Shopify Inc. (SHOP) Q1 2019 Earnings Report, Transcript and Summary

Good morning. My name is Lisa, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Shopify Q1 2019 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Katie Keita, Head of Investor Relations, you may begin your conference.

Thank you, operator and good morning everyone. We are glad you can join us for Shopify’s first quarter 2019 conference call. We are joined this morning by Tobi Lütke, Shopify’s CEO; Harley Finkelstein, our Chief Operating Officer; and Amy Shapero, our CFO. After 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 risks and uncertainties in our press release this morning as well as in our filings with U.S. and Canadian regulators. Also our commentary today will include adjusted financial measures, which are non-GAAP measures. These should be considered as a supplement to and not as a substitute for GAAP measures. Reconciliations between the two can be found in our earnings press release, which is on our websites. Finally note that, because we report in U.S. dollars, all amounts discussed today are in U.S. dollars unless otherwise indicated. With that, I will turn the call over to Harley.

Thanks, Katie and good morning. Shopify is off to a great start in 2019 delivering strong results in our first quarter. Merchants of all types and at all stages of their commerce journey continue to start grow and successfully run businesses on Shopify from early-stage entrepreneurs, to established businesses, to merchants in a variety of verticals and geographies. We continue to attract such a wide and diverse range of merchants to our platform, because we put the best interests of our merchants at the center of everything we do. Today, I'd like to focus my comments on three areas, our platform, Shopify Plus and our partner ecosystem. We continued to strengthen our core platform in the first quarter to help merchants of all sizes sell more and sell more efficiency. We launched new marketing capabilities focused on smaller merchants such as Facebook dynamic product ads, a retargeting tool that we've built in to our merchants marketing dashboard, which means that smaller merchants can save valuable time creating ads reach more potential buyers and increase conversion to sales. We also introduced Store Switcher a tool that creates a better experience for brands that run multiple shops simultaneously. Similar to marketing, frictionless commerce is another highly effective catalyst for GMV, which is why we support Google Pay, Apple Pay and of course why we built Shopify Pay. Shopify Pay which is our own accelerated checkout product has expanded rapidly since it launched two years ago. $3.4 billion of GMV has been processed through Shopify Pay since then with GMV processing in Q1 more than doubling relative to the same period last year. With nearly 30 million buyers opting-in the number of orders processed on Shopify Pay has also more than doubled year-over-year to over 10 million transactions in the quarter. Shopify Pay is quickly becoming one of the best ways for buyers to check out online. And more importantly, it's making checkouts faster for our merchants. On a personal note, it took me less than 20 seconds to buy my latest pair of Allbirds using Shopify Pay from initial landing on their store to receiving a confirmation of a completed checkout. It is by far the best and fastest checkout I've ever experienced. Multi-channel selling remains one of our core value propositions, one that is evolving with the merging of online and offline commerce. Through our partnership, with the innovative concept store Showfields are powering new retail experiences by giving some of Shopify's rising digital native brands and merchants the opportunity to sell their products in person using Shopify point of sale. Aligned with our brick-and-mortar efforts we also released the Tap & Chip point-of-sale reader last week further enhancing the merchant and buyer physical retail experience. Moving to Shopify Plus, which had a fantastic quarter benefiting from a strong sales team that's constantly improving, as well as a strong mix of upgrades validating, our strategy of developing the widest funnel for new entrepreneurs that can grow really large on our platform, without any limitations. Merchant adds in the first quarter, which is typically a slower period nearly matched merchant adds in our fourth quarter, typically a stronger period. This momentum reaffirms the strength of Shopify Plus's value proposition, which more larger-volume merchants are beginning to recognize. Brands across a variety of verticals choose Shopify Plus to help them manage the increasing complexity of their businesses while also leveraging the agility, flexibility and cost-effectiveness of our platform. Shopify Plus brands that launched this quarter included fashion labels such as; Betsey Johnson, Levi's and Hudson Jeans; celebrity brands like, Reese Witherspoon's, Draper James brand; the toy company Hasbro; publishing house, HarperCollins; personal transportation company, Segway; and even more brand-specific shops from consumer packaged-goods companies like Johnson & Johnson and Procter & Gamble. We remain focused on further solving the business complexity experienced by companies selling at scale by understanding the specific needs of these businesses and improving our product market fit. In our first quarter, we continued to enhance enterprise-level features such as templates for Shopify Flow, our integration tool that connects applications and automates repetitive tasks. We also launched multi-currency for Shopify Plus merchants using Shopify Payments enabling these merchants to sell in multiple currencies and get paid in their local currency. While it's still early multi-currency has gotten off to a solid start and is a great example alongside Fraud Protect of the multiple ways we're able to add incremental value to our merchants. And finally, turn to our partners. Our partners play an incredibly important role in our merchant success and our partner ecosystem remains strong and continues to grow. Our partners added more than 200 apps in Q1 bringing the number of apps in our app store to more than 2,700. And a growing number of our partners continue to recommend and build on Shopify with more than 19,000 partners having referred merchants to Shopify over the past 12 months. Over the years we've built a healthy community of partners that have added tremendous support and value to our merchants. It took us nine years to pay out the first $100 million to app developers and just 12 more months to double that number to $200 million paid out. We continually work to nurture and shape the development of this ecosystem to encourage the best possible merchant experience. As we grow in our core and international markets, our partners will continue to play a vital component in our journey. We are excited to come together with our partners at our Unite conference in June to share more of our product roadmap and keep working towards a future that empowers merchants all over the world. Placing the merchant at the core of our decision-making is critical in achieving our mission which is to make commerce better for everyone. This means that we will continue to work relentlessly to give merchants the tools, knowledge, opportunities and support they need to help them make the best decisions for themselves and for their buyers paving the way towards long-term health and success.

Thanks, Harley and good morning, everyone. Our stellar first quarter results reflect the diversity and strength of our growth drivers and the solid execution of our strategy. We grew revenue approximately 50% year-over-year to $320.5 million. Subscription solutions revenue expanded 40% to $140.5 million driven by monthly recurring revenue growth of 36% to $44.2 million. We achieved record net new MRR in Q1 driven by strong merchant adds across our core and Plus subscription plans. The pace of merchant adds from international accelerated in Q1 powering net new core MRR, while Plus merchant growth also increased its contribution to MRR accounting for $11.3 million or 26% compared with 22% of MRR in Q1 of 2018. Subscription solutions revenue grew faster than MRR in the quarter due in part to strong growth in app and Plus platform fee revenue, which is not included in MRR. Merchant solutions revenue grew 58% over the same period in 2018 to $180 million. This growth was driven by GMV expansion which increased 50% year-over-year to $11.9 billion benefiting from our ongoing investments in international growth and Plus. Continued penetration of Shopify Payments shipping and capital also contributed to merchant solutions revenue growth. $4.9 billion of GMV was processed on Shopify Payments in Q1, an increase of 65% versus the comparable quarter last year. Shopify payment penetration of GMV grew to 41% in the first quarter versus 38% in Q1 2018 as Shopify Plus increased its share of gross payments volume and payments adoption increased internationally. Quarter-over-quarter, however, gross payment volume penetration remained relatively flat. This is partly driven by a seasonally lower mix of credit cards in the Q1 versus Q4 as well as by a greater mix of GMV in the quarter coming from international. In fact, GMV from international was nearly twice what it was in Q1 of 2018. Capital and Shipping also experienced solid year-over-year revenue growth. Shopify Capital had a nice funding milestone in the first quarter, surpassing $500 million in cumulative financing. Shopify Shipping rolled out pricing that is more favorable to merchants on our USPS offering, which we believe will help our merchants provide a better experience for their buyers and drive shipping adoption over the long-term. During the quarter, the percent of eligible merchants using Shopify Shipping grew to above 40% versus one-third of eligible merchants in the comparable period last year. Gross profit dollars grew 46% from Q1 of 2018 to $180.3 million, as merchant solutions revenue which carries lower gross margins grew within the revenue mix from 53% to 56% of total revenues. Adjusted operating loss in Q1 was $1.4 million or 0.4% of revenue compared with $0.2 million or 0.1% of revenue in the first quarter of 2018. We achieved a better-than-expected adjusted operating loss in Q1 relative to February guidance due in part to a later start than we first anticipated of our brand campaign, which I hope you have all gotten to see by now. Adjusted net income for the quarter more than doubled to $10.3 million or $0.09 per share over income of $4.2 million or $0.04 per share the same period last year. Finally, our cash, cash equivalents and marketable securities balance was approximately $2 billion generally consistent with the balance at the end of 2018. Inspiring entrepreneurship, removing barriers to commerce and helping merchants thrive in a competitive environment are core to our merchant first philosophy, all of which are investment-focused areas aimed to achieve. Harley spoke about our achievements related to continued investments in platform and Plus. I will cover our accomplishments in newer investment areas international and Shopify brand starting with international. Momentum continued to build in our international efforts in the first quarter as we further localized the platform to improve product market fit, translated the partner dashboard into six new languages to expand the partner ecosystem and added tools to reduce the friction presented by cross-border sales. Our efforts are clearly paying off, as our mix of international merchants relative to total new merchant adds reached a new high in Q1 and their contribution relative to overall GMV continued to expand. With our international localization efforts just over a year old, we are still very much in learning mode paying close attention to the idiosyncrasies of each geography, and adjusting our approach as needed to optimize product market fit. Once we achieve that, we can expect GMV and take rate for international merchants to be more comparable with those in our core geographies, and we are making progress. This quarter we plan to launch Shopify Payments in The Netherlands, which features an integrated local payment method that allows for bank transfers, which are more popular there in addition to credit card payments. Over the past week, we launched a beta of Shopify's platform to some of our existing merchants in simplified Chinese and Dutch. Stay tuned, as we plan to introduce several more new languages over the coming months. Now turning to brand, on April 15, Shopify launched its first ever brand campaign in 12 markets across North America. This campaign runs until mid-July and includes television, digital video, radio, social and out-of-home advertising, so keep your eye out for our billboard and subway ads on your way to work. We're excited to have kicked off this initiative to reach a far greater number of potential merchants, catalyze the next generation of entrepreneurs, and as a result increase brand awareness of Shopify. With our campaign launching in April, most of our $30 million of brand spend will now be largely distributed over the last three quarters of the year. Our merchants not only create and sell amazing products, but their journeys to launch and sustain those businesses are truly inspiring. Since launching Shopify Studios in January, we've released a range of pieces, featuring the struggles and triumphs of Shopify merchants and exploring themes in commerce, such as women and entrepreneurship and the hidden layers of commerce behind everyday industries and products. We've had an incredible response to the content published to-date and we're excited to continue telling these stories that demonstrate the spirit and resilience of entrepreneurs. All-in, we are pleased with our performance in the first quarter and expect the momentum with which we've kicked off the year to continue throughout 2019. As a result, we are raising our expectations for our financial results for the year. We now expect revenue for the full year to be in the range of $1.48 billion to $1.5 billion and an adjusted operating income ranging between $20 million and $30 million. For the second quarter, we expect revenue of $345 million to $350 million and an adjusted operating loss between $6 million and $8 million. Stock-based compensation in 2019 is still expected to be approximately $160 million for the full year with about $40 million of this in the second quarter. Our growth factors remain strong, as entrepreneurs around the world look to Shopify to launch and grow their businesses. Our priority investments this year in international growth, brand and product expansion are all the right ones that we are confident will continue to attract merchants to Shopify, increase our share of wallet and power merchant success well into the future. With that, I'll hand the call back to Katie.

Thank you, Amy. Before we launch into your questions, I'd like to remind everyone to please limit yourself to one question. That way we'll have time to take a question from each listener today. With that, Lisa, can we have our first question?

Thank you. [Operator Instructions] Our first question comes from the line of Brad Zelnick from Credit Suisse. Your line is open.

Excellent. Thanks so much and congrats on a great start to year and all the innovation that’s happening at Shopify. Harley, we noticed some of your largest customers are now using Instagram Checkout. How should we think about the balance of cooperation and competition with some of your largest partners?

Hey, Brad. Thanks for that question. We've always said this, with every new channel that comes to market, whether it's a social media platform or a new marketplace, what that does is it makes Shopify more valuable as a retail operating system. Again, our entire objective here is to reduce complexity and simplify running a business and so more channels means our merchants can sell in more places. And so, what Shopify does as a retail operating system, is allow our merchants to run across as many channels as they want. From an economics perspective, of course, we also make sure that we capture economics through rev shares with our partners that we allow our merchants to sell through, which is important to us. But again, with every new channel, we think the Shopify retail operating system, product and offering gets better and better.

Awesome. Thanks.

Great. Thank you, Brad.

Our next question comes from the line of Ken Wong from Guggenheim Securities. Your line is open.

Great. Thanks a lot for taking my question. I saw you guys launched the new Tap & Chip reader and also some new POS hardware. Can you maybe just give us a sense for, kind of, what your strategy is going forward on the physical POS side and perhaps what are some of the competitive advantages you guys have against competitors such as Square and Clover? Tobi Lütke: Yes. Hi Ken. This is Tobi. It's a really important part of our business, the second-largest channel after Girl Next Door, Gillie. So - and it's something we wanted to do really well for a long time, but it just -- we are just sort of getting -- like growing into the size of a company where we can be focused on multiple things at the same time. So you saw a lot of things around point-of-sale and you will probably see a lot of other things around this segment in the future. Because I think one of the things which was pretty clear pretty early -- remember Shopify started after I tried to build an online snowboard store, which was a little bit early for a new business started online, but this is now the norm. We see a lot of our customers starting new businesses and many of the largest stores are less than 10 years old and as everyone's looking around for opportunities, Internet marketing is starting to get pretty pricy and funnily enough, expanding offline, so to speak, expanding to brick-and-mortars is starting to look really good from a cost of acquisition perspective. So there's lots and lots of reasons that are pushing retailers back to the retail stores. And this is something which is just enormously complicated, unless the software really, really makes this easy. To Harley's point, you need a unified system to run a business across multiple channels. It is really, really, really difficult to add a new channel in the old model of single -- what did we used to call them? Single-instance software or whatever like just separates software for different channels was the norm before Shopify came around. So we want to support this move offline as a business strategy and make this really easy and allow our merchants to just look really, really good in their retail stores.

Great. Thanks, Tim.

Our next question comes from the line of Colin Sebastian from Robert Baird. Your line is open.

Thanks. I'll have my congratulations on the strong start of the year. Just a question on the incremental gross margin in merchant solutions. That dipped a bit, so I was just hoping you could describe some of the moving parts there. I think Amy suggested that there was maybe some pricing changes that occurred if you could go through those? Thank you very much.

Good morning, Colin. With respect to merchant solutions margins in the first quarter we did see pretty consistent performance quarter-over-quarter, but we did see a decline year-over-year from the first quarter of 2018. If you recall in the first quarter of 2018 we saw a one-time favorable billing adjustment from Payment partners. That makes comparability year-over-year difficult. We also saw a year-over-year decrease in the Shopify Payments margin as we continue to grow Plus adoption which has a smaller margin than the overall. We should see going forward in the second quarter an improvement in merchant solutions margins as we see some volume discounts kick in, so I think you'll see that start to shift in the second quarter.

Thank you.

And our next question comes from the line of Kevin Krishnaratne from Paradigm Capital. Your line is open.

Hey there. Good morning. Very encouraging pace of adds in international. Are you able to talk about any changes in merchant metrics in your international markets as you are rolling out local payments and language? I'm thinking any commentary on changes to the GMV per merchant ARPU or even things such as merchant engagement on the platform?

I can talk about some of the metrics. As you can imagine, when you're entering new markets, we're working on product market fit and that's why we're investing heavily in localization in some key markets. Initially GMV per merchant is going to be lower than the average and take rate will be as well. While the availability of merchant solutions is prevalent, it's limited in some markets or non-existent in some other markets. But over time, we think those will migrate up more towards what we're seeing in our core merchants in our core geographies. In terms of usage of the platform I don't know Harley, if you want to add anything, but we are seeing a significant -- over 100,000 merchants using the platform in a language other than English, so we think it's very encouraging the continued attraction to the platform and the new languages that we've rolled out. Tobi Lütke: Yes, I think it's important to remember that Shopify in its core markets is a product that has been local on product market fit for 15 years and in any given market, it might be less than a year, so it's going to take a while to get fully up to speed. I use Shopify in German right now which is cool that I finally can do that. And it's really good, but every once in a while I send a little note to the team saying hey this part is a little bit funnily worded and so on so it's a process. All the metrics will go up as the product matures in any individual market.

Thank you very much, and again congrats on a good quarter.

Thanks, Kevin.

Our next question comes from the line of Darren Aftahi from Roth Capital Partners. Your line is open.

Hey, good morning. Thanks for taking my question and congratulations. I just wanted to ask you kind of called out strength in both existing and upgrades on Plus. I'm just kind of curious whether that mix skewed towards existing client upgrades or new clients on the platform in the quarter. Thanks.

Hey, there. I'll take the question. It's Harley. As usual, we're seeing a majority of the new adds to Plus come from new to the platform. That being said, it's really important that merchants that are doing really well on Shopify do upgrade to Plus and we have a process and a team in place to ensure that happens. But more than half of the new adds to Plus in this quarter came new to the platform which is real exciting for us. The other thing that I mentioned in my earlier remarks is that the variety of merchants coming to Plus now is really interesting. We're seeing not only large CPG's that are building specific brand stores, but we're seeing companies like Levi's and Betsey Johnson and Hasbro. Companies like Hasbro have never really sold direct to consumer before and we're seeing that all happen on Shopify Plus, which is really great for us. And so I think you'll continue to see the majority of the Plus adds come from net new, which is great but we have a very healthy upgrade path which is really what – it's really important to us. We want to make sure that the homegrown success stories have a place to grow into as they get really big on Shopify so they never have to leave and I think we've done a good job of that.

Thanks, Darren.

Our next question comes from the line of Justin Furby from William Blair & Company. Your line is open.

Thanks, guys and nice start to the year. Harley, I guess maybe for you it seems like revenue from the third-party apps had another really solid quarter and as that becomes a bigger and more important contributor to growth, I'm just wondering, how your discussions with partners around monetizing the platform has evolved over the last few years? Thanks.

Thanks for the question. Yeah, I would say that, the partner ecosystem has never been healthier. It is thriving. The Shopify app store has become the go-to-market strategy, almost entire go-to-market strategy for any applications or third parties that are building applications and software for the retail and for the commerce space so we're real excited about that. One number that of course I posted about earlier was that it took us a long time to get to – almost nine years to get to $100 million in paid out app store rev share and it's taken us 12 months to get to that second $100 million to get us to $200 million, so I think that's really exciting for us. In terms of the dynamics I think the relationship we have with our partners is really great. I mean, we have some expectations that are all about experience and making sure that the merchant experience is always the best it can be and generally we've had a really great discussion and dialogue with these partners to ensure that that continues so I don't think there will be any slow-down there. We've added a couple hundred new apps. Again, the idea of the app store is not to have every app out there on the app store, but rather to have the most important apps to make every merchant have full product market fit regardless of the intricacies and complexities of their particular business and in that case I think we're doing really well. And then of course, on the referral side in the last 12 months we've seen 19,000 partners bring in new merchants and refer merchants to Shopify which is really fantastic and so that will continue to grow.

Great. Thank you.

Thank you, Justin.

Our next question comes from the line of Samad Samana from Jefferies. Your line is open.

Hi. Good morning. Thanks for taking my questions. Great quarter. So Amy we saw on the company's website that Shopify is paying 1.5 times the standard revenue share to partners so 30% into perpetuity instead of 20% for stores in international, I think Germany, France, Japan and Singapore. So I'm curious if that's been a factor in driving the acceleration in international adds and how long the company plans on keeping that higher commission payout rate going. And any thoughts would be helpful. Thank you.

Yeah. From a partner perspective, obviously we mentioned earlier that we've gone ahead and we've done things like translated the partner dashboard inside of Shopify. We want to encourage the creation of new and scale partner communities around the world internationally. It's really important for us for the future of the company. And as partners have always been really important to Shopify in our sort of English-speaking countries we think that's going to be the case internationally too. So we're making it easier for them to not only learn about Shopify, but also to build really big businesses around Shopify, so things of course like increased rev share and obviously making sure that we're talking to them in their language that they speak. That's all really important. The other thing that you'll probably see is you'll see more experimentation. In certain geographies, we'll decide that we want to go ahead and we want to get really aggressive in terms of getting more partners on. In other countries, we feel like we already have pent-up demand and may not need to do that. So I would say that, generally that sort of growth strategy is young still and we're continuing to learn more about different partners in different geographies, and so we want the freedom to experiment as we need.

Great. Thanks, Samad

Our next question comes from the line of Deepak Mathivanan from Barclays.

Hi, guys, thanks for taking the questions. Following on Brad's question from earlier, without going into specifics, how different is the economics when a merchant uses Instagram Checkout versus your own checkout solutions like Shopify Payments? And on a related note, how big is the volume for your merchants generated through Instagram currently? Thank you so much.

Hey, it's Harley. I'll take that question again. So as I mentioned earlier, we think more channels whether they're social media marketplaces or they're -- excuse me -- social media platforms or they're marketplaces that means our merchants can sell more. And so although it doesn't necessarily come -- it may not be processed through Shopify Payments what we do is we work with these partners who are very excited to work with us because we bring on so many amazing merchants and products to their platforms and to their marketplaces, we ensure that we have the economics in place that therefore we can capture upside as well. So it doesn't necessarily fall into the same revenue bucket per se, but certainly it does allow us to capture upside when we talk to these partners. And while I can't go into specifics on individual partner agreements just it's important to know that we have the economics in place that allow us to grow when our partner sells -- when our merchant sells more.

Okay. Thanks, Deepak.

Our next question comes from the line of Ross MacMillan from RBC. Your line is open.

Thanks so much. My congratulations as well. Thanks for all the detail on international. Amy I think you mentioned Chinese language receiving Mandarin support, and we noticed that you have been hiring locally in China on maybe a limited basis, but nonetheless hiring there. I'm just curious either from Tobi or Harley if you can just talk to us a little bit about your thoughts around China as a market given its size, but given how different it is in many ways from other certainly Western markets. Thanks. Tobi Lütke: Yeah, okay. I'll take the question. Where to start, right? So what we are seeing basically -- I mean, we're seeing a lot of interesting things in China. As a product person I think it's a very, very important market to study because I think we increasingly see innovation especially in our space come from there. More specifically from a numbers perspective, the thing that's working excellently is export from China, right. There’s a lot of Chinese brands now out there, which are trying to go global and do so directly, and so we have worked with them. They are seeing significant success using the Shopify platform just because I mean, obviously, we are global. People are using us all around the world, which is exactly the need that Chinese exporters are looking to get fulfilled and so that is a market, which we are looking at.

Okay. Thanks a lot, Ross.

Our next question comes from the line of Josh Beck from KeyBanc. Your line is open.

Thank you for taking the question. I wanted to ask about this multi-currency feature on Shopify Payments that you introduced. Do you see this as an opportunity to increase cross-border sales for merchants? And does this improve your confidence in ramping payments among the Plus category? Tobi Lütke: I mean, that's pretty much exactly it. We want -- again what Shopify does best I think and usually when Shopify becomes more important for customers and gets more customers switching and so on is when it takes something that's really, really hard and makes it somehow easier because really, I mean basically at a certain point all merchants want to do the same, they want to run global, widely profitable business, right? And so especially around global that's hard. It's hard for us, there’s 5,000-people company something like this and we are trying to go global ourselves with our product and our customers are wanting to do exactly the same thing. Now it's a little bit of a different issue but cross-border selling is this year's challenging and accepting currencies are under good to see as challenge and showing up in the right language and all these kinds of things. So this is new for us and it's not going to be done overnight but like helping our customers go global themselves and riding the coattails a little bit on anything we've been figuring out on our own journey is one of those areas where we can take something that would have taken them forever to do themselves or would have been exceptionally labor-intensive or would have been something they would have attempted and then gave up on and instead make it easy enough to be viable for more and more merchants which perhaps helps them grow and which then because of the way all this works and is so aligned with them it ends up benefiting us again and that is something we want to take very seriously and multi-currency is one of those things. And it's seeing uptake of course with Plus initially because those are the people who need this the most and it'll go from there.

Very helpful. Thanks for the color.

Thank you, Josh.

Our next question comes from the line of Koji Ikeda from Oppenheimer. Your line is open.

Congrats on the quarter and thank you for taking my question. I just wanted to follow-up on some of Harley's prepared comments. Very early in your comments Harley you did talk about Shopify trends in the quarter with 30 million buyers opting in, 10 million transactions on the Shopify Pay which is double, and that's just really tremendous. And just building on that, at a high level, what's the right way to think about those two data points as a mix of overall buyers and overall transactions? Thank you.

So, I mean the reason we brought it up is we haven't really talked too much about Shopify Pay in the past. What we're trying to do is create as little friction as possible in the checkout for our merchants. What we realized is with so many buyers across all the Shopify stores, we do actually have some ways that we can help our merchants capture more sales and that's by allowing these consumers to opt in to Shopify Pay. 30 million buyers opting in is obviously really great and we're happy to see that number, but $3.4 million in GMV and 10 million transactions in the past quarter alone which as you mentioned is double 2018 is real exciting for us. So, I would say Shopify Pay is still something that we're excited about, it's something that we're just starting to lean into a little bit, but ultimately, the reason we're doing it is because it makes checkout so frictionless. And as I mentioned even my own experience -- I mean you can try it yourself, go buy a pair of sneakers off of the Allbirds shop. It is an amazing experience and I think it actually creates a new bar for how accelerated a checkout can be and I think what will end up happening is we'll see more sales and consumers will come to expect that that's how good an experience can be when buying off an online store. Tobi Lütke: I want to add to the Shopify Pay thing. There are 800,000-something merchants on Shopify. So far, we have put that fact to use mostly through negotiation power like getting really good payment rates, getting really good shipping label printing rates, and these kinds of things. Increasingly, the -- and we will be super, super careful of those kinds of things, but increasingly there are ways for us to use that grouping of people and the real point we have to advantage of everyone on the platform because we want increasingly there to be an advantage for every individuals when there are so many others. I'm sort of skirting around the term negative effect because I just -- this feels a little bit different. Negative effect is sort of more on the social media side and usually has a lower K factor than what I'm talking about here. But Shopify Pay is one of those ways that really works in this way, right? Like if you start a new store tomorrow and you're selling something very exciting and we have 30 million people now who when any of them show up on your store which didn't exist yesterday and they decide they would like to buy this product of yours can check out with a single click. That does something that is simply not accessible anywhere else and therefore is powerful for our platform. There are other plays like this usually around things like fraud detecting and so that really benefits every individual store from all the data we see across the system and so on. But we are looking for these kinds of effects and prioritizing them is very successful so far.

Thank you very much.

Our next question comes from the line of Ygal Arounian from Wedbush. Your line is open.

Hey good morning guys. So, on Shopify Plus new adds which continues to see strength, I'm just curious what the split is between the new adds so the net new customers that come online if they're coming from other e-commerce software platforms if they're new to online, if they're coming from internal platforms or competitor platforms. And then how do you think about the value you offer merchants versus the ASP of your packages maybe both on the non-Plus and the Plus side? Thanks.

Yeah. I mean, I'll start with the second question, which is sort of the value-to-cost equation. Certainly, when it comes to Shopify Plus that ratio is heavily on the side of value, and we're doing that because we think there's an opportunity for us to take a lot of market share, but also to get a lot more merchants on Shopify Plus. So I would say that there -- that certainly that equation is certainly on the side of value versus cost and that's done intentionally. In terms of where the source of these customers are coming from, if you just think about some of the stores that I mentioned, a little earlier on, I mean, some of them like Betsey Johnson and Levi's, they obviously -- they had an existing platform and they were looking to migrate for a bunch of reasons. Some of them are the fact that they wanted the functionality that we were offering the data that they hard about Apple Pay. They wanted to be able to use Apple Pay. They may want to use Shopify Pay as well. So -- and they're also looking to do things that are more affordable, because some of these large enterprise e-commerce platforms as you know very well are very, very expensive. In other cases like the P&G and the Johnson & Johnson, these are big CPGs that for the first time ever are going direct-to-consumer with individual brands, and we've created a relationship with these big CPGs so that it's very easy for them and almost frictionless for them to stand up new stores on Shopify Plus. So I would say there are a variety of those cases where they're coming -- they’re migrating to us from other existing enterprise platforms, they've never sold before or perhaps they've only sold offline and now they're beginning to sell online with us as well. And I think that is part of the strength of the Shopify Plus business model where we're getting merchants from a whole bunch of places including a very -- a new but growing quickly partner network for Shopify Plus. And I would say the same is the case for Shopify, our core offering, which is that, it's still -- in terms of cost to value, it's still very much on the side of value. We want to make the on-boarding and the starting of the business as easy as possible and as affordable as possible and by making sure that the cost of it is a couple Starbucks a month, it means that anyone that has ambition can start a business on Shopify and that is really important to us.

Thank you so much.

Our next question comes from the line of David Hynes from Canaccord. Your line is open.

Hey, thanks guys, and congrats on the quarter. I wanted to ask about some of the content initiatives like Shopify Studios, the brand campaign you talked about. I guess the basic question is, why is now the right time for that? I mean, do you feel like the product has gotten to a certain point where it makes sense to put more money behind the brand? Or I can't imagine it's being driven by competitive dynamics, but maybe just talk about kind of why now and how you're thinking about measuring ROI and the spend in the early days. Tobi Lütke: Yes. Why now is, we feel confident that we can pull it off right now. Like I -- it's a funny dynamic, because it's so little talked about, but as someone who has built a company from the first-line of code is one of the under-appreciated facts in company building is focused management and Shopify has always been the kind of company, which wouldn't have starved because of a lack of opportunities, but would have died by indigestion of us trying to do too many things at the same time. And so this is why this is such a fun part of company building at this point that we are now because it can be focused on multiple things at the same time. It's the second time I bring this up now, because it actually really does matter. On the Studios side, like we telling these stories about of what happens, what it looks like building some of these businesses is just really important to the business because what we find is so many people would like to be entrepreneurs, but just don't have an understanding of what the entire process looks like. Demystifying this through the age-old approach of storytelling is just the best way to do this, and we think it will absolutely increase participation in this market, but just exposing people to other peoples' stories, who have gone through this. My grandmother had a printing shop and she started this herself and this is where I always spent time when I was a kid and I just sometimes wonder if I would have ever even thought about starting a business, if I wouldn't have been exposed to an entrepreneur by growing up, and most people aren't, right, and so finding other ways to do this is I think good. Taking this to ROI, yes, this is the tricky thing, right? Like brand marketing is hard to quantify. This is precisely the reason, why we didn't do it. We are clearly -- we are rather mass heavy company, right? We have a lot of feedback loops -- we are confident with long-term feedback loops, which I think has been an advantage of Shopify over the long-term. We are okay with fuzzy attribution, so we are not falling into the trap of only doing short-term kinds of things, because they happen to be more trackable, but we do really, really, really like to be able to back attribute the things that happen. So brand marketing requires a rollout more safe than this and then as we rollout more fuzzy in attribution and this is something I have to learn how to deal with and so far it's been good I would say. It's hard. You just don't know.

That’s helpful color. Thanks guys.

Thank you, David.

Our next question comes from the line of Mark Zgutowicz from Rosenblatt Securities. Your line is open.

Good morning. Thank you. Tobi maybe just a quick follow-up on that last question. Specific to maybe Plus or non-Plus merchants on the branding side I'm just curious if there might be two or three specific KPIs you're looking at. Because obviously as the last question alluded to you obviously have considerable brand strength so I'm just curious if there are maybe one or two focal points that that brand and campaign might be pointing to. Tobi Lütke: I'd love to give something specific there. I mean maybe Amy can jump in.

Yes, I can jump in there a little bit. So we've studied our unaided brand awareness and it's not as high as we would like it to be so that's obviously something we're going to watch carefully to see if it moves the needle. But we're very focused on continuing to monitor carefully our fully-loaded cost of acquisition as well as our LTV. And our LTV has been moving up over time as we've brought on more Plus merchants which has offset the more entrepreneurial merchants that have come onboard and so we feel like we can afford to take this test-and-learn and see if this helps our top-of-funnel activities. So we're going to be watching very closely to see if our top-of-funnel widens through the brand campaign and the Studios efforts and what conversion rates look like and monitoring and managing our LTV-to-CAC very, very carefully over time. It may be under a little bit of pressure near term, but we're confident over the long term that this sort of investment will pay off. We're also really confident on the international side based on the learnings over the past sort of 18 months that in the markets where we're localizing, we've seen where our brand awareness is higher. Our actual marketing acquisition dollars are more efficient and that's obviously what we're aiming for over the long-term is more efficiency on the cost of acquisitions side. So part of the brand campaign is not only for the domestic -- or core geos where we've been operating for some time, but some of that will be for the international growth as well.

Thank you. That's very helpful.

Okay. Thanks, Mark.

Our next question comes from the line of Brian Peterson from Raymond James. Your line is open.

Hi, Thanks for taking the questions. So I just wanted to hit on some of your Plus success this quarter. It sounds like you're adding a lot more merchants than you expected. I'm curious can you bifurcate that a little bit into actually getting in front of more customers or are we also seeing win rates improve?

So I'd really attribute the success to a maturing sales team at Plus and as they continue to mature their reach and their win rates are continuing to improve and so we're excited about the number of new merchants that they're reaching and bringing in. As Harley mentioned, the first quarter tends to be a seasonal low at least historically for Plus in terms of new merchants and we saw a very strong growth versus the first quarter of last year and maintaining almost at the same level as the fourth quarter, so these efforts are working with the Plus team.

Thanks, Brian. Our next question comes from the line of Todd Coupland from CIBC. Your line is open.

Yeah. Good morning, everyone. I just want to make sure I'm interpreting your international commentary in the right way. So you're basically saying, it's a long road to build in these various markets. Would you expect to have enough momentum for it to be a material tailwind later this year or is it going to take a couple of years before it starts to materially impact the results? Any color on that would be helpful. Thanks.

Yeah. We're obviously delighted with our first quarter performance in terms of merchant growth, especially with respect to international. It is new. We've only been investing there for a little over a year, and the sustainability of that growth comes down to how well we continue that momentum. It is early days in international. We're still learning. But we feel really positive with our continued investments in international and brand, so we're optimistic and that is one of the reasons why we increased our guidance for 2019.

Thank you.

Thanks, Todd. Our next question comes from the line of Brian Essex from Morgan Stanley. Your line is open.

Hi. Good morning. And thank you for taking the question. Amy, I wonder if you could maybe dig into international payments a little bit. I'm just wondering from the vendor relationship perspective, now that you kind of have an established brand, and obviously you're a meaningful vendor in the marketplace relative to kind of when we did the IPO, what are the vendor relationships on the Payments side like internationally, and the economics that you can bargain for as you penetrate new markets? Do you think that Payments margins internationally might be able to hit much higher margin rates? And maybe if you can throw in a little commentary on customer mix internationally as well large versus small, and how that might impact margins specifically on the Payments side. Thank you.

Well, just generally on the international payments side, keep in mind, it's still early days. We're continuing to add new markets. Our vendor relationship has continued to be primarily Stripe. But we have made and will make some exceptions depending on specific local needs to merchants and their buyers in those markets. But generally, I can say that international payment margins in most markets typically are a little bit higher than our core geographies. That's not the case in all markets, but it's typically higher. I think that's kind of what we're comfortable saying at this point based on learnings.

Any insight on customer mix, and how that might affect it?

Large versus small?

Yeah.

Well, right now Plus is primarily focused on the English-speaking geographies while they continue to work on product market fit, so most of the growth that we're seeing internationally is with our standard core subscriptions. So they tend to be on the smaller side, which is why GMV per merchant, and take rate is a little bit smaller, and will increase over time. But we're seeing nice adoption of international payments by these smaller more entrepreneurial merchants, and we think we're on a good path forward.

Great. Thank you very much.

Thanks, Brian. Our final question today comes from the line of Richard Tse from National Bank Financial. Your line is open.

Yes. Thank you. On the international side, do you think those markets that you enter -- you’re entering, you know learn from the regions that you're in early, or are those markets very different?

So one of the things we've learned about these markets is, there are some that are sort of – that look similar. Obviously some places in Western Europe have some similarities, but obviously doing things in Germany is very different from doing things in Japan. And that's even as far as the way that how we present the landing page to a prospective merchant in a place like Japan will typically be all on one page as opposed to having it on multiple pages, which we would probably do for a more North American or even a Western Europe type merchant. So there are nuances to it. That's one of the reasons that language is not just the only thing we want to do there. We also want to make sure we have the right partner ecosystem. We want to make sure we have the right payment providers for them in those regions. We also want to make sure we have the right product for them. So for example, what they want to sell maybe different in terms of new channels maybe different than what the North American merchants want to sell. So I would say that there are some similarities between certain countries, but generally the reason that it's important to have deep empathy for merchants in each specific country is because their needs do differ, and we want to help them with product market fit no matter where we're offering our services.

Okay. Thank you.

Thanks, Richard. I'll now turn the call back to the presenters for closing remarks.

All right. Thanks everybody for dialing in today, and have a great rest of your day.

This concludes today's conference call. You may now disconnect.