Q2 2025 Shopify Inc Earnings Call

Good morning and thank you for joining Shopify. Second quarter 2025 conference call. I'm Carrie Gillard director of investor relations and joining us today are Harley finklestein Shopify, president and Jeff Hoffmeister our CFO 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 and therefore, subject to risks and uncertainties that could cause actual results to differ materially from those projected. Undue Reliance, 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 us and Canadian regulators.

We also speak to adjusted Financial measures which are non-gaap and not a substitute for gaap financial measures.

Reconciliations between the 2 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.

Thanks Carrie and good morning everyone.

Now before we get into the numbers, I want to do something a little bit different today. I want to start by looking back at shopify's last few earnings calls.

18 months ago, I said that we would power up our offline and our B2B on-ramps creating a truly unified Commerce platform.

Well, fast forward to today. Our offline gmbb is up 29% year-over-year. Our B2B gym is up 101%. And we're bringing the biggest brands in the planet to the platform through our unified Commerce offering.

12 months ago, I said we would continue to deliver both growth and profitability and this past quarter, we delivered 2.7 billion dollars of Revenue up 31% year-over-year and our free cash flow margin with 16%.

And finally, 6 months ago, we committed to expanding our reach across all geographies and particularly in Europe.

Well, our International gmv for this most recent quarter was up 42% year-over-year accelerating from q1 driven largely by outperformance in Europe.

Now the strong results you see today, come from seeds. We planted years ago past Investments are now paying off and the ones we are making today will drive results for years to come.

So if you take 1 thing away from this call, let it be this Shopify delivers, we do what we say we're going to do that consistency. Follow through and durable growth. That is shopify's Mo

Now, I want to call this out at the top of this call because we've had a lot of wins this quarter, which we'll get into next. But this quarter to quarter consistency is really what matters. This is, how generational companies are built and this is what you're seeing from Shopify. Okay, now let's get into the winds and the progress we made in Q2. Specifically, as I mentioned earlier, we delivered Q2 revenue of 2.7 billion dollars of 31% year-over-year and free cash flow margin with 16%.

Gmbb was up 31% accelerating from q1 and this strong gmbb result was driven by continued upper performance in Europe as well as momentum in our largest market, the US.

That means our Merchants are better prepared to stay a step ahead. Now, I'll give you a few examples. We were ahead of the curve, with social commerce building, early Integrations for Instagram, and YouTube, we saw the opportunity for Commerce to meet culture. So we built a Spotify integration and more recently, we predicted the rise of shopping in the metaverse with a Roblox integration that's already growing quickly.

So, of course, Shopify has been building infrastructure to power agent to Commerce. As AI platforms. Become the new way, people, discover products consumers are not just searching, they're having conversations with agents to find what they need. But powering seamless shopping across millions of Brands is a massive technical Challenge. And that's where shop light comes in. We've built a suite of products that make it easy for AI platforms to bring shopping to their Agents from Discovery to check it. And our Merchants are front and center. Now, let's start with Discovery. We launched catalog in Q2 to give AI partners and shopping apps real time. Access to millions of products from across our Global Merchant Network all through a single connection available as an API or an mCP server shop by catalogue. Simplifies the process for apps and AI agents to search and pull product data. So the results are clear accurate and up-to-date. Shopify is uniquely positioned to build this because the brands consumers love and want more of are all on Shopify and every day.

More of the world's favorite brands are joining, making our catalog, the richest, and the most dynamic anywhere.

Now, let's talk about Universal cart, which literally launched yesterday in Early Access Universal cart holds items from multiple stores All In 1 spot so that Shoppers can easily trap all their items, they want to buy within the chat.

And when it comes time to purchase, we've built a new and improved version checkout kit, and it's already been used by Microsoft co-pilot, a huge player in the AI space.

Check out kit. Let's Partners embed, the merchants check out right in their agent.

Now we're also going to be partners the power to theme the checkup kit. So it matches their applications look and feel creating this seamless experience and they don't have to worry about payments taxes or regulations. We take care of all the complexity for them.

Let me bring this to life for you. When a shopper asks, an agent for the best travel bag, it instantly searches shopify's, catalog, and shows the top products, live prices descriptions and inventory. The Shopper adds their choice of the cart. They don't have to check out right away. They can keep shopping everything. They want is pulled into a single cart and when they're ready, The Shopper completes their checkout without ever having to leave the chat.

Now, this unlocks a whole new kind of Commerce for partners, we've made it easier than ever to integrate Commerce, without having to build a hard parts for our Merchants. We're making sure they stay at the Forefront of wherever Commerce is happening. And for Shoppers, we're powering conversation, driven product recommendations from all of their favorite Brands. This is yet, another example of how Shopify is always leading the way.

Now let's talk about our most exciting AI product offering for our Merchants sidekick.

Sidekicks unique ability for data analysis. Can you just assign through helping Merchants address? Their toughest business challenges. For example, a merchant in the kids. Clothing category recently, shared with me, that sidekick delivers the kind of actionable insights. They used to spend hours searching for

Questions. Like, how can I optimize my inventory to avoid sellouts and boost cash flow? Or why am I seeing more customer churn from subscriptions in the last 3 months or even help me compare results? From our last 3? BF CM campaigns and suggest improvements for the next 1.

They are all answered explained and visualized in seconds. So instead of wrestling with spreadsheets or digging through endless tabs, merchants on Shopify, get instant Clarity of what's working, what's not working and where to focus next all without having to leave Shopify.

Here's another example, a skincare Merchant recently told us that in real time, psychic helped them pinpoint exactly where they were experiencing customer churn down to the cohort, City and even purchase behavior in seconds.

Insights like these used to take hours or days to uncover if they were found at all sidekick is doing exactly what we set out for it to do. Merchants are leaning in and leveraging. The power sidekick for data analysis and performance, insights freeing them up to focus on strategic business decisions and helping them, make sure those decisions are right for their business.

And of course, as I've talked about in previous calls, that's on top of all the other ways, psychic helps Merchants like writing product, descriptions generating logos and images, streamlining, workflows and customizing their storefronts and so much more

And this quarter, we also launched an AI store Builder that can create a custom online store in seconds, literally in seconds from a single phrase. Now all you need is an idea and a description of the product. You want to sell like stylish at leisure, apparel for women and Shopify will do the rest. We are continuing to make the Barrett entry lower than it's ever been in history, and we are not done.

Now, let's turn our attention to payments on our last call. We discussed the expansion of our payments product into more countries, 16 so far. This year alone nearly doubling the markets where it's accessible, many of these new markets are in Europe and are already seeing solid adoption contributing to our Global Payments penetration of 64% in Q2 up from 61% last year.

At Shopify, editions in may we also rolled out multi-entity support in shop by payments. Now, this means that Merchants can now sell from multiple business entities. All within a single shop which is particularly valuable for our higher volume. Global Merchants no more juggling separate stores for each country or Channel. This streamlines operations, it cuts costs, and it removes barriers to Global growth. And I've heard directly from some of our biggest Global brands that the multi-entity unlock is a breakthrough. And for those of you that have followed us for a while, you know, that this was a pain point, we had not yet solved until now,

Now, as you know, we are laser focused on building the future of Commerce, especially as cross border transactions become more important. This quarter, we introduced a new usdc stablecoin Option, giving merchants and buyers more choice and security especially for National payments. We partner with coinbase to bring the core features of Commerce like authorized capture void and refunds to crypto payments. So in plain terms, these are the steps that make card payments safe and flexible. Now with smart contracts and blockchain stable, coin payments can work the same way and with the built-in off-ramp to local currency. Merchants can accept usdc without dealing with new crypto.

Friction payment, preferences are changing fast. And Shopify is making sure our Merchants are ready for what is next. Now, a quick note on shop, pay over the past 2 and a half years. The user base has more than doubled as more buyers and Merchants make it. Their go-to checkup that momentum is showing up in the numbers. In fact, in Q2 shop, pay, Jim be increased by 65% to 27 billion.

Shop pay is quickly becoming the standard for fast, secure seamless payments, trusted by millions of consumers and Merchants, including leading Brands, like Michael Kors, the latest to sign up for shop Bay Commerce components.

Honestly, most of you listening have probably used shop pay. At least, once in this past week alone, that is how deep the reach is.

Now let's turn to the shop app, the all-in-1 shopping destination for the brands that buyers are passionate about the shop. App saw 140% year-over-year growth in Native gmv fueled by high impact shopping events including shop week where sales more than doubled compared to last year's event and sign in through shop increase by 46%. Thanks to improved availability and a much smoother user experience.

AI, powered enhancements, the shop search, and the home feed ensure buyers, see the right products at the right time, driving, higher engagement, and conversions, and unlike traditional marketplaces shop. Puts brands from the center fostering genuine customer relationships without the burden of marketplace fees.

With tools, like, Shop minis shop, cache, and sign in, with shop, we're helping Merchants engage convert and retain buyers seamlessly from personalized recommendations, and wish lists to in-app checkout and real-time order tracking and buyer rewards. And our collaborations with Brands, like glossier summer Fridays, and J Balvin are strengthening Shop's position in Beauty and entertainment, pushing the boundaries of customer engagement,

So, mark my words, shop is the future of direct to Consumer shopping and we're just getting started.

Now, let me speak briefly on Advertising because I know you'll ask Shopify campaigns is opening up new ways for merchants to reach buyers and grow. We are scaling risk-free advertising across shop online, stores, meta, and Google, giving Merchants efficient access to new audiences, and the earlier results are really promising Brands, like carway liquid IV kizik are seeing real impact. And as we continue to unlock more inventory and refine, our recommendation algorithms campaigns are getting more personalized and more effective. And there is a ton of excitement at Shopify on what we are building and look forward to sharing more about this on future calls.

Okay. Now, let's shift our Focus to some other key growth drivers and how we're executing

first up point of sale or our offline business,

Q2 was another strong quarter for Shopify point of sale. With offline gmv up 29%, we launched a newly redesigned version of our POS app, making it faster and simpler for in-store staff and enhancing the connection between in-store and online. Retail staff are already benefiting from the new version with the more intuitive experience faster, checkouts and shorter training time. This new release of our retail platform, includes a suite of features that Merchants requested things like cash rounding more granular staff permissions more ways to build cart customizations and store credit for instant, customer retention direct API access. Now allows our developers and partners to customize

My Shopify point of sale workflows more efficiently and as these continuous enhancements that are further solidifying shop life's reputation. As a leader in a retail point of sale software,

And new ey report. Shows it's driving real Revenue growth for merchants and the results speak for themselves. Our investments are paying off and Merchants on Shopify are reaping the benefits.

Q2 some more great Brands, joined Shopify in part for offline, offering from swimwear, to Furniture, to car accessories. And I said at the start a special newly Inked deal, that's very close to my heart, the iconic, Canadian brand Canada, goose is making the switch on a personal note. I've been in talks with the CEO, Danny, for a long time and Incredibly, the deal actually closed on Canada Day this year, which made it feel extra special after years of building a refining, our unified Commerce platform. They have chosen to move to Shopify to power both their online business and about 50 physical stores beginning in 2026. This win is a clear signal. It's the leading Brands, trust Shopify to deliver what modern Commerce demands, the progress in retail is evident and we are confident that we are still in the early stages of what we will achieve. Moving on to International. We keep talking about our international business because the opportunity is so massive and our team and Merchants are knocking it out of the park, our International regions are contributing more to our growth. Each quarter becoming a vital part of shopify's Mission to support entrepreneurs world.

In Q2 Europe, led the way with strong gmv growth from both new Merchants during the platform as well as our existing Merchants continuing to outperform their respective. E-commerce markets.

You have heard us talk about getting more of our product into more countries and so far. In 2025, we have made really great progress, shops like capital is now available in Germany and the Netherlands. Providing more Merchants with access to growth funding. We also launched shop pay installments into Canada along more Merchants to offer flexible payment options, which contributed to the strong 308% increase. We saw in Q2 for our shop, pay installment gmv

At the core of our growth, Is our commitment to enabling Merchants to sell seamlessly across borders shown by Q2 cross border jmv at 15% of total gmv while also winning at home with recent, rollouts, like, multi-entity support and multicurrency payouts, we are making this a reality. These features are now available for plus and Enterprise merchants in most countries where Shopify payments operate. This is big because by simplifying operations, to 1 single shop. They avoid extra fees and the need for duplicate apps or Integrations. And that's why organizations, like Fiskars Group 1 of Europe's, oldest companies and the owner of Brands, like, Wedgewood and Waterford. Recently chose Shopify to migrate 5 of their distinct e-commerce businesses for multiple Brands into a single 1 on Shopify. It is a clear signal that Shopify is the platform for Global growth.

We got here in a very intentional and thoughtful way. The winds we see today are a direct result of the groundwork. We've laid in international expansion, especially in Europe from product development to marketing over the past few years. Our aim is to keep this momentum going and unlock even more growth opportunities in the years ahead.

Okay. Now on to 1 of my favorite parts of the call, you all know that I love talking about winning larger. Merchants our up Market strategy is continuing to deliver results. On top of the brands. I mentioned earlier, Starbucks Burton and Canada Goose. We also signed Brands like luxury skincare company owned by Unilever. Catch up the high-end home. Appliance manufacturer melee Amazon's daily deal site. Boot the leading Fitness and Nutrition brand Beachbody and 1 of the world's largest diamond retailers, Signet Jewelers.

Now, there's another brand I want to highlight and not because you'll know them but actually because you probably don't know them. We just signed on the global leader in mining drilling services for long year. Now, a few years ago, we wouldn't have imagined talking about drilling services and Shopify in the same breath, but that's how far we've come. Our roster keeps getting stronger, winning the brands, people love across every major vertical and bring it on. More names from Industries. You might not expect amongst these are. The biggest brands you've ever heard of? They're not household names to Consumers but they dominate their verticals. And they're choosing Shopify for our scalability for our speed, flexibility. And the tools they need to grow. And this diversity makes us even more resilient and few.

Our growth expanding our addressable market and the ways we power Commerce, no matter how the market shifts, Shopify is built to thrive. We're expanding our reach, we're deepening our offerings, and we're laying the groundwork for long-term success from entrepreneur to Enterprise.

When you look at our Q2 results and when you look at what we've achieved each quarter before 1 Thing should be clear the Shopify, Playbook delivers,

We've built a product that helps every kind of merchants in every Market win. We built the business model. That means when our Merchants win we do too and we've built a road map that's focused on the future of Commerce. So our Merchants are always a step ahead.

Wavering. And with that, I'm going to turn the call over to Jeff for a deeper dive into the numbers and trends that we're seeing. Thanks Harley Q2 was an exceptional quarter and it represents a manifestation of the excellent product Building, Product Market fit and go to market momentum that our teams set in motion many quarters ago.

We're delivering in the areas that matter, most, for our long-term success, helping Merchants grow and reach more buyers, expanding the diversity of our Merchant base and innovating continuously to provide products that help Merchants run and scale their businesses.

A few items to highlight before we dive into the numbers.

First. The US delivered, standout results in Q2 year-over-year growth rates for both gmv and revenue accelerated in Q2 versus q1. We saw growth across all major verticals and Merchants segments.

Second our International regions, particularly Europe are thriving in most countries in. Europe are Merchants gmv, growth continues to outpace the overall e-commerce Market by an average of 4 to 5 times, if not greater and even accelerated in Q2 from already strong trends.

This success, underscores the effectiveness of our strategic investments in product expansion and localization over the past few years.

Merchant GB accelerated across all sizes and GMB bands in Q2 Highland broad-based momentum throughout our platform.

Notably Merchants above 50 million, in annual GMB and those under 2 million in annual GMB. She'll particular acceleration in the quarter.

Lastly, our products are growing and expanding creating more opportunities to support our Merchants Drive growth and unlock new verticals.

Growth is coming from every angle offline B2B Capital Tax and more.

These areas are gaining real traction, and while still on the earlier side of their growth curves, the potential remains incredibly compelling.

With that context around some key observations and trends, this quarter, let's turn to our Q2 financial results.

All growth rates mentioned are year-over-year on the specifically stated otherwise.

G&B and Q2 was $88 billion, up 31% or 29% on a constant currency basis.

This gmv outperformance was driven by strength in North America with particular strength among plus merchants.

And continued strength in Europe with GMD up, 49% 42% on a constant currency basis.

In both North America and Europe. We saw broad-based growth led by our existing Merchants, as well as growth from adding new Merchants with a tilting towards more same store sales growth, this past quarter,

Offline was up, 29% driven primarily by larger retailers joining the platform.

And finally while we had anticipated some benefit from FX in our Outlook, the Tailwind turned out to be stronger than expected as the quarter unfolded, as we continue to expand our platforms capabilities.

Add new products and build for our Commerce is heading. Shopify is becoming even more compelling to a wider range of businesses than ever before. This growth opportunity is reflected in the strength. We're seeing across a diverse set of categories.

In Q2 apparel and accessories are largest and most established categories continue to perform well.

At the same time, we're seeing strong momentum in health and beauty.

Home and Garden.

And food and beverage.

We're also experiencing rapid growth in emerging segments, such as pet supplies furniture and arts and entertainment.

revenue for the second quarter was up 31% driven by the exceptional GMB growth across geographies, our Merchants are succeeding

These results exceeded expectations driven by the outperformance in North America and Europe. And importantly, we had factored into our guidance, some potential impact, from tariffs, which did not materialize,

Looking at the 2 complaints of Revenue.

Merchant Solutions Revenue increased 37% with the strength in gmv driving, the significant majority of the growth.

To a lesser extent. We also saw increased penetration of Shopify payments, which reached 64% for the quarter.

Several factors. Powered the quarter's higher gpv penetration, including

Continue to adoption of payments by more Merchants around the world and the strong performance of those merchants.

The expanded Partnerships with PayPal and klarna.

And the availability of payments in more countries.

These items were partially offset by our ongoing, strong performance in Europe, which accounted for our larger share of gmv but has a lower gross payments volume. Penetration Compared to North America.

Subscription Solutions, Revenue grew 17% primarily driven by a larger percentage of subscriptions coming from higher price plans, and to a lesser extent higher variable platform fees.

As we have mentioned, previously in 2025, we expect subscription Solutions growth to be impacted by the headwinds from extended paid trials, which affect our year-over-year growth rates Q2 mrr was up 9% year-over-year. Led by growth in our Plus plans which represented 35% of mrr for the quarter.

The shift back to 3-month trials for standard plans had a larger impact on Q2 than Q1, as these changes were rolled out to North America and our largest markets in Europe at the end of Q1. This meant that throughout most of Q2, new merchants were still within their initial 3-month trial period.

As a reminder in Q2 of last year mrr benefited from the move from a 3-month to a 1-month paid trial which drove mrr higher it makes for a tougher comparison. This year as a result mrr growth for standard Merchants this quarter showed only a slight increase.

As we examine the data that we have regarding the efficacy of these trials, we believe that they are working well by giving Merchants more time to explore Shopify. We increase the likelihood that they launched their businesses, with a better understanding of the full capabilities of our platform and how we can help them succeed, reaching key gmbb, Milestones earlier and enhancing their probabilities of long-term. Success. Gross profit. Grew 25%.

Coming in ahead of expectations driven by the outperformance in Revenue.

Gross profit for subscription Solutions, grew 15% slightly less than the 17% Revenue growth for subscription Solutions.

This slightly lower growth rate Visa V. The revenue growth rate was from higher hosting costs needed to support higher volumes and Geographic expansion. And secondly, the impact of the change back to 3-month paid trials.

While subscription Solutions gross margin decline year over year, it remained above our 5-year historical, median of 80% plus or minus a couple hundred basis points in any given quarter.

We do not anticipate this trend changing in the near term.

Gross margin for subscription, solutions for the quarter was 81.6%.

Gross profit for merchant Solutions, grew 32% with gross margin coming in at 37.9% compared to 39.1% in Q2 of 2024.

The decrease was primarily driven by the same factors that we have seen the past two quarters, including...

the impact from the expanded partnership with PayPal where the year-over-year comparison differential will persist through. Q3

In lower non-cash revenues from certain Partnerships which carry a high gross margin.

This brings our overall Q2 gross margin to 48.6% compared to 51.1% in the prior year.

Operating expenses were 1 billion for the quarter, or 38% of Revenue, which is down from 39% in Q2 of last year on a gap basis or down from 42%. When you exclude from the year-over-year comparison, the reversal of a 55 million legal approval from Q2 of last year.

The foreign basis points year-over-year Improvement, demonstrates our continued efforts to drive operational. Efficiencies all while supporting our 31% Topline Revenue growth.

our discipline approach to headcount continues to drive strong operating Leverage

our return based strategy and marketing remains unchanged. We continue to execute with discipline using data testing and the power of our internally built models to adjust our investments quickly, and based on clear, return metrics and payback periods,

Transaction, loans and losses. The smallest of the operating expense categories. In our income statement was 3% of revenues

The year of where your increase stems from higher volumes in our payments and capital businesses.

Our Capital business continues to grow supported by recent product, innovations that enhanced our suite of credit offerings and expanded our Geographic reach.

Including launching capital in Germany and the Netherlands.

We've introduced new tools that give Merchants more choice and how they manage and select loan options, providing greater flexibility to meet their financing needs.

Note that loss rates have remained consistent with prior quarters.

This is about the successful. Thoughtful expansion of Capitol operating income for the quarter was 291 million or 11% of Revenue.

This 11% compares to a 9%, operating income margin last year and yields a 56% year-over-year growth rate when excluding the impact of last year's legal approval of 55 million, which was a 1-time lift, the last year's Q2 profit.

Stock based compensation for Q2 was 120 million.

Expenditures were $6 million for the quarter.

22 free cash flow was 422 million or 16% of Revenue.

Our commitment to operating discipline gives us the ability to achieve our desired free cash flow margins. Even as we periodically face gross profit pressure, such as those discussed earlier regarding PayPal and the paid trials.

Quarter after quarter, we continue to deliver balanced growth and profitability with Investments, that support long-term growth. In key areas like our core platform International expansion and Enterprise and offline.

This disciplined approach works. We have driven 11 consecutive quarters of positive, free cash flow 8 of which have been in the double digits.

We're building for the long term.

Delivering results today while making Shopify stronger and more durable for the years ahead.

Now shifting to the broader macroeconomic environment and tariff implications before discussing our Q3 outlook.

through Q2 and into early August, our Merchants based has remained resilient

Merchants are adapting to changes in the economic landscape and continue to perform well.

Supported by the flexibility and capabilities of our platform.

This resilience highlights his strength of our Commerce, Solutions and helping Merchants navigate challenges and pursue new opportunities as our Merchants grow and evolve. Our platform continues to support their success and scalability in a dynamic Market just as it always has.

Last quarter, I shared some observations about our merchants and our business in the context of the trade environment fast forward to today. And those same observations hold,

We haven't seen any drops in U.S. demand, whether inbound, outbound, or local. In fact, the U.S. accelerated in Q2, as I mentioned previously.

cross border gmv remained consistent at 15% of our total gmbb in Q2.

1 change that we have seen, is that many of our Merchants have raised prices?

We are tracking that in relation to overall inflation levels in the US.

The US government's recent announcements regarding the Dominus exemption for other countries. Beyond China is still in the very early stages. Importantly only, approximately 4% of our gmv globally is currently shipped under Dominus exemptions and we've not seen any significant changes in our GMB levels related to Merchants that shipped products under the Dominus exemptions for China. Since those rules were changed back in May,

We'll continue monitoring these Trends closely staying focused on supporting our merchants in an evolving environment.

Turning to our outlook for the third quarter Merchant gmv remains strong and continues to reinforce our confidence and outperforming the broader Market. This momentum has carried into Q3 with core Trends across our Merchant base remaining stable.

We expect Q3 Revenue growth in the mid to high twenties year-over-year driven by the same factors that supported our strong results. In the first half led by continued growth in merchant Solutions.

While we anticipate some FX Tailwind, they are expected to be similar to what we experienced in Q2.

We expect gross profit dollars to grow in the low 20s trailing Revenue growth, due to the continued strength and payments, the accounting impact from PayPal. And the changes to paid trial links.

We anticipate that our Q3 operating expenses will be 38 to 39% of Revenue.

On a dollar basis, operating expenses are increasing year-over-year primarily due to 3 things.

Higher planned marketing. Spend.

Higher compensation as a result of both mix shift to higher paying roles like R&D and our bi-annual Merit increases and higher losses from the expected. Volume growth of payments and capital marketing is the largest driver year-over-year. It's important to note that our marketing investments in Q3 last year were lower than intended as we chose to focus on testing and refining new approaches.

The increase this year is largely going to be in performance marketing. As we have continued to test and refine our models, we are discovering new audiences and unlocking higher value in the merchants. We bring on.

Moving the stock based compensation.

Q3 SBC is expected to be 130 million.

Finally on free cash flow.

The Q3 we expect our free cash flow margin to be in the mid to high teens.

Let me repeat what I said. Last quarter, we continue to focus on driving growth. Not optimizing for near-term margin.

We believe that the free cash flow margin profile, that we've achieved over the past several quarters, strikes. The right balance between profitability and investments in building the best products for our Merchants today, and into the future.

There are simply 2 many compelling growth opportunities ahead.

1 other item regarding our cash flow and cash management.

First, before our next earnings call. So, a couple of things I mentioned,

We expect to settle the 920 million principle in cash to the extent that there is any excess value above par. We also expect that to be settled in cash.

Our disciplined execution has delivered. 11 consecutive quarters of positive free cash flow and the financial strength to enable us to make this choice.

This decision is a clear demonstration of our belief in shopify's, long-term growth and resilience and Shopify and mindful of delusions.

Quarter over quarter. We're proving that our approach Works consistently, executing delivering for our merchants and maintaining double digit, free cash flow margins, even as we invest for the long term,

This is what sets Shopify apart.

Durable growth.

Discipline execution and a track record of results.

With that, I will turn the call back over to Carrie.

Thanks, Jeff, we will now take your questions before turning the call back to Harley for some final words, please use the raise hand feature in Zoom to ask your questions. If you are dialing in by phone, you'll need to press star 9 to join the queue and star 6 to unmute yourself. We ask that you limit yourself to 1 question so we can try to get to as many questions as possible. Our first question comes from Brian Peterson at Raymond James.

Oh, sorry, I tripped up by that view button, but congrats on the really strong quarter. Jeff, I appreciate all the comments on the macro. I know you mentioned that you saw the U.S. accelerate. How would you characterize the demand? And did you see any potential pull forward for consumers that may have wanted to take advantage of pricing before tariff increases? I would love to get any comments there. Thanks, guys.

Yeah, I know Brian. Uh, very good question. We have not seen any real pull forward of demand. I think you can see some of that when you look at the results that we delivered in Q2, you compare that to the guidance and see that consistency of performance. Uh, and obviously any guidance that we give is going to be reflective of the information that we have going into the call. And so, as we look at what we've seen in July, and the consistency of strength, the consistency of emergency success in July is kind of what we've seen in Q2. So, from a tariff perspective, I also alluded to it. Briefly on the call that we haven't seen any meaningful changes uh, in uh, the various elements in terms of cross-border activity in terms of what we're seeing in buyer Behavior. So uh the business remains in very good shape. I don't have anything where um I have anything in our internal data which says to me hey there's been a pull forward so the business is simply continuing to perform very, very well. I mentioned obviously the strength in Europe, the strength in North America, the strength of across all the different GMB bands, the strength across the products. Uh I think that's just our business uh performing that uh,

Uh, a very, very high level.

Thank you for your question. Our next question comes from Arjun vaidya at William. Blair

Perfect. Um, thank you. Uh, I will add my congrats here on a on a great quarter. Um, this might be a little bit um, difficult to answer but obviously the international growth is very strong. Um, you have a very broad platform, but when we think about what is localized and what is available for merchants and international markets, how International markets, how should we think about

Where we are in that in that journey. And and you know, is there more opportunities still to unlock internationally despite the success that we've been seeing thus far?

Hey Arjun. It's Harley, I'll take that question to be. I mean to be clear. We've been tackling some of these uh some of these product updates for international for quite some time. Now obviously there's some, you know, Merchant solutions to continue to expand. I mentioned that this year, alone, we expanded Shopify payments to 60 new countries multi-currency is now in 20 countries, capital is now expanded to Germany, Netherlands. So we've make we're making really good programs here. Um, and obviously, you know, the international results, speak for themselves. International gmv was up 42% year-over-year, obviously Europe leading the way there but there still are other areas for us to expand specifically on sort of the product rollout side of things. Uh, I I think the results you are seeing from us internationally is is a combination of of the, the product getting much better. Uh but also the go to market engine becoming

Much stronger much more much more sophisticated whether it's through Partnerships with SI or it's with our our own team understanding what you know product Market fit looks like in those countries. So I think, you know, the wins that you are seeing are result of the ground work that we've laid International expansion, both in product and for marketing over the past few years, but we still have, uh, we still have quite quite a bit to go there and we think we can continue to grow, uh, internationally, obviously, we're still going to, you know, we're dominant in in in the English speaking World in North America obviously is is a big uh, is is a huge market for us. Specifically, but International we we still think it's a strong opportunity for us going forward.

About is our success in asia-pacific. I mean, Europe has been going so strongly in terms of the results. We're seeing it continues to perform very well and as we alluded to earlier, it also accelerated versus what we saw in q1. So, uh, it's really International for us. Broadly is just doing really well.

Thank you for your question.

Hi, good morning, congratulations on the quarterly and just so much of the prepared, remarks talked about the durability of growth and the compounding of your product Cycles as numbers. Get bigger we as analysts we tend to model flowing growth as companies scale and that's really not happening when I look at your organic growth adjusting for some of the 1-time items over the past couple years. So my question for both of you is, how do you think about the long-term growth algorithm? Do you think you can be in this north of 25% closer to 30% range for the next couple of years? Give us some caller on how you forecast internally, thanks so much. Yeah. Maybe I'll start at 100 over to Jeff to talk a little bit about some of the forecasting. You know I I think what you're seeing Gabriella is is the result of past Investments over the years. Um presumably you've picked up from the tone uh of both Jeff and Mike comments that we believe we're consistently performing quarter after quarter both in terms of Topline momentum but also in terms of managing our expenses and how we deliver profitability. Um but in terms of you know, our our Merchant acquisition that's

Accelerating, especially internationally as we mentioned, but there's also these new areas, these sort of on-ramps into Shopify, whether it's large Enterprise or its B2B point of sale. The growth Runway, we think remains long with, you know, there's there's a number of these really durable Avenues. Um including Tam expansion. I mentioned, you know, some new verticals that historically shop by never even considered going into uh like the drilling and you know mining drilling companies that are very large and dominant now coming to Shopify. I think when you add that to adding more value to our subscriptions with things like audiences and and and and and plus and B2B uh payment Innovation continues to lead

And then, in terms of some of the more, you know, some of the products that are still more early in their adoption, things like tax and managed markets, uh, we think we are really well, positioned to be at the center of, of Commerce. And, and, and certainly, you know, these multiple levers to drive our growth. We think are are are going to continue to provide it for growth uh, in the future. So we think this is the best version of Shopify. We think we're operating on all cylinders here. Um, and and we still think there's a lot of room for us to keep growing.

Yeah, I mean obviously Gabriel I'm not going to guide you to some specific growth numbers over time but to pile on to some more Harley's comments. It's really the durability of growth from Marvanne point is a function of all the different Harley to do the to what we've done over the past couple of years. In terms of introducing all new products, you think over the last, you know, 2 to 3 years in terms of what we've done with tax, what we've done with B2B how we've really reinvigorated point of sale, the international expansion, all that.

Is something, which is really helping us, uh, deliver this growth. And this is just in terms of the Tailwind. We've talked a lot in the past about what we're seeing on entrepreneurship more, broadly, uh, I think the velocity of change in these markets is actually driving more and more Merchants to our platform, given the capabilities of our platform. And we're the ones that are, uh, giving Merchants the ability to adapt to this environment. I think the overall comments in terms of e-commerce, growth rates and the penetration of e-commerce in various economies, that is obviously continuing to pick up. And we think some of the things in agent to Commerce will help that, uh, the necessity for Omni Channel, kind of what we're seeing on a global basis. There's so many things that Merchants need to do. We're expanding the products and we're expanding their capabilities to, to succeed in this environment. So we feel good about our durability durability of growth over a over a multi-year period.

Thanks Gabriella.

Our next question will come from.

Yeah, thanks for taking my question. Hopefully you all can hear me. Okay. Uh Universal cart. The checkout kit. That sounds really interesting timely because of large language models and and that is an on-ramp for shopping. Will this be generally available in time for the holiday season and and how do you think about that as we go into the the back half of the Year? Thank you.

Hey Terry. Uh, thanks for. Thanks for the question look. We've been building infrastructure to make it easy to bring native shopping into every every AI conversation for a while. Now, obviously yesterday, um, hopefully most of you saw Toby's post about how we think about the future of of, of agent to Commerce and, and just frankly conversational, uh, shopping. And so we introduced, uh, 3, new 3, new products catalog, which was launched in Q2 that's already out there, that really helps agents to search but also to serve as exactly what customers want in seconds. And so it uses these very specialized large language models to to categorize to enrichment. But also to standardize product data at these massive volumes

But that really allows you to hold items from multiple stores All In 1 spot. So that buyers can easily track all the items they want to purchase directly in the conversation. And then, of course, check out case, which you mentioned that's out there that was launched. Last year really excited that Microsoft's co-pilot is already using it, but that really lets Partners embed the merchants check it right in terms of their agent and it actually works with shop pay, but what we're trying to do here is, is just kind of 3 things from a partnership perspective. What this means for partners is we're trying to ensure that consumers get these incredibly personalized Convent shopping experiences and make it really easy for these Partners to get that easy integration from the merchant perspective, of course, you know, that means that that their products and their brand is going to show up across every AI platform. And so we are act really excited by this. Um, part of what we think is important. Uh, if you're a merchant on Shopify, is that

By by virtue of being on Shopify. Merchants and, and and Merchants are everywhere where consumers are spending time, wherever Commerce is happening. And I think, the unfair Advantage we have in working with all of these AI companies. And and, and certainly around a agentic Commerce, is that consumers have brands are all on Shopify. And when you couple that with an incredible technology stack and incredible product that we've been building. I think, you know, we we become, uh, the partner that everyone wants to work with. So it's a really exciting area for us. And most of the products that, uh, we're talking about is, is they're already out there and like I mentioned, you know, companies like Microsoft are already working with with some of them including check out kit.

Thanks for your question. Terry. Our next question will come from Reggie Smith at JP Morgan?

Hey, good morning.

Great quarter. Um, I guess quick question for me. You guys have obviously done a great job of product Innovation and consistently raising the bar and it seems like I guess to this point you haven't really priced explicitly or or specifically for for different product. Uh, enhancements how are you guys thinking about that longer term? Is there an opportunity to to almost alloc cart price for different Services, you've added, uh, over the last, you know, 18 months or so. And when could that

I think that shift happen, if if, if, if at all. Yeah. Uh, hey Richie, a couple things I'll say on that. First of all, we still believe that, you know, the business model that that we've built it's predicated on our Merchants doing really well. The better that our Merchants do the better Shopify does. I mean that's the gmv based um Revenue model and and business model. And so we really like where where that's at in terms of sort of pricing specific products. I mean you saw the introduction of Commerce components by Shopify, which effectively allows Merchants to select in a very modular fashion different products. So they may just take a check out or they may just take shop pay.

Part of the part of that is, obviously making sure that that we have individual products in Market, which which have individual pricing, but part of that is just to create more on-ramps into Shopify. So, a very large, I mean, I mentioned 3, very large retailers Burton Starbucks and Canada Goose coming. Some of these Brands want to come to us and use all of Shopify. But some of the may just want to start with us with something, like checkout or shop, pay for example, and by creating more of these on-ramps, at the Shopify,

It means more people can can come into us and we believe over time will take more of our products and services. Um, beyond that. I mean we're not necessarily pricing individual, uh, Merchant Solutions, all of those obviously are priced on their own, but it's it's part of a much larger business model which is to get as many people to use Shopify as possible to get them to use as many of our services and products as possible and then as they succeed, we succeed with them. And we think that particular pricing uh, model works really well for us.

Thank you for your question.

Our next question will come from Ken Wong at Oppenheimer.

Fantastic. Uh, Harley I wanted to touch on your partnership with openai, very exciting to see you. Facilitate that Commerce experience. Do you see this as a new gmv opportunity or or or, or just a shift from, you know, existing buying channels over to agentic shopping? Yeah. Well look, we are. Uh, as you can probably tell from my tone, incredibly excited about the possibilities of AI for both Discovery. And for shopping, uh, I'm not going to discuss it or disclose our product roadmap. Um, obviously, we're

Actively working on New Opportunities and Partnerships because we think that, you know, helping our Merchants Thrive, wherever customers are and and is very important. We'll share those updates when ready. But but we are built to partner and I I think you know, it's winning alongside others is is kind of part of shopify's core DNA. Um and that that extends to our AI approach as well, I think we're 1 of the best partnership companies when it in the technology space and something we're very very proud of. So we have great relationships with all the AI companies and and and we'll continue to to work with them in terms of where it's coming from.

And and Tik Tok. And and obviously, when we saw that, you know, more embedded video, Commerce may happen, we we integrated with YouTube and and and when culture and music became something that that where Congress was happening. Same thing with Spotify. So this is another surface area where there is a very serious potential where Commerce could be taking place, whether it takes some of the market share away from search base Commerce or not. Um, we want to be prepared for that. We want to make sure that merchants on Shopify are simply better prepared than Merchants, who are not, which is why we have all these incredible Integrations. 1 thing that we do, think that was really interesting about agentic Commerce. In particular is it's not necessarily based on

On, who is the largest company? It's based on what consumers are looking for. And the back to my point earlier, the unfair Advantage we have is that consumers favorite Brands the products. The companies they love most for the vast majority of them. They're already on Shopify. And I think that puts us in a really, really key position in terms of these Partnerships, with all these companies and, and building these incredible products. Only further, substantiates that

Thank you for your question. Our next question comes from

Yes, uh, thank you. Um, it was interesting to hear you talk about mining in Caroline Services. I'm guessing that's on the B2B side, but can you maybe help us understand the use case there, and how it may be applicable to other sort of potential other customers on that side? Yep. Part of the reason why I mentioned it, it's sort of a, you know, I like to Mint.

The large ones, I mean Michael Kors came to Shopify and and and and mle came to Shopify and and Cigna Jewelers came. And so I like talking about obviously the brands that Merchants that that consumers, know and that that all of, you know, because it shows that the Enterprise is really moving a Shopify and migrating to us uh, in this incredible clip right now. But the reason I want to bring up 1 that you may have not heard of is because it's just a, it's a new vertical. I mean, some of these industries is a historically, we did not play an automotive, for example, or education or food and beverage or industrial. We are now. Uh, we we are now seeing Merchants come to Shopify from those Industries, and we just think it, it number 1 expands our Tam it, expands the types of merchants that can come to us. But we also believe that these are opportunities for those Merchants to modernize their their Commerce, uh, you know, their Commerce technology, whether it is direct to consumer. Or in the case of

Mining drilling services on the B2B side, um, but it's just 1 new on-ramp into Shopify and we think it's a really exciting area because frankly, when you meet a lot of these industrial Brands and these very large companies selling, you know, I mean remember talking to carrier a couple years ago, who sells, you know, Heating and Cooling equipment on Shopify today. It wasn't as if they were migrating from something good to something amazing. They were migrating from effectively, you know, a technology stack that was not existent, that was still, you know, almost archaic in some ways, to this incredibly, you know, Innovative um, user user-friendly interface and and and commerce stack that allows them to be scalable and allows them to keep innovating. So we just think it's a great new opportunity for us and, you know,

Fort long year is not a company that many of you know, but it's it's a new industry and a new vertical that we can go after and we think we can win their

Yeah, Richard the only 2 things I would add, obviously, in Harley alluded to the diversification and getting into new industries that obviously helps add stability to how we think about our Merchant base, how we think about our, uh, our buyers. So that's 1 point, which we really liked about the success in B2B. And obviously, it helps strengthen the offering that we go to the largest Enterprises, the largest global brands with in terms of uh all the capabilities that we have. So we're really excited about it.

Thank you for your question. Our next question will come from Tyler radkey at Citi investment.

Hey, thank you very much for taking the question question for Jeff. So, Performance Marketing, spend you talked about that, um, ramping up in in the third quarter. Uh, I was wondering if you could just double click on kind of what specifically is driving that are you, you know, are you seeing kind of improving uh payback Trends uh this new logo acquisition opportunity, or is this more up market and then if you could also just provide an update, obviously, uh, as the initial ramp up in Performance Marketing, spend was a little over a year ago, just sort of how, uh, that's played out obviously really strong gmbb results. But just anything you could share on Payback periods and and Roi

To lead in a Performance Marketing. I do though want to make sure partly because and I alluded to this in my prepared remarks, when you compare the uh the numbers this year versus last year in terms of growth 1 of the things that we were doing this time last year was some of this testing which uh you alluded to which really helped us improve even more our models. And so there's a little bit of year-over-year comparability which goes into this and if you look at the uh operating expenses more, broadly you kind of look at quarter to quarter versus year-over-year, it's up some I don't want to make it sound like we have some man, massive ramp in marketing. We We are continuing to do more with marketing. We have uh, a lot of great markets. We want to support their specific products. They get success, we spend behind those from a marketing perspective, that fuels more success, we really think the marketing engine is working very well. I don't have on 1 of your questions in terms of their specific size or segment. We talked about this a little bit last quarter, too. I, I don't have some, we don't have some segments where we say, hey, we really need to

quote support this segment because it's behind we're pretty broad-based in Performance Marketing. In terms of how we think about, uh, again geographies products things we want to be doing. So we're supporting the growth of these, but I don't have some segments where I feel like we need to do some catch up, or we have some Courtice, excuse me, strategic agenda that we need to support. So, uh, we think our models are working very well and so we're continuing to lean into those

Thank you for your question. Tyler, our next question comes from Brad fills at Bank of America.

A wonderful. Thank you so much. Um, wanted to ask a question about the success, you're seeing up Market in the Enterprise, really impressive to see some of the logos that you signed this quarter. Has there been any change in go to market? This, this is doing the channel, uh, you know, would love to get some color as to, you know, what's driving that success from a go to markets, template, any changes there and with the focus on system integrators is that been uh uh uh benefit to that uh business as well. Thank you.

Yeah, I mean, I I don't think there's necessarily 1 thing that's leading to it. The product is incredible, the value to cost ratio is, is incredibly on the side of value. And, and more importantly, as we, you know, as we add new new, new new functionality. For example, some of the stuff we discussed around agentic Commerce, for example, these are the, these are the conversations that all of these very large retailers are having in their own boardrooms, their own management teams about where is Commerce going, and the fact that they know that if they come to Shopify, they will be future proofed. I think is, is incredible. Um, so certainly, you know, some of the stuff we're we're doing with, with Si's helps the product getting much better obviously helps. But, you know, the reason they're coming is is they see the value of of what we're doing. I mean, 1 of the cool parts of of this, uh, Commerce component play for us, is that some of these? I guess, as I said earlier, some of these Merchants, some of these very large brands are coming to simply because they see and believe in the value of shop pay and they see the conversion.

Left. And they, they, they want to have this incredible. So I already checked out the experience, and so that opens a conversation with Shopify to figure out whether or not we can do more with them. And, and once they come in the door for a Commerce component for checkout, we can begin to show them what else we can do for them. But I think part of it is we have the largest ecosystem in Commerce, we have this incredible innovation, the network keeps getting stronger, and the more, you know, again, part of the reason why I love sharing these names that are joining every single, um, you know, every single quarter is.

Because these are brands that other brands look up to. And they want to know, you know, if if mle the you know the the the high-end, you know, uh kitchen appliance company is using Shopify. Well, maybe we should be thinking about that as well and so I think this exceptional value, they're getting and this powerful platform this modern technology stack. And this this Innovation that they see us coming in the amount of velocity, we are shipped the velocity. We are shipping product with every single quarter. I mean, we ship more products at at each Shopify Edition than some of our competition. You know, ship in over over over the course of 5 years and we do 2 of those every single year. So I, I think generally this is all leading to some of the most important, some of the largest brands on the planet. Not only considering Shopify, but but coming to Shopify as well and and it's it's an area of the business. I'm, I'm incredibly excited about

Thank you for your question. And our last question will come from deepo Matthew. Vannin at caner

Are front and center. The reason that you you're hearing about all these new, you know, these new Innovative things, we're doing whether it's catalog or team virtual cart or checkout kit is because we want to make sure that we become the best partner for these AI. These ai ai companies to work with. And, and these, ah, these agents to work with. Um, so we are preparing ourselves for it. In terms of, you know, is it taking market share from a different Channel yet too early to tell? Um, but, but like we did in in, in historically, with new areas, uh, of Commerce, and e-commerce, we are prepared that if something does shift Shopify, Merchants are a better prepared, and Shopify is at the core at the center of all of that. Um, so we'll continue to see, we'll keep updating you on that. But certainly, as you're seeing the pace of innovation and products, and, and, and Partnerships that we're rolling out around agent to Commerce is, uh, is second to none.

Maybe before, uh, we just closed up here. Um, I'll I'll just finish a couple things. Uh, I said this earlier, but but hopefully, you know, you've all now picked up the tone of this call. Uh, we believe that Shopify is, is steady strong and, and, and certainly built on discipline. You know, we show up for E of every size, every single day, whether it's bfcm, or it's a random Wednesday in, in, in August. Um, but we think that we can really help merchants of of every size. Whether it's, the biggest brands, or the best entrepreneurs, we're aiming very high. We're investing early. We, we are never going to settle. But we also are seeing that. There's always New Frontier and and and you should expect it. And you should if, you know, you should expect us to, to show up there and, and be the first

Wants to reach it. We see our channels are growing our roster of incredible. Merchants keeps growing, our Global footprint keeps growing, um, and we still believe there's so much left to do. So, you know, I think you're seeing, uh, the best version of Shopify. We are really excited about where we're where we're going. We're excited about how we're operating, steady strong and, and built on discipline. And just want to say, thanks for joining the call. And, and now the team and I uh and Jeff, we're going to go back to shipping. So thank you so much.

with that, this concludes our

5 conference call. Thank you for joining us. Goodbye.