Revenue Growth: Q1 revenue increased by 23% year-over-year to $1.9 billion, marking the fourth consecutive quarter of over 25% growth when excluding logistics.
GMV: Reached $60.9 billion, up 23% from the previous year, driven by same-store sales, global merchant base growth, and strong performance in EMEA and offline business.
Shopify Payments: $36.2 billion of GMV was processed, representing 60% penetration, up from 56% in Q1 2023. Shop Pay processed $14 billion in GMV, 39% of gross payments volume.
Subscription Solutions Revenue: Grew to $511 million, up 34% year-over-year, fueled by pricing increases and merchant growth.
Merchant Solutions Revenue: $1.4 billion, a 20% increase year-over-year, despite the absence of the logistics business.
Operating Income: Reported at $86 million compared to a loss of $193 million in Q1 2023.
Free Cash Flow: $232 million for the quarter, doubling the free cash flow margin to 12% of revenue from 6% in Q1 2023.
Strategic Developments
Product Innovation: Over 400 new features and updates launched in the past two years, including editions that drive engagement and product adoption.
AI Integration: Over half of merchant support interactions were assisted or resolved by AI, enhancing efficiency and merchant experience.
International Expansion: International GMV growth outpaced North America, with significant growth in Europe and new point-of-sale launches in Australia.
B2B Growth: Over 130% year-over-year growth in B2B GMV, with significant strides in self-serve purchasing and online store orders.
Enterprise Engagement: Aggressive pursuit of enterprise brands leading to significant GMV growth in the plus and enterprise segments.
Outlook and Guidance for Q2 2024
Revenue Growth: Expected in the high teens on a GAAP basis, translating to low to mid-20s growth when excluding logistics business impact.
Gross Margin: Anticipated to decrease slightly quarter-over-quarter due to the growth of lower-margin payments business.
Operating Expenses: Predicted to increase at a low to mid-single-digit percentage rate from Q1’s $871 million, with a focus on marketing and the Summit event.
Stock-Based Compensation: Estimated at $120 million for Q2.
Free Cash Flow Margin: Expected to be similar to Q1 2024.
Long-term Strategy
Shopify emphasizes a product-led approach, focusing on innovations that provide value to merchants and thereby to Shopify itself.
The company remains committed to its mission of empowering businesses and enhancing merchant success through continuous investment in product development and strategic initiatives.
Question and Answer
Core Standard MRR Growth
Question
Why was the core standard monthly recurring revenue (MRR) growth only slightly up quarter-on-quarter, and is this indicative of merchant demand?
Answer
The small increase in core standard MRR is due to a definitional change and would have been up 5% if compared to the Q4 to Q1 period.
The merchant acquisition engine is performing well, and there is no cause for concern regarding merchant demand.
Sales and Marketing Expenses and Merchant Growth
Question
Can you provide more details on the increase in sales and marketing expenses and how it is translating into merchant and bookings growth, particularly for the 2024 cohort compared to 2023?
Answer
The sales and marketing investments are part of a deliberate strategy to drive sustained top-line growth and profitability, while also creating opportunities for future growth and strengthening the business in the long term.
Shopify is attracting a diverse range of merchants, including those in the SMB direct-to-consumer segment, as well as larger, less discretionary, B2B, and international brands.
The company’s marketing approach is data-driven, agile, and focused on product development, leading to sustained growth and profitability.
Merchant Acquisition and Shop Pay Growth
Question
Can you discuss the geographic distribution of merchant acquisitions and the payback period for these acquisitions, as well as the scale of your advertising audience this year compared to last year?
Answer
Shopify is experiencing strong revenue growth internationally, with Europe leading the way and opportunities in APAC and LatAm.
The company is underpenetrated in global retail sales and sees significant opportunities for growth in existing and new geographies.
The company is focusing on the success in Europe and will continue to expand its reach in APAC and LatAm.
Shopify’s advertising audience, particularly through its audiences feature, is a key driver of improved ad performance and customer acquisition cost (CAC) efficiencies.
The company is seeing up to 50% CAC improvements with its audiences feature.
Shopify is experimenting with a free 45-day trial for audiences to encourage merchant adoption.
The company is also seeing success with Shop Campaigns (formerly Shop Cash Offers), with early results showing increased revenue and better conversions for merchants.
Shopify Plus Price Increases
Question
Can you discuss the reaction to the Shopify Plus price increases, and how will they flow through the P&L in the second half of the year?
Answer
A majority of Shopify Plus merchants have committed to three-year contracts, indicating their recognition of the platform’s value and the company’s pricing strategy.
The price increases will impact monthly recurring revenue (MRR) in Q2 and revenue and margins mostly in Q3, similar to the standard plan pricing changes.
The impact of the Shopify Plus price increases is not expected to be as significant as the standard plan price changes were in the previous year, due to the higher percentage of merchants opting for three-year contracts.
Q2 Revenue Guidance and Factors
Question
Can you provide more details on the factors influencing the Q2 revenue guidance, such as the impact of foreign exchange (FX) headwinds and the balance between subscription and Merchant Solutions revenue?
Answer
The largest factor influencing the Q2 growth rate comparison with Q1 is the waning impact of the standard plan pricing changes before the ramp-up of the Shopify Plus pricing changes.
In addition to the pricing changes, the company is experiencing strength across all product lines, including merchant additions, payments, enterprise plus, point-of-sale, B2B, and international expansion.
There is some impact from the strengthening U.S. dollar and economic slowdown in the U.K., but these are outweighed by the overall positive performance in EMEA and North America.
Enterprise Growth and Attach Rate
Question
Can you elaborate on the factors influencing the attach rate, particularly in the context of enterprise growth, and how should investors think about the attach rate going forward?
Answer
Shopify is seeing increased traction in the enterprise segment, with brands like Overstock, BarkBox, Intersport, and Skullcandy adopting the platform for its enterprise features.
The company offers a range of solutions for different enterprise needs, including Shopify Plus, Custom Storefront Solutions (CSS), and Hydrogen, with the goal of increasing the product attach rate over time.
Over time, as merchants integrate more fully into the platform, the attach rate is expected to grow as they adopt additional solutions such as payments, audiences, and other Shopify features.
Free Cash Flow Margins and Operating Income Margins
Question
Will the trend of free cash flow margins exceeding operating income margins continue in the future?
Answer
Yes, in general, free cash flow margins are expected to remain a few points higher than operating income margins.
Shop Pay Growth and Off-Platform Opportunities
Question
Can you discuss the drivers of Shop Pay’s growth and the pipeline for off-platform opportunities in the back half of the year?
Answer
Shop Pay’s high conversion rates, with a 36% better conversion rate than competitors, and the convenience it offers to both merchants and buyers are key drivers of its growth.
The presence of Shop Pay alone on a checkout page leads to a 5% higher conversion rate, making it a compelling value proposition for brands and retailers.
The company is focused on making Shop Pay the default checkout option on the internet and expanding its availability to more surfaces.
The pipeline for Shop Pay off-platform is new but very promising, and the company is excited about its potential.
Point-of-Sale Growth and Dynamics
Question
Can you provide insights into the drivers of point-of-sale growth, the MRR contribution from point-of-sale, and the GPV dynamics between offline and online merchants?
Answer
Point-of-sale growth is driven by the continued strong performance of the retail point-of-sale business, with larger multi-location retail merchants adopting the platform and benefiting from a unified tech stack for both online and offline operations.
The company is expanding the functionality of its point-of-sale offerings, such as adding installments from the core online business and expanding into new countries.
While the attach rate for point-of-sale solutions is currently lower than for online solutions, there is an opportunity to increase it over time as more functionality is migrated to the point-of-sale platform.
The retail point-of-sale business is primarily a payments business, with a significant portion of revenue coming from payments processing and a smaller portion from subscriptions.
