But as of January 1st, we did have some pay increases go into effect for some employees. The payroll tax impact is expected to be larger than the impact of the compensation increases. Moving to stock-based compensation. SBC is expected to be $105 million in Q1 and Q1 capital expenditures are expected to be approximately $10 million. Finally, on free cash flow. We anticipate that our Q1 free cash flow margin will be in the high single-digit percentage of revenue. As a reminder, Q1 has historically been our lowest revenue quarter, so the revenue scale impacts our free cash flow margin. Free cash flow generation and margin improvements remain a key focus area for us. We expect that as our revenue scales throughout the year, balanced with operational discipline that we will be able to generate greater free cash flow dollars each quarter and that free cash flow margin will sequentially improve each quarter.
So to wrap it up, 2023 was an incredible year for both Shopify and our merchants. Our strong financial results are a testament to us executing to our road map and the progress that we’ve made building fast, reliable and unified software for merchants of all sizes. In Q4 alone, revenue grew 30% on an organic basis, and we delivered the largest revenue quarter in our history. Moreover, we delivered the largest gross profit dollars in our history and free cash flow margin hit 21%. We are executing across the board. Looking ahead to 2024, we anticipate not only maintaining our strong revenue growth into Q1, but also generating free cash flow margin that will continue to improve year-over-year. In closing, we will continue to innovate, to empower entrepreneurs and to set the standard for what’s possible in the world of commerce.
Thank you for joining us on this journey. With that, I’ll now turn the call back over to Carrie for your questions.
A – Carrie Gillard: [Operator Instructions] We will now open the call for your questions. [Operator Instructions] Our first question comes from Ken Wong at Oppenheimer.
Kenneth Wong: Hi. Great. Thank you for taking my question. I wanted to perhaps just dive into the Merchant Solutions side of things, really strong GMV growth. Did notice that take rate ticked down a little bit sequentially. Can you provide any color on the dynamic there?
Harley Finkelstein: Hey, Ken, it’s Harley. I’ll start with that one. Yes, I mean, look, attach rate was around 3% for the year, which continues to go up. That’s up from like 2.6%, five years ago or so. But over the long run, we’re focused on driving both GMV and revenue, but that doesn’t necessarily always translate to a higher attach rate. The way that we think about attach rates is that’s an output of an activity of our platform. So between attach rate growth and revenue growth, you should really focus more on revenue growth than I think attach rate. That said, we expect attach rates will continue to go up, and particularly as we create more solutions, as we expand the solutions to more — to more geographies, you will continue to see that grow.
But we think Shopify is a product company. We’re focused on making commerce better for everyone. And the velocity and the pace of innovation that we have right now will obviously help in terms of that attach rate. So you should see increase in that as well. But on quarters, for example, like Q4, where GMV is just so outsized given seasonal shopping trends, you may see a small dip from time to time, but we’re around 3% for the year, which we’re really proud of.
Jeff Hoffmeister: Yes. And the only thing I’d add to Harley’s comments exactly to what he mentioned in terms of GMV being heavy for the quarter, there was some noncash revenue, which we had in Q4, which doesn’t scale to the extent it’s more of a straight line revenue piece. So it doesn’t scale as much so that we’ll have a slight tick. That were the only reason.
Carrie Gillard: Thank you for your question, Ken. Our next question comes from Darren Aftahi at ROTH Capital.
Darren Aftahi: Hey, guys. Thanks for taking my question. Nice quarter. You guys talked a lot about point-of-sale in large retailers. I’m kind of curious, what percentage of your point-of-sale wins in calendar ’23 already had an online customer presence with Shopify versus not? Thanks.
Harley Finkelstein: I’ll take that question. Thanks, Darren. So point-of-sale, I mean it is really humming right now. We saw offline GMV for the quarter, excuse me, revenue for the quarter at over $440 million. That’s 5x what it was just a couple of four years ago. We saw outsized growth in off-line GMV, which is up 28% in the quarter as well. So in terms of where it’s coming from, we are seeing existing brands, for example, I mentioned FIGS in my prepared remarks, that are coming to us that already have a very large online presence that are now expanding off-line and so Shopify is becoming, for them, the obvious solution. But then you’re also seeing some other things happening. So when Banana Republic were launching their home stores, for example, they wanted to use Shopify point-of-sale across all this physical locations.
Saje Natural had 70 locations. This is sort of part of sort of something new that I think we’re all seeing here, which is — there are these new on-ramps into Shopify, which means that more businesses across more industries and verticals are able to actually use Shopify that historically may not have been able to. It was great to have — I mentioned this on the B2B side, but it was great to have Momofuku and Brooklinen and bareMinerals use B2B in our wholesale product because they were existing merchants already. But now getting brands like Carrier, the heating and cooling company to come in specifically for B2B or seeing, as I mentioned, Banana Republic Home coming in specifically for physical retail, those are new on-ramps into Shopify, which we think there’s a few things.
One, it expands our TAM and our ability to help more merchants and more verticals, but also it means that existing merchants that are honest, if they do have other products, we want to really collapse more of those tabs in that browser. So the entirety of their commerce business on Shopify. So it’s a mix in terms of POS. B2B, of course, is still very new. We’re beginning now to see B2B exclusive merchants come on. And then in terms of the enterprise question, that’s also really humming. We’ve had a great year for enterprise retail. We’ve seen very, very large brands. I mentioned some of them on the call in the prepared remarks, brands like Nike Strength and companies Roxy, Quiksilver, On Running, Oscar de la Renta, these are brands that historically did not always think about Shopify.
And now because we have a multiple of options around enterprise, whether it’s composable of CCS, or it’s Shopify Plus or even our headless product with Hydrogen, it means we have something sort of for everybody that needs great product, great software for the future of their retail business. And I think all of those are really aligning with a very strong go-to-market effort right now.
Carrie Gillard: Thank you for your question. Our next question comes from Terry Tillman at Truist Securities.
Terry Tillman: Yeah, thank you for taking my question. Jeff, it’s actually a question for you. In terms of Shopify Plus and the pricing changes that are going to go into effect both for new and existing customers. Can you shape a little bit how the impact would be in Subscription Solutions revenue, whether it’s 3Q or 4Q in terms of just trying to understand the timing and how that will show up? And then the second part of this is, how are you thinking about the assumption around customers committing to three-year contracts, existing versus one-year contracts? Like what are you assuming there? Thank you.
Jeff Hoffmeister: Yes. I like the way you asked the question because you recognize that most of this will come in the latter half of the year because obviously, it’s similar to what we did with the changes in pricing for standard last year. There’s a different timeline for new merchants versus existing merchants and really full effect of this will go into course in May. It’s just, as you know, it’s literally just days since we’ve announced it. So it’s too early for us to give you exact numbers, percentages in terms of how we’re thinking about it for the year. Like Standard, there’s going to be a few different things that are going to play into this. One is just what percentage lock it in early. And obviously, part of it is going to be to the extent that there’s any merchants that choose not to upgrade which obviously, based on what we saw in Standard was a very small percentage, and we’re hoping and expecting to see something similar here.
And so that’s just going to be a question which until that plays out, I just don’t have a whole lot for you right now. But we are still convinced, and this has been the case for a very, very long time. We still believe that by far, we are delivering the greatest combination of value and power to the platform that merchants can get anywhere. So we expect to have our merchants vote again with confidence in terms of staying on the Shopify platform. But I just — as we get later into the year, we’ll be able to give you a better perspective on it. But right now, it’s, again, just a few days in.
Carrie Gillard: Thank you for your question. Our next question comes from Dan Chan at TD Securities.
Daniel Chan: Yes, hi. Good morning. So we saw some of the credit card networks talk about lower volumes in January, but your revenue guide suggests that you may not have seen that. Any color around any seasonality or weather impacts in January? Thank you.
Harley Finkelstein: Hey, Dan, I’ll take that question. In terms of the macro, one of the things we’ve seen at sort of a high level is that consumers last year and certainly now still want to buy from their favorite brands, the brands they love and they have an affinity to versus staples. And obviously, we do well when those consumers go with their wallets to buy from those brands. Most of those brands, not all of them are on Shopify. And so we’re not seeing big changes in the factors that I think fueled our success. We think that entrepreneurship remains strong. We see that the consumer remains very resilient. But more importantly, you’re seeing this intentionality to purchase from brands that consumers really have a connection to. And as I’ve been mentioning on this call, we have a lot of them already and we’re getting more and more of them every single day.
Carrie Gillard: Thank you. Our next question will come from Deepak Mathivanan at Wolfe Research.
Deepak Mathivanan: Great. Thanks for taking the question. Jeff, the first quarter OpEx guide implies slightly faster growth than recent trends, is marketing the primary element of it, how should we think about the fixed cost growth for the rest of 2024? Thanks so much.
Jeff Hoffmeister: Yes, as I — thanks, Deepak, as I mentioned in my comments earlier in the call, it’s pretty — in terms of the increase from Q4 to Q1 OpEx, it’s pretty evenly balanced with marketing to be a little — being a little bit higher than what we saw in the employee-related expenses, and I talked to you both of those. From a marketing perspective, we’ve really put a lot of effort in getting us into the new size and shape of Shopify, and we’ve been doing this over multiple quarters. So headcount has been essentially flat since the end of Q2. And it’s — even in these quarters that we’ve been able to deliver top line growth, which has been greater than 25% on an organic basis ex logistics. And as you know, we were very disciplined on marketing spend throughout 2023.
