relation to small and medium sized businesses that are the backbone of every economy We help them scale as they leverage more of our products and services over time to drive consistent performance and growth [inaudible]
Harley Finkelstein: Simply put, businesses on Shopify are more resilient than businesses that are not on Shopify.
Harley Finkelstein: That merchant resiliency combined with our operational excellence will continue to set us apart as we navigate market uncertainties ahead.
Harley Finkelstein: I need to remind everyone of this. This is where Shopify's agility really comes into play. We built a business model that allows us to adapt very quickly and pull the right levers to manage through challenges.
Harley Finkelstein: We power adaptation at lightning speed, whether that means season new opportunities for growth or responding to changes like we're seeing today. Again, those building on Shopify are better prepared than those who are not. Thank you.
Harley Finkelstein: and with that the Q1 numbers speak for themselves, so I'll keep it brief.
Harley Finkelstein: Coming off of a very strong 2024, in Q1 of 2025, Rebu was up 27% and Free Castro Margin hit 15%
Harley Finkelstein: We saw real strength and key growth areas with offline GMV increasing 23% and B2B GMV delivering another triple digit quarter of growth up 109% from last year.
Harley Finkelstein: International GMV grew 31% and cross-border held study at 15% of GMV. And we saw continued growth across all summer since GMV, from Entrepreneur through Enterprise.
Harley Finkelstein: Balanced across both existing and new merchants to deliver a seventh consecutive quarter of GMV growth above 20%.
Harley Finkelstein: This is what we mean when we say our business model is built for this [inaudible]
Harley Finkelstein: Our formula for growth remains the same, operational discipline plus a real commitment to innovation.
Harley Finkelstein: Look at our free cash flow profitability. Look at our operational efficiencies. We can be both disciplined and innovative. This is the operating model you've come to expect from us and should continue to expect to see from us moving forward.
Harley Finkelstein: Okay, now with that out of the way, let's dive into what we've built to help our merchants adapt. We've shipped a lot, and we've focused on areas that we can have a more immediate impact, cross-border trade, making it easier to buy local, duties calculations, and shipping. [inaudible]
Harley Finkelstein: It is incredible what our team has done in just a few short months and this is just the beginning.
Harley Finkelstein: Starting with Cross Board of Trade, we've enhanced our managed markets products, giving US merchants more options with our merchant of record service for collecting and remitting duties and taxes while managing other markets independently. This means if new duties are announced, most merchants can achieve compliance within hours. [inaudible]
Harley Finkelstein: Moving on to duty's calculation. In February , we made our duty's calculation available at Shekko for all merchants and reduce its price to just 50 basis points. [inaudible]
Harley Finkelstein: Moving on to duty's calculation. In February , we made our duty's calculation available at checkout for all merchants and reduce its price to just 0.5% making one of the most affordable options in the market. [inaudible]
Harley Finkelstein: By the end of March, the number of shops actively using this feature nearly doubled since January . [inaudible]
Harley Finkelstein: And later this month, we'll introduce duty-inclusive pricing, allowing merchants to set international prices that include duties in the product price. [inaudible]
Harley Finkelstein: This ensures transparent pricing from the start and helps customers avoid surprise fees at checkout. And just this past week, we launched tariffguide.ai This AI-driven tool provides duty rates based on just a product description and the country of origin. This AI-driven tool provides a product description and the country of origin. And just this past week, we launched tariffguide.ai
Harley Finkelstein: Sources in the right products from the right country can mean the difference between a 0% and a 15% duty rate or higher, and TariffGuide.ai allows merchants to do this in minutes, not days.
Finally, shipping and fulfillment. [inaudible]
Harley Finkelstein: We are simplifying international shipping for merchants by enabling them to purchase prepaid shipping labels known as delivered duty paid or DDP directly from our platform and expect on board several carriers soon.
Harley Finkelstein: Additionally, we've expanded our network of three pale providers through the Shopify fulfillment network app, enabling merchants to access more local warehouses for order fulfillment, utilizing local warehouses speeds of fulfillment times reduces shipping costs and simplifies returns for buyers in those markets.
Harley Finkelstein: What all this should tell you is that Shopify moves at a pace unlike anybody else. [inaudible]
Harley Finkelstein: Truly, our reaction time to uncertainty is unmatched with the best engineers on the planet ready to tackle whatever lies ahead. Our obsession with unlocking every opportunity and filling every important gap in the system to give our merchants the best chance of success is one of our superpowers. [inaudible]
Harley Finkelstein: Shopify is a different company, moving rapidly towards what is next. [inaudible]
Harley Finkelstein: We rolled out the shop app filter in less than a week, and the duties calculation a checkered update over a weekend, literally. The weekend after the tire of changes were announced, the team got to work, and by Sunday evening we were testing it for production.
Harley Finkelstein: This is who we are, a company that obsesses over our merchants by thriving on change and living at the cutting edge. This is why our merchants consistently outperform the market, and this is why they trust us.
Jeff Hoffmeister: Let's quickly take a closer look at how we're continuing to capitalize on these opportunities, starting with payments.
Jeff Hoffmeister: Shopify Payments continues to be our largest product offering and a key driver
We made great progress in Q1.
Jeff Hoffmeister: with Payments GMV penetration hitting 64%. We launched Shopify Payments in 16 new markets. Mexico, Lithuania, Poland, Norway, Latvia, Hungary, Estonia, Malta, Croatia, Greece,
Jeff Hoffmeister: Now, I know that's a lot of names, but that's the point. At the end of 2024, and after a decade of offering payments, it was in 23 countries. With our Q1 expansion, we nearly doubled that bringing the total to 39 countries now supported by Shopify payments. [inaudible]
Jeff Hoffmeister: This is important because having a key product like payments available in more markets simplifies the on-boarding process. It offers merchants a streamlined payment solution that reduces fees and enhances security. Plus, features like shop pay improve conversion rates and provide greater convenience for buyers. [inaudible]
Jeff Hoffmeister: Adding more products in more markets remains a key driver of our international growth, and with these country launches even more merchants can process payments seamlessly in their home countries which is crucial as Paris and economic factors may complicate cross-border trade.
Jeff Hoffmeister: But we did not stop there. We also launched multi-currency pales in 20 countries across Europe .
Jeff Hoffmeister: allowing merchants to receive payments in their preferred currencies, essential for operating globally and minimizing the impact of fluctuating exchange rates. Now, as we look at the success of Shopify payments, it is clear how foundational it is to our shop products, the buyer facing side of Shopify, that is all about making shopping simpler. [inaudible]
Jeff Hoffmeister: One of the biggest advantages to our merchants is access to shop pay. And in Q1, shop pay GMV was a 57% from last year, processing over $22 billion in GMV.
Jeff Hoffmeister: Within our core pillars of shop, the shopping component continues to be a key product offering that is working to drive up market enterprise level growth opportunities. [inaudible]
Jeff Hoffmeister: Businesses like mattress company Purple, lifestyle brand Johnny Was, fashion icon Lily Pulitzer, and footwear-drying Birkenstock are among the latest to integrate this solution into their sites.
Jeff Hoffmeister: Just this week alone, we signed up to expand more tapestry brands on to utilize this component as well. Now they started with just CoachOutlet.com, but because it worked so well, they are now rolling it out to online shops for Coach, Kate Spade, and for the Kate Spade outlet.
Jeff Hoffmeister: This is more than just a passing trend. It is becoming an increasingly compelling pathway for large merchants to come to Shopify. [inaudible]
Jeff Hoffmeister: This is where our journey may start with these large brands, but we are confident as we demonstrate success we will unlock more opportunities that even more of our powerful tools and solutions over time enhancing their growth and capabilities on our platform. Moving on to the other pillars within shop [inaudible]
Jeff Hoffmeister: The shop-out continued its momentum in Q1, hitting over 94% year-over-year growth in native GMV, an impressive acceleration from 84% growth last quarter, especially considering the seasonality of Q4
Speaker Change: Shopping installments launch in early access to Canada, marking another important milestone in our global expansion, with more countries on the horizon for later this year. Okay, let's talk quickly about AI.
Jeff Hoffmeister: AI is at the core of how we operate and is transforming our work processes. [inaudible]
Speaker Change: For those who have not seen it, I encourage you to check out Toby's recent company-wide email on AI that has now been shared publicly
Jeff Hoffmeister: At Shopify, we take AI seriously. In fact, it's becoming second nature to how we work. By fostering a culture of reflexive AI usage, our teams default to using AI first. Reflexive being the key term here.
Jeff Hoffmeister: This also means that, before requesting additional headcount or resources, teams are required to start with assessing how they can meet their goals using AI first.
Jeff Hoffmeister: This approach is sparking some really fascinating explorations and discussions around the company, challenging the way we think the way we operate and pushing us to look ahead as we redefine our decision making processes.
Jeff Hoffmeister: In the past couple of weeks, we built a dozen MCP servers that make Shopify's work legible and accessible. And now anyone within Shopify can ask questions, find resources and leverage those tools for greater efficiency.
Jeff Hoffmeister: This reflexive use of AI goes well beyond internal improvements. It's super charges our teams' capabilities and drives operational efficiencies came as agile. And as we continue to innovate, AI will remain a cornerstone of how we deliver value across the board.
Jeff Hoffmeister: On the merchant-facing side of AI, in Q1, key developments for psychic included a complete re-architecture of the AI engine for deeper reasoning capabilities, enhancing processing of larger business data sets and accessibility in all supported languages. [inaudible]
Jeff Hoffmeister: allowing every Shopify merchant to use site kick in their preferred language. [inaudible]
Speaker Change: And these changes, well, they're working. In fact, our monthly average users of psychic can need to climb more than doubling since the start of 2025. Now this is still really early days, but the progress we are making is already yielding some really strong results from merchants both large and small. [inaudible]
Speaker Change: Sidekick is yet another reason that merchants on Shopify will have an unfair advantage for whatever lies ahead. Okay, switching gears a little, let's talk about the progress we are making in some of our key growth drivers starting with international. Let's talk about the progress we are making in some of our key growth drivers.
Speaker Change: We see the opportunity to capture market sharing every European market as well as in Asia and Latin America . . .
Speaker Change: In Q1, we saw Europe's GMV grow 36% year over year, which clearly shows that we're gaining traction and expanding our presence in this key region. [inaudible]
Speaker Change: Led by the UK, Netherlands and Germany. Now, I already mentioned some of the product features we are rolling up to merchants to navigate the current landscape, but we also can just transcend our foundation for international specific features with improvements to AI power translations and new privacy compliance functionality. [inaudible]
Speaker Change: These enhancements for the product combined with our continued investments in marketing are helping to further grow our reach and market penetration in these really important countries.
Speaker Change: In our offline business, GMV was up 23% this quarter, thanks to the continued strong growth from our mid-market and multi-location merchants.
Speaker Change: We are also bringing on more established brands onto the platform, like FAO Shorts, Just Cozy, and the iconic Japanese watch company, Grand Saco.
Now, while this flexibility is really important...
Our true value goes beyond simply enabling these offline features.
Speaker Change: It lies in building trust and partnerships through our merchants unified commerce journey, online, offline and everywhere in between. [inaudible]
Speaker Change: And a perfect example of this is our recent partnership with ALO, the athletic apparel brand that's absolutely crushing it Now they wanted to implement same day delivery so they approached us with this idea and we obviously were on board to make it happen
Speaker Change: By integrating with partners like Uber and DoorDash, ALO can now offer quick same day delivery options, allowing customers near the retail stores to receive their gear really fast. This is exactly how we support our merchants in staying ahead of the game and seizing every opportunity to grow. No matter what you want to do in your retail business, we default to yes on Shopify.
Speaker Change: Our efforts to move up market are paying off, fueled by strong growth from high-volume brands like Viori, along with more recent additions like barkbox, brilliant earth, and Toys RS.
Speaker Change: This evolving landscape paired with our powerful go-to-market strategy creates a significant opportunity for us to attract even more brands to Shopify.
Speaker Change: Our platform is designed to handle changes like navigating tariffs quickly and efficiently, making us the go-to choice for merchants of all sizes facing today's challenges.
Speaker Change: Agility and ease of use are now prerequisites for any modern commerce team. And Shopify is positioned not just as a tool, but as a strategic advantage in an unpredictable market. And that is why more global brands are choosing us.
Speaker Change: The value are ability to move swiftly to deliver incredible value and to provide scalable infrastructure, especially right now. We are in constant conversations with leadership teams and CEOs who recognize the global economy is fluid and they are seeking solutions that enhance their agility. [inaudible]
Speaker Change: Across various industries, there's this renewed focus on cutting costs by eliminating inefficiencies and modernizing technology.
and that is where Shopify really shives.
Speaker Change: Many legacy platforms are struggling. They're slow and restrictive, lacking consistent investment, unable to officially handle basic tasks like pricing updates or loyalty changes, and custom built systems often prove just as brittle under pressure. As businesses face these challenges, Shopify is becoming the preferred choice for those looking to thrive at scale.
Speaker Change: Sporting goods and iconic fashion labels demonstrates the strength and resilience of our merchant base and the power of our platform. Additionally in Q1, one of the largest apparel at footwear conglomerates, VF Corp. Sign up to bring eight of their well-known brands to Shopify, including Dickies, Ultra Running, Kipling and Icebreaker.
Speaker Change: and two of their brands, Jan Sport and EastPak, have already launched and we cannot wait to bring the others onto our platform. [inaudible]
Speaker Change: and the past two weeks alone, even after the tariff announcements, brands continue to sign. And one of those is Fallout Higher Education Group. The multi-billion dollar company managing campus bookstores at over 1000 colleges and universities across North America. [inaudible]
Speaker Change: In Europe , we sign Kering Beauty, the beauty brand division of luxury fashion houses like Alexander McQueen, Balenciaga, Aga, and Creed. We are incredibly proud to support the world-renowned group, as they unify their customer experience across channels by leveraging Shopify's B2B, B2C, and
Speaker Change: Now there's broad spectrum of verticals, not only strengths of our platform, but also reduces reliance on any single market vertical or customer, allowing us to navigate market fluctuations and seize multiple growth opportunities with confidence. [inaudible]
Speaker Change: We've also seen a really impressive line of brands launching incredible online businesses on Shopify so far this year, including stationary company from Barnes & Noble, Paper Source.
Speaker Change: luxury fashion brand from LVMH, JW Anderson, luggage and travel business away, wellness technology company TheraBody, auto supply store and manufacturer, Kent Automotive, and a peril and accessory retailer life is good.
Speaker Change: So to close, Q1 was a testament to the sustainable business model we've built, a model that's founded on supporting our merchants. Their success drives our success. This is who we are and this is why we exist.
Speaker Change: Shopify Thrive's on Change. It's in our DNA, and it has positioned us uniquely to overcome obstacles and adapt to new climates. [inaudible]
Speaker Change: It is quite simple. Our success boils down to three key principles, and I can assure you that our priorities will remain just as clear in the future as they are right now. First, everything we do is merchant first. Their needs drive every product enhancement and every decision we make. [inaudible]
Speaker Change: Second, we've demonstrated an incredible ability to pivot when merchants need us most, adapting swiftly to challenges Our resilience in turn ensures our merchants remain resilient too
Speaker Change: And third, our operating discipline provides the flexibility we need to deliver on match value while balancing profitability and long-term growth.
Speaker Change: This is a very durable business model and it is also how the very best companies are built by staying grounded in our purpose and committed to our mission and we look forward to sharing our journey with you in the course to come and with that I'll turn the call over to Jeff.
Thanks, Harley. Another very strong quarter for us. [inaudible]
Speaker Change: Q1 marks are 8th straight quarter of delivering pro forma revenue growth of 25% or greater, 7th consecutive quarter of GMB growth rate exceeding 20% and 7th consecutive quarter of double digit free cash flow margins.
Speaker Change: Before I dive into the Q1 results, I want to build on Harley's comments regarding our key principles and link them to the growth framework that I laid out at our investor day and the strong GMB results that we've been posting.
At that time, we talked about growing our merchant base.
Speaker Change: Expanding the breadth of merchants we serve and helping our merchants grow by giving them the tools they need to connect with and convert more buyers and run and grow their businesses.
Speaker Change: All of which are underpinned by continuous innovation. Our consistent GMB performance demonstrates that we are delivering on all of these vectors.
Speaker Change: If you recall from our investor day, I highlighted that we have seen our U.S. e-commerce GMB grow approximately two times overall U.S. e-commerce quarter in, quarter out. That trend has continued and strengthened. In fact, exceeding two X each of the past five quarters. We have seen our U.S. e-commerce quarter. We have seen our U.S. e-commerce quarter in, quarter out.
Another demonstration of our success is that every quarterly cohort [inaudible]
Speaker Change: Other than one, over the past 10 years has outpaced US e-commerce since joining Shopify. [inaudible]
Speaker Change: Within Europe we are outperforming the market by an even wider margin at even higher multiples of e-commerce growth.
Speaker Change: We've seen robust, greater than 30% GMV growth now for eight consecutive quarters with that strength being broad-based across countries and merchandises. Thank you very much.
Speaker Change: We are executing exceptionally well and our Q1 results reflect that.
Speaker Change: With that backdrop, let's discuss Q1 results, then some perspectives on tariffs, and finally our Q2 Outlook.
All growth rates mentioned are year over year, unless specifically stated otherwise. [inaudible]
GMB and Q1 with 74.8 billion, up 23 percent. [inaudible]
This Strong Q1 GMV was driven by...
Same-store sales growth of our existing merchants. [inaudible]
Growth in our merchandise globally. [inaudible]
Speaker Change: Continued strength in Europe , which grew 36% from both strong same-store sales growth and new merchant acquisition, with same-store sales growth being a larger contributor this quarter.
Speaker Change: And finally, offline growth of 23% during primarily by larger retailers joining the platform.
Speaker Change: As we build a wider array of commerce solutions, our platform has become more attractive to merchants across various industries.
Speaker Change: A parallel and accessories remains our largest category and that continues to perform well, but we are also experiencing strong growth in health and beauty, home and garden and food and beverage. [inaudible]
Speaker Change: Additionally, smaller yet rapidly growing categories like animals and pet supplies and arts and entertainment should a particularly strong growth rate in Q1.
Revenue for the first quarter was up 27%. [inaudible]
Looking at the two components of revenue.
Speaker Change: Q1 merchant solutions revenue increased 29%, driven by the same factors as Q4, including continued strength in GMV, and increased penetration of Shopify payments, which reached 64% for the
Speaker Change: Several factors powered the quarter's higher GPV penetration including the strong performance of those merchants utilizing Shopify payments and increasing percentage of which are Shopify
More merchants across the globe adopting payments. [inaudible]
Speaker Change: and expansion of payments both into more countries and through the partnerships with PayPal and Clarno.
Speaker Change: These items were partially offset by the continued strength of our business in Europe , which was a larger percentage of GMV, but where we have a lower GPV penetration than North America, which had become less of a headwind of payments penetration going forward, given the launch of payments in more countries in Europe .
Speaker Change: Subscription Solutions revenue grew 21% with the three largest drivers being an increase in the number of merchants on our platform and to a lesser degree the benefit from the plus pricing change and higher variable platform fees.
Speaker Change: As a reminder, the changes to plus pricing took effect in February last year for new merchants, and a few months later for existing merchants. [inaudible]
Speaker Change: Given that the significant majority of the existing plus merchants chose to lock in three year contracts at their existing rates [inaudible]
Speaker Change: Something that highlights the exceptional value we offer and the trust our merchants have in us. The majority of the benefit in Q1 came from new plus merchants. [inaudible]
Speaker Change: QN 2025, therefore benefited from two months of year-over-year comparability tailings. [inaudible]
Speaker Change: As I mentioned on our last call, we expect our subscription solutions growth to normalize to a rate lower than merchant solutions in 2025, given the benefits from the plus pricing changes tapering off and the lengthening of the paid trials. [inaudible]
Speaker Change: Q1 MRR was up 21% year over year with continued growth in each of standard plus and offline with all three categories seen an increase in the number of merchants.
Plus plans represented 34% of MRR for the quarter.
Speaker Change: As I mentioned during our last call in Q4 of last year, we started shifting to a three month paid trial in certain markets, moving away from our predominantly one month trials. So, we're going to start with a three month trial.
Speaker Change: The adjustment in trial lengths will make the quarter over quarter and year over year MRR comparisons tougher for you to assess from the outside and these comparability issues will persist throughout 2025. But it is important to point out that we continue to see the benefits of moving to the longer trial period.
Some comparability issues aside, the trend is a good thing. [inaudible]
Speaker Change: Our testing has indicated that giving merchants a little more time to experiment with our platform increases the likelihood that they are setting themselves up for greater GMB success over the longer term. [inaudible]
Speaker Change: This point became clear through the testing that we did regarding how quickly merchants from various trial lengths achieve certain GMB milestones . . .
Speaker Change: As a reminder, paid trials are just one of our merchant acquisition tools. [inaudible]
Gross profit was up 22%.
Speaker Change: Gross Profit for Subscription Solutions, grew 19%, slightly less than the 21% revenue growth for subscription solutions. [inaudible]
Speaker Change: The lower rate was driven primarily by higher cloud and infrastructure hosting costs needed to support higher volumes and geographic expansion.
Speaker Change: Although we are investing more in AI, it is not a significant factor in this increase. [inaudible]
Speaker Change: Over the past five years, the gross margin for subscription solutions has centered around 80%, plus or minus a couple hundred basis points in any given quarter, and we do not anticipate that trend changing in the near term.
Gross Profit for Merchant Solutions, Group 24%
Speaker Change: with Gross Margin coming in at 38.6% compared to 40.1% in Q1 of 2024.
Speaker Change: The decrease was primarily driven by the same factors that we saw in Q4, including lower non-cash revenues from certain partnerships which carry a high gross margin and the impact from the expanded partnership with PayPal. Thank you very much.
Speaker Change: Parsley offsetting these headwinds was strong growth in our FX and tax products.
This brings our overall Q1 gross margin to 49.5%
Compared to 51.4% in the prior year. [inaudible]
Speaker Change: Operating expenses were 966 million for the quarter are 41% of revenue in line with our guidance.
Speaker Change: This 41% compares to 47% in Q1 2024 and 60% in Q1 2023. We continue to make significant strides in building a lean, flexible, highly efficient team.
Speaker Change: Our continued discipline on headcount across all three of R&D sales and marketing and G&A continues to yield strong operating leverage all while helping us move even faster on product development, aided by our increasing use of AI.
Speaker Change: In marketing, we continue to lean in on our returns based approach, executing to plan and leveraging the signals and data insights we have to quickly flex up and down our investments based on specific return metrics and payback periods. Thanks for your time.
Speaker Change: This strategy has not changed, and we believe it is continuing to serve us well.
Speaker Change: Our platform has all the capabilities to grow with, and accelerate merchant success. Thank you very much.
Speaker Change: Marketing helps us get those merchants on our platform, allowing us to then grow with them for years to come [inaudible]
Speaker Change: Transaction loans and losses, the smallest of the operating expense categories on our income statement was 3% of revenues consistent with Q1 of last year.
Speaker Change: This stability is largely due to higher volumes in our growing capital business.
Speaker Change: We continue to grow our capital business and have recently introduced several product innovations that give merchants more choice for how they manage their loans and how they choose among various loan options. [inaudible]
Speaker Change: Operating income for the quarter was 203 million, or 9% of revenue compared to 5% in Q1 of last year.
Stockbase Compensation for Q1 was 123 million,
and Capitol expenditures for 4 million for the quarter.
Speaker Change: Dewan Free Cash Low was 363 million, or 15% of revenue, in line with our outlook. The Strength of Our Business enables us to achieve these attractive free cash from margins, while still, importantly, invested in the future. The Strength of Our Business enables us to achieve our free cash from margins, while still, importantly, invested in the future.
Speaker Change: To be clear, while we will continue to drive efficiency, we are ultimately still a growth company. We will continue to prioritize investing in key areas like our core platform, international, B2B, enterprise, and offline, as opposed to driving for higher free cash low margins in the near term. [inaudible]
Speaker Change: It's simply the right thing to do with the immense opportunities we see ahead, but delivers a profitability level that we are proud of and believe we can maintain without compromising future growth.
Speaker Change: A quick comment regarding a small but important acquisition that we close in Q1.
Speaker Change: In March, we close the acquisition of Vantage Discovery, which helps accelerate the development of AI-powered, multi-vector search across our search APIs, shop, and storefront search offerings.
Speaker Change: This acquisition is one piece of a broader strategy to ensure that our merchants are able to continue meeting buyers regardless of where they're shopping or discovering great products.
Speaker Change: Given the dynamic macro- and trade environment, I'd like to share some observations about our merchants and our business before we turn to our Q2 financial outlook.
Starting with cross-border. [inaudible]
Speaker Change: Cross-border GMV made up 15% of total GMV and Q1, consistent with previous quarters. Approximately half of that involves US trade, balance between inbound and outbound, while the rest is largely interregional within Europe . [inaudible]
Speaker Change: Cross-border levels have remained consistent throughout April and May to date.
Speaker Change: Turning to Diminimus The recent expiration of the Diminimus exemption for goods from China is not expected to have a meaningful impact on Shopify in the near term, as only 1% of our overall GMV is related to imports from China that were subject to the exemption. The Diminimus exemption for goods from China is expected to have a meaningful impact on our overall GMV that were subject to the exemption.
Speaker Change: That said, this expired less than a week ago and we will continue to monitor its impact on our business
Speaker Change: The quality and diversity of our merchant base and the buyers they serve are also two key things to keep in mind and which help ensure resilience in the face of potential economic shifts. We support millions of businesses across various industries and verticals, addressing every corner of commerce. [inaudible]
Speaker Change: This diverse merchant base gives us a solid foundation to navigate changing market conditions, providing unique stability to our business.
Speaker Change: Certain sectors or segments will require more time to address their supply chains in this environment, but many others, also represented on Shopify, can move more quickly, mitigating some of the impact to Shopify from these disruptions
Speaker Change: Merchants Pivots in response to trade concerns are wide-ranging, including decisions on inventory strategies, pricing changes, and sourcing selections . . .
Speaker Change: Consider pricing as one example. While some merchants have raised prices, we haven't seen broad-based price increases yet.
Speaker Change: However, there remains a mix of strategies applied to navigate tariffs beyond just pricing.
Speaker Change: Merchants are considering when to change sourcing countries, when to buy inventory, or even adjusting product mix in their catalogs [inaudible]
Speaker Change: From an end buyer perspective, in 2024, we had over 875 million unique online shoppers, spanning a broad range of income levels and brand loyalties.
Speaker Change: While all margins proudly serve consumers across all income brackets, their buyer base skews towards higher income consumers with more than half of their buyers in the US having incomes exceeding $100,000.
Speaker Change: We believe this helps insulate our merchants from some of the potential swings in pricing or other market factors as higher income consumers tend to be less price sensitive.
Speaker Change: We acknowledge the uncertainty ahead and are actively monitoring our data to help us support our merchants and adapt to whatever changes may arise.
Keep in all this in mind. Let's now turn to Outlook.
Speaker Change: Our GMB data shows continued strength through April and early May, reinforcing our confidence in outperforming the market, our expectations for the second quarter of 2025 factor in the strength of our Q1 and what we are seeing in quarter to date for Q2.
First on Revenue
Speaker Change: We expect Q2 revenue growth in the mid-twenties, year over year, driven by many of the same factors that supported our strong revenue growth in Q1.
Speaker Change: This outlook takes into consideration our best estimates of our performance in the context of today's trade and macroeconomic environment with potential headwinds largely offset by FX tailings.
Speaker Change: We expect Q2 gross profit dollars to grow in the high teens, driven by a mixed shift with more contribution expected from merchant solutions, primarily from payments, followed by subscription solutions.
Speaker Change: The ongoing strength of our lower margin payment product and the accounting impact from PayPal combined with the impact from changes to the paid trial links are key factors in this growth.
Speaker Change: These dynamics in terms of gross profit dollar mix shifts are likely to persist, resulting in gross profit dollar growth at a rate lower than revenue growth.
Speaker Change: We anticipate that our Q2 operating expenses will be 39% to 40% of revenues, which represents a 200 to 300 basis point improvement over Q2 last year. When excluding the reversal of the $55 million legal cruel from the prior year. [inaudible]
Speaker Change: The factors contributing to our expense leveraging Q1 are expected to persist in the Q2 as we stay vigilant on head count,
Speaker Change: On a dollar basis, operating expenses are increasing both year over year and quarter over quarter primarily driven by expectations around higher marketing spend that I just discussed.
Moving the stack-based compensation. [inaudible]
Q2-SBC is expected to be $120 million. $120 million.
Finally, on free cash flow.
Speaker Change: For Q2, we expect our free cash flow margin to be in the midteens, similar to Q1 of 2025, as we continue to focus on driving growth, not optimizing for near-term margin.
Speaker Change: We believe that the free cashflow margin profile that we have achieved over the past several quarters strikes the right balance between profitability and investment in building the best products for our merchants today and into the future.
Simply too many compelling growth opportunities ahead.
Speaker Change: To close, we are delivering growth across multiple products, multiple geographies, and multiple merchant sizes and types. All will be in discipline on expenses, but thoughtfully investing for Shopify's continued growth.
Speaker Change: The more the environment changes, the clearer it becomes the businesses of all sizes that they need a platform that can adapt, scale and pivot. [inaudible]
Shopify is that platform.
Speaker Change: And with that, I'll turn the call back over to Carrie.
Kerry: Thanks, Jeff. We will now take your questions. Please use the raised hands feature in Zoom to ask your question. If you're dialing in by phone, you will need to press star 9 to join the queue and star 6 to unmute yourself.
Speaker Change: We ask that you limit yourself to one question so we can try to get to as many questions as possible. Our first question comes from Samad Samana at Jeff Reese.
Samad Samana: Good morning and thanks for taking my question and congrats on our really strong quarter.
Speaker Change: Where merchants are sourcing the inventory that they're ultimately selling, and I appreciate all the disposes that you gave, but how are you, do you have any ability to map where they're currently sourcing from and how much screw tariff exposure that they have, and have you factor that into, like how are you balancing the potential demand destruction versus average order of value going up, and I know that's it. Yeah.
Harley Finkelstein: It's not a precise question, but to the extent that you can help illuminate that for us, it would be very helpful. Thank you so much. Yeah, maybe I'll start and then Jeff can't if he has something. Look, I think it's still very early and we're learning as much as, I mean, because of our visibility, we're learning a ton. What I can tell you is that we have merchants everywhere of all sizes across pretty much every geography and pretty much every vertical. I mean, that is the benefit of the Shopify business model. There's no, you know, our merchant base is not concentrated in one area. So in terms of where they make the products exposure really does vary by merchants. You know, we're going to have a lot of money. We're going to have a lot of money. We're going to have a lot of money.
Harley Finkelstein: and some are impacted more than others, but NetNet, we're not seeing any meaningful impact on GMV, and again, it's still pretty early. One thing I would add also is if you think about the buyer perspective. The buyer.
Harley Finkelstein: and that diversity does help insulate our merchants and us by extension. We'll continue to monitor that, but so far we're not seeing anything any meaningful back to Jimby. [inaudible]
Samad Samana: Yeah, and some of the only thing I would add are you alluded to is that corporate indoor abuse on guidance. It definitely is I put some comments in the prepared remarks around how we're thinking about both overall consumer spend as well as some impact from that fact. That's all factored in there. So...
Samad Samana: And as I also mentioned, we've seen strength through April , we've seen strength in the early May So it's continuation of all the things that we saw on Q1 which was a very good quarter and we feel good as we think about the consistency of performance when you look at what we've laid out for Q2 and think about what we did in Q1 as well as we've done over the last couple of years in terms of we've seen strength in the early May So we've seen strength in the early May So we've seen strength in the early May So
Samad Samana: The Consistent Revenue Growth in the margins and the GMV deliverance we put all that in a perspective.
Speaker Change: Thank you for your question. Our next question will come from Martin Towner at ATV.
Martin Toner: Thank you very much. Is it possible for you guys to give us some more commentary around what has happened with your China specific merchants in early May?
Martin Toner: Yeah, I don't, is it related to you? We alluded to both. I mentioned just a moment ago that both April and May have been strong in terms of what we've seen in GMB performance. It's obviously a dynamic environment. It's still too early to tell, I think in terms of where this is all going to play out both in terms of...
Martin Toner: The Quantum and the Timing of the tariffs. But again, I would say that we're roughly a month into the escalation of tariffs and we continue to see strength in GMB. But as we look at the guidance we gave in Q2, it obviously assumes continued strong performance.
Martin Toner: in terms of exact detail in China, we don't have anything more to give on that at the moment. [inaudible]
Hey guys, a question on a new merchant acquisition.
Samad Samana: Harley, you highlighted a bunch of new features, terra-related and other, imagine those served to further differentiate Shopify and the value prop.
Speaker Change: Against that, though, I could also see a scenario where, you know, giving all the uncertainty out their merchants are reluctant to make any big switch in their systems or their infrastructure. So, how is the new merchant pipeline playing out? Well, um...
Speaker Change: Both an SMB and Enterprise, and how has that changed at all over the last couple of months? [inaudible]
Speaker Change: Yeah, I mean, S&B has been consistently very strong. We haven't seen any changes there. In fact, I would actually argue with you on the larger merchant side, actually, I think...
Speaker Change: They can't even handle basic tasks like price updates or I heard something this week about loyalty changes being difficult or adjusting inventory on sort of a more you know on a more rapid basis and it's not just legacy systems actually we're all see hearing from is that larger retailers and brands with custom built or inho.
Speaker Change: Those platforms are just as brittle and slow as you know, especially right now so as a result, I think actually brands are moving to shopify larger brands are moving to shopify at even higher clip and and I think you know partially it's because they want they want a simplify complexity they want to improve execution speed.
Speaker Change: Looking for lower cost of ownership one of the things that I think we have become well a reputation I think shoply has it is well deserved is that we our merchants are more resilient. We mentioned sort of 30 out of 39, you know of the merchant cohort since the IPO 10 years ago have.
Speaker Change: Involved incredibly duty's calculations pricing transparency. So I think this actually you know one of the things. We're seeing is that a lot of these larger more legacy systems are using this opportunity to reevaluate whether or not they have the right commerce partner long term again, not just because of flexibility, but also because of total cost of ownership and that.
Speaker Change: Has incredible some of the most iconic retailers and brands in the planet come in to Shopify, the last quarter and that pipeline is not slowed down at all.
Speaker Change: Thank you for your question. Our next question comes from Bob and Shaw at Deutsche Bank.
Bob: Thanks for taking my question, Jeff Parlo you guys. Both two on the call several times about your ability to lean into a internally and given this additional emphasis that you guys put on this starting this year. How is this impacting your kind of expenses relative.
Bob: That you guys talked about on free cash flow margins and then Jeff how how willing are you to maybe adjust your marketing spend if you do see changes in merchant or consumer behavior, and maybe I'll start just on the sort of AI internally and then Jeff can talk a bit about on the financial impact.
Speaker Change: An opportunity is there you know I think all of you by now have hopefully saw toby's note AI is being built into the culture and frankly built into the DNA of how we operate it is now a reflex that is expected of our 8000 people that work with us. So we're really leading into this you know even just last couple of weeks we've built.
Speaker Change: That pretty much make every single corner of Shopize work legible, which means that everyone. At Shopify now has more access to more information out of much more rapid clip obviously, the vantage team coming in who are rock stars and AI are gonna help take our search capabilities to the next level. So we necessarily.
Speaker Change: The superpowers, we can give with sidekick and magic to our merchants to make them far more effective but even in terms of how we use it internally to make shopify more effective enduring our day to day work, we think shopify is best position to leverage that.
Speaker Change: Yeah as it relates to the implication on margins, obviously, a I will be one of the tailwinds, there's hardly hardly just alluded to that can multiply the effectiveness of the team, but it also dovetails into your question I think Bob win as you're trying to think about how does that in terms of marketing opportunities changes in this dynamic market how.
Speaker Change: Changed in our views on free cash flow margins and the power of this business, we like to free cash flow margins that we've achieved we think this margin profile strikes the right balance of profitability and investing as we've alluded to and we've obviously been really thoughtful and discipline in terms of how we've.
Speaker Change: So we will continue to exercise that discipline, but I would also say that the discipline allows us can lead us to both cut back if the spending returns aren't there for example, if some of the things on the marketing front changes the function of the of the market overall, but also lean into it.
Speaker Change: Guardrails on the marketing spend and we also think about guardrails on the profitability, but I think we are very good at finding early signal and adapting and early alluded to that in his comments I think that's something we do exceptionally well. So we're gonna remain focused on our merchants getting great merchants on the platform.
Speaker Change: Let me just.
Speaker Change: We can actually get a sense of of of changes to CAC within a week and on the L. T V side. The same type of thing. So that means we can flex up and flex out our spend based on solid data views that we can get back at this incredible fast rate and I think that that ability to allow us to sort of play with those.
Speaker Change: Market share will take him if we see things are changing we can pull back as well. So you know as it relates to Q2, you know more of that we're able to really view, what's changing at a very very fast clip and then make very good decisions on either side, whether again things are going.
Speaker Change: Real advantage to shopify is growth and our funnel and our business model.
Speaker Change: Thanks for your question. Our next question will come from Michael Morton at Mocktainson.
Michael Morton: Good morning, maybe a quick one for Jeff and a bigger picture one for Harley that I've asked before Jeff with the three month trials and the slight step up in marketing spend just if you could maybe.
Michael Morton: Certain product a certain geography that would be great and then for Harley I've asked this before but we're seeing it develop more actually a lot of search conversation. This week in the news and Shopify has some really interesting partnerships with the Llms I was wondering if you.
Michael Morton: Generation sources for your merchant base, and then if maybe a slight shift of the center of gravity of the legacy ecosystem that goes like feeds people from Google search to Amazon, maybe pointing more consumers to DTC websites. Thank you.
Speaker Change: So I. Thanks for your question Michael I'll start with your question on marketing then I'll hand, it over to Harley There's no specific in terms of our marketing spend in merchant ads again, the and I alluded to this in my comments earlier that the merchant is.
Speaker Change: As well, it's executing exactly as we would be hoping and that ties back into the marketing spend but there's been no change in the marketing philosophy in terms of the segments. We're trying to target obviously the majority of our spend as we've talked about before is performance based marketing it.
Speaker Change: It's supporting all the various elements, so I I can't I, well I'd I'd say, there's no specific segment, where we feel like hey, we really need to focus on this one at the expense of others. It's discipline return based marketing to support all the great things, we're doing but we really think as we think about the product esk.
Speaker Change: Boulevard solutions, they're performing well and we're supporting them. Yeah. Let me just talk quickly about AI and I think the question really is around AI shopping. The first thing is I just kind of want to say this because I don't think I get a chance to his very often I think shopify is widely recognized as one of the best companies globally for fostering like very long.
Speaker Change: Benefits, you've seen that obviously with what we do with payments or some of the stuff. We're doing with by now pay later or cross border. So you can you know what are the things. We think about is that wherever commerce is taking place shopify will be there and obviously one of the things. We are seeing is that more searches.
Speaker Change: On places beyond just you know somebody just search engine, that's a huge opportunity whereby more consumers are gonna be searching for great products and for us to qualify and requalify to be the core retail operating system for the millions of stores that uses and many millions.
Speaker Change: Everywhere, where converse is happening. So obviously, we've talked about some of the partnerships in the past you've seen what we've done with perplexity and open AI. We will continue doing that we're not going to front run our product roadmap when it comes to when it comes to anything frankly, but we do think though that AI shopping in particular is a huge opportunity.
Speaker Change: I will be wherever consumers are looking to find incredible products.
Speaker Change: Thanks for your question. Our next question will come from Keith Weiss at Morgan Stanley.
Keith Weiss: IPhone. Thank you guys for for taking the question and it really appreciate the way you guys are kind of coming at this period of uncertainty period of stress and highlighting the quality of shopify and and how we've seen historically is the high quality companies tend to pull away from stress.
Keith Weiss: And I think you guys are doing a really good job of showing why shopify is at high quality company and why you have the ability to pull away and gain market share even in in times when the macroes, perhaps not a tailwind to you guys. So kudos on that that's great positioning.
Keith Weiss: Particularly maybe a numerate, what's happening with with the Paypal accounting change any sense, you could give us of like what the top line. The revenue impact was there versus what the gross margin impact is and just fundamentally when will we see overall gross margin start to.
Speaker Change: Overall gross margin start to stabilize sometime in the not too distant future yeah. Keith. Thanks for your question and thanks for your opening comments, we definitely think about flight to quality and the opportunity for us to continue to differentiate ourselves from the pack here on your gross margin question, let me write it into the two pieces of when.
Speaker Change: Solution side, and then two on the merchant solution side and dovetail into some of your other pieces. There I alluded in my comments earlier on the subscription solution side, we've been pretty stable here in terms of how we think about it it's been 80% plus or minus a couple hundred basis points.
Speaker Change: Higher rather than lower than that 80 basis points, but you look back several years now and it's been pretty consistent and I mentioned in my comments earlier that we don't see that changing so.
Speaker Change: That's something from that vantage point, which I think we continue to execute on really well is it relates to the gross profit levels of gross margin levels on merchant solutions. Paypal is a piece of it we have not quantified. It payments is one of the things of course, it continues to be a larger percentage of.
Speaker Change: Some headwinds on gross margin and to the extent that larger merchant G. M. B's larger G. M. B merchants come on platform of course that will have some headwinds to it payments, though is obviously a good thing was it brings along a lot of other products that generally fall in the slipstream of what.
Speaker Change: I guess I caught one time or just Q4 Q1 adjustment. So the margins going forward are going to be a mix. Obviously everything we have going on with the merchant solutions again, we call out tax capital continues to grow well Shopify F. Ex continues to grow real.
Speaker Change: We were in this period of time you go back two years, there's a lot of good products, we introduced their continuing to ramp the ramping really well just given the size of the overall business. It just takes a while for them to have a meaningful impact to to meaningful time to.
Speaker Change: Only just given the size of payments given the size of everything else. So we feel really good about where we are in terms of delivering the gross profit dollars. The paid trial change because the last thing I would say the temporary piece for this year for sure is going to be subscription solutions last couple years W.
Speaker Change: Of an uplift as it relates to the pricing change the pay trial change is really going to be a headwind for subscription solutions growth. This year, but going into next year that will not be an issue and again, while there's some Mr. Comparability issues, there's no network issues at all that's going.
Speaker Change: Thank you for your question. Our next question will come from Tim Chioto at UBS.
Speaker Change: Great. Thank you for taking the question I want to such a little bit on the Shopify point of sale in store business. You mentioned some of the larger brands coming onto the platform I was hoping we could tackle it from two angles first is competitive differentiation whether it.
Speaker Change: Or multilocation or maybe you could expand upon that particularly as it's relative to Clover square light speed and maybe some of the other the legacy providers the micros, etc. And then the second piece is around the distribution side. So clover utilizes.
Speaker Change: Bank partners and has direct sales square recently signed its first ISO in the U S and their hiring salespeople, maybe you just compare and contrast, the distribution efforts behind the point of sale offering for Shopify.
Speaker Change: Yeah. Thanks for the question. It's it's a great question. So first of all I think point of cell think about this is like this incredible multiyear growth initiative for US I think the results for the quarter show that we're making really great traction to me Q1 off in GV was 23% in the quarter.
Speaker Change: Especially with these large complex multilocation merchants and and part of the competitive advantage is just the fact that the I mean, the features hads amazing you've tapped to pay expansion, having shipped a store capabilities I mean, the amount of features that we're rolling out for point of sell by itself just in the last.
Speaker Change: I've mentioned some previous calls working with frankly, the largest size in the planet that are bringing us to market as well and then I think probably the larger piece of why we're winning when it comes to point of sell is that I don't think the future.
Speaker Change: Where these incredible businesses think about different segments channel conflict. They want a single place where they can view the entirety of all their business online and offline and potentially through AI and on social media platforms and so this idea of shopify being this uniform system that allows you.
Speaker Change: And as more channels, you know come to play again, we talked about AI a little on this call that wasn't around two years ago. Now. It is the fact that you can default how that was shopified. We think is an incredible opportunity. The other thing is like you know allo came to US a couple weeks ago and said they actually want to offer same day to.
Speaker Change: Check out and so you know, we worked with Uber and doordash to get that going for them within a matter of weeks that velocity that confidence that these large and legacy brands are giving to us because they know that we can be a long term partner is allowing us to win this market. So you know I know the company you mentioned, but.
Speaker Change: Perspective from an integration perspective with unified Commerce will continue to win business.
Speaker Change: Thank you our last question will come from Dominic ball at Redburn Atlantic.
Dominic Ball: Hi, everyone, Hey, Holly maybe a question for yourself touched on it earlier, how does shop five view the emergency of a I agents in terms of do you guys see this as an opportunity or more of a threat because on one hand, they could consider.
Dominic Ball: Check out within their own platforms on the other hand. This may also unlock some new sales channel by merchants very similar to what happened with social media Commerce, and then one last it purchases a done automatically through a I agents does this reduce the vo.
Dominic Ball: Thinking about this dynamic yeah, we think it's a great opportunity look the more channels that exist in the world. The more complexity. It is for for merchants and brands, that's where the value of shopify really shines. So if there's a new surface area, whether it's through a I agents or through just simply L M's and.
Dominic Ball: That a consumer goes to to look for a new pair of sneakers or a new you know cosmetic or a piece of furniture. They want to have access to the most interesting products from the most important brands and those are all on shopify. So for US we think that all of these new areas, where converses happen.
Dominic Ball: Increase its value and we're working with pretty much every single company that that you have in mind to ensure that we are we are surfacing shopify product shop like merchants products. When people are searching for it. So we think it's a huge opportunity one thing I will say also just.
Dominic Ball: Because I I think it's important and we're getting to to closing time here you know I I hope on this call presumably all of you picked up the tone object in my comments, we believe that that shopify is performing choreo after quarter. Both in terms of top line momentum, but also managing expenses and.
Dominic Ball: One thing I do want to say just given the nature of the questions on this call that I want to reiterate hopefully most of you already know this but we're about to cross the 10 year Mark since our IPO and one thing that I think you've mostly have come to understand about all of you is that shopping was absolutely built for times like this times where things.
Dominic Ball: Much trust and it's why I think our merchants are so damn resilient, but for us as a company we operate very well in these environments and we have the right levers to adjust on a dime, but we can also see huge opportunities if and when they arise and grow our business. So I think it's precisely in times like this so we can demo.
Dominic Ball: I are simply better prepared than those that are not and with that just want to thank you all for joining the call and for US we'll get back to building the future of commerce. So thank you with that this concludes our first quarter 2025 conference call. Thank you.