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    Shopify Inc (SHOP)

    Q1 2024 Summary

    Published Jan 13, 2025, 6:09 PM UTC
    Initial Price$76.44January 1, 2024
    Final Price$78.19April 1, 2024
    Price Change$1.75
    % Change+2.29%

    What went well

    • Strong International Growth: Shopify continues to experience robust international growth, particularly in Europe, where Q1 GMV grew by 38%, marking the third consecutive quarter with growth above 35%. This demonstrates Shopify's successful expansion and significant opportunity in international markets.
    • Enterprise Segment Gaining Traction: Shopify is seeing increased adoption among large enterprise clients, with brands like Overstock, BarkBox, and Coach choosing Shopify for its superior value and product offerings. An independent study validated that Shopify's total cost of ownership is 36% better than competitors in the enterprise space, making it an attractive option for large businesses.
    • Rapid Growth of Shop Pay: Shop Pay, Shopify's accelerated checkout, is experiencing rapid growth with $14 billion in GMV processed in Q1, up 56% year-over-year. With 150 million buyers opted in and conversion rates 36% higher than competition, Shop Pay is becoming a significant driver of merchant adoption and revenue growth.

    What went wrong

    • Deceleration in Revenue Growth Due to Waning Impact of Pricing Increases: Management indicated that the year-over-year uplift from standard plan pricing changes is waning in Q2 before the Plus pricing changes fully take effect. This may lead to slower revenue growth in the near term.
    • Potential Economic Slowdown in Europe Could Impact Growth: The company acknowledged softness in European consumer spending, particularly in the UK, which could negatively affect international growth. Given that EMEA accounted for 18% of revenues in 2023, this could be a headwind.
    • Increasing Sales and Marketing Expenses May Pressure Margins: Sales and marketing expenses are increasing at a fast clip. While the company views this as an investment, higher expenses may pressure margins if the return on investment does not meet expectations.

    Q&A Summary

    1. Q2 Revenue Guidance
      Q: Can you help unpack the Q2 guidance?
      A: Jeff explained that the largest impact on Q2 growth rates is the pricing changes; the standard plan pricing changes are waning before the Plus pricing kicks in. Despite some FX headwinds and economic slowdown in regions like the UK, the business remains strong, with merchant acquisition and product suite performing well.

    2. Reaction to Plus Price Increases
      Q: What's the reaction to Plus price increases and impact on financials?
      A: Jeff noted that the majority of Plus merchants have committed to three-year contracts, showing confidence in the platform's value. The price increases will affect MRR in Q2 and revenue and margins mostly in Q3, contributing positively to financials in the back half of the year.

    3. Sales and Marketing Expenses
      Q: Sales and marketing expenses are rising; how is this translating to growth?
      A: Jeff stated that sales and marketing efforts are going very well, with improved tools and methodologies leading to strong merchant acquisition. The investment in marketing is seen as an investment in future growth, aiming to drive sustained top-line growth while remaining profitable.

    4. Enterprise Growth Impact on Attach Rate
      Q: How will enterprise growth affect the attach rate?
      A: Harley explained that enterprise adoption is gaining traction, with large brands appreciating Shopify's value and total cost of ownership being 36% better than competitors. Over time, these merchants are expected to adopt more of Shopify's solutions, enhancing the attach rate.

    5. International Merchant Adds and Payback Periods
      Q: How are merchant additions across geographies and their payback periods?
      A: Harley highlighted that international growth is strong, particularly in Europe, where Q1 GMV grew by 38%. The consumer remains resilient, and they are seeing less discretionary brands joining Shopify. Payback periods are consistent across geographies, and the focus is on expanding globally.

    6. Shop Pay Growth Drivers
      Q: What drives Shop Pay's growth and off-platform pipeline?
      A: Harley noted that Shop Pay is the highest-converting accelerated checkout, with 150 million buyers opted in. In Q1, Shop Pay facilitated $14 billion in GMV, up 56% year-over-year. They are focused on extending Shop Pay to more surfaces and see a strong pipeline for off-platform adoption.

    7. Point-of-Sale Growth
      Q: How is point-of-sale contributing to MRR and growth?
      A: Jeff mentioned that point-of-sale is performing well, with strong growth, especially among multi-location retailers. While not breaking out MRR contributions, he indicated that point-of-sale drives both subscription and payments revenue and is expected to continue growing.

    8. Core Standard MRR
      Q: Why was core standard MRR only up slightly quarter-on-quarter?
      A: Jeff explained that the slight increase was due to a definitional change; otherwise, it would have been up 5% from Q4 to Q1. The merchant acquisition engine is performing well, and there is nothing concerning to read into the numbers.

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