Shopify Inc. (NYSE:SHOP) Q3 2023 Earnings Call Transcript

Shopify Inc. (NYSE:SHOP) Q3 2023 Earnings Call Transcript November 2, 2023

Shopify Inc. beats earnings expectations. Reported EPS is $0.24, expectations were $0.15.

Carrie Gillard: Good morning. And thank you for joining Shopify’s Third Quarter 2023 Conference Call. Harley Finkelstein, Shopify’s President; and Jeff Hoffmeister, our CFO, are with us today. 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. We undertake no obligation to update these statements except as required by law. You can read about these assumptions, risks and uncertainties in our press release this afternoon, as well as our filings with the U.S. and Canadian regulators. We’ll also speak to adjusted financial measures, which are non-GAAP and not a substitute for GAAP financial measures.

A person browsing the world’s largest e-commerce marketplaces for the perfect product.

Reconciliations between the two are in the tables at the end of our press release. And finally, we report in U.S. dollars. So all amounts discussed today are in U.S. dollars unless otherwise indicated. With that, I will turn the call over to Harley.

Harley Finkelstein: Thanks, Carrie, and good morning, everyone. We are here to discuss our latest quarterly results, which reflect Shopify’s continued growth and commitment to empowering businesses around the globe. Our Q3 results should be taken as a clear indicator of our ability to reshape Shopify, making us faster, more agile, and ready for sustained profitable growth. GMV was up 22%, revenue was up 25%, gross profit was up 36%, and free cash flow margin was 16%. Simply put, we executed extremely well in Q3, delivering results that reflect the power of our Merchant First business model and the progress we are making to further solidify Shopify’s position as the global leader in commerce. At Shopify, we excel in the face of change.

It’s embedded in our DNA and inspires us to continually learn, innovate, and deliver more products to make commerce better for everyone. In the past six months, I’ve talked about how the wider commerce landscape is rapidly changing and how Shopify has adapted to this, operating with greater discipline and efficiency to ensure our merchants have the tools they need to navigate any macroeconomic environment. The trust we have built with our merchants combined with our growing scale highlights the power of our platform and gives us increasing opportunities to deliver even more value to our merchants. From small local retailers to large global corporations, Shopify is helping them achieve even greater heights of success. So, let’s dive in to the key accomplishments in the quarter as we continue to execute on the massive opportunity ahead, supercharging merchants of all sizes to sell to anyone, anywhere and always.

Starting with product. No other platform has built for every facet of commerce like Shopify has, whether it’s online or in person, SMB or enterprise, direct-to-consumer or wholesale, domestic or global. We are multidimensional and moving quickly to expand our unified commerce platform to not only remove barriers for merchant success, but also to help them thrive. From AI to Checkout to Shop Pay, we are making the hard things easy and everything else possible. At Shopify, we believe AI is for everyone, and its capabilities should be captured and embedded across the entirety of a business. We’ve integrated Shopify Magic, our suite of free AI-enabled features across our products and workflows, and merchants are already finding success with unblocking productivity and creativity.

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Q&A Session

Shopify Magic can take the power of Shopify and a merchant’s own data to make it work better for them. Whether it’s enabling unique personalized page and content generation, like instantly crafting an ‘about us’ page in your brand voice and tone or building a custom page to showcase all the sizes available in your latest product collection. We are equipping businesses with more ways to enhance their workflow and streamline daily operations so they can focus on what matters most, growing their business. Moving on to Shopify Checkout. We continue to invest into building the most seamless, secure and efficient checkout experience for our merchants. Since launching Checkout Extensibility, our new way to customize Shopify Checkout last year, we’ve seen improvements across our merchant base.

It is more adaptable, loads faster and converts better. Designed to handle high volumes, it is ideal for the world’s largest flash sellers like the iconic brand Supreme. Its approach to extensibility is fully compatible with Shop Pay, making it the world’s first completely customized one click checkout. And, all these customizations are upgrade safe, so merchants never have to miss out on the latest features and optimizations we release. Since launch, we’ve exponentially expanded our suite of APIs, components, and capabilities, and seen over 400 checkout apps in the Shopify App Store that supports checkout extensibility. Throughout the quarter, more brands are using checkout extensibility to leverage its enhanced flexibility, performance, and capabilities.

We now have consumers’ favorite brands like Ruggable, Thrive Cosmetics, and MrBeast, and thousands of others using our checkout extensibility with more transitioning over every day. In September, we launched the new one-page checkout, a significant change to our checkout experience that underscores our commitment to creating an experience that is not only fast and streamlined, but also more enjoyable for the buyer, ultimately leading to higher conversion. In just two months, we’re already seeing one-page checkout speed up buyer completion time by an average of 4 seconds. That is a huge achievement considering its potential to boost customer acquisition, sales, and brand loyalty. As I mentioned earlier, checkout extensibility is fully compatible with Shop Pay, making it the world’s first completely customizable one click checkout.

With over 100 million buyers already using Shop Pay, it’s increasingly become the go to choice for consumers, getting popularity over guest checkout and credit cards. In the quarter, Shop Pay facilitated $12 billion in GMV, an increase of 50% year-over-year and cumulative $110 billion since its launch in 2017. Surpassing the $100 billion mark on Shop Pay was a significant achievement for the team, but we have our sights set on further establishing Shop Pay as the preferred accelerated checkout method across commerce. It’s a tool that retailers, large and small, on platform and off, will continue to seek out given Shopify’s overall conversion rate outpaces the competition by up to 36%, and on average, 15% more than others. From embedding AI into our solutions, to optimizing checkout, to expanding the availability of Shop Pay, these are just a snapshot of the wide array of waves Shopify is making it easier for merchants not only sell locally, but globally.

Cross-border GMV was approximately 15% of total GMV in the quarter. And in late September, we successfully launched Markets Pro to general availability in the U.S., attracting thousands of merchants to this new product offering. Markets Pro takes on the most stressful and time consuming elements of international transactions, so our merchants don’t have to. As a fully integrated merchant of record solution, it is built on top of markets. Markets Pro is a great option for merchants looking to scale to new countries quickly without having to navigate international tax compliance or fraud while tapping into the best-in-class international shipping options with prepaid duties. Since the rollout, the product has become one of the fastest growing e-commerce merchant of record providers, and we cannot wait to expand its accessibility to other countries beyond the U.S. in 2024.

Our primary focus for international remains centered on extending Shopify’s products and capabilities to enhance the merchant experience in every market. This includes things like launching shipping guidance for merchants, navigating them through streamlined privacy guidance, initiating localization experiments across various marketing channels, and bringing localization tools and AI-backed language translations to the Shopify App Store. And it’s working. In Q3, similar to the first half of the year, we delivered considerable GMV and merchant growth in key European markets like Germany, France, and the UK with GMV in these three markets growing greater than 2x GMV for all other geographies. With our growing international and cross-border tools, we are increasing the ways for merchants to reach customers in new markets with ease.

And with our growing network of partners, merchants can offer their products on even more channels and surfaces. It is this increasing optionality and integrated ecosystem that separates us from everybody else. We offer an agile and scalable platform that can open and scale to a 1,000 physical retail locations. Turn on social channels like TikTok, YouTube, and Instagram with the click of a button; expand to wholesale via Shopify Collective or our B2B solution; connect and sync data with multiple marketplaces like Walmart, Amazon, and eBay through our Marketplace Connect app. And all of this can be done within Shopify, giving brands a single centralized place to reach a larger base of customers anywhere, anytime, and always. Within retail, our go-to-market efforts continue to yield strong results.