Q2 2024 Summary
Published Jan 13, 2025, 6:09 PM UTC- Shopify is gaining market share despite a mixed consumer spending environment, as they did not see significant deterioration or improvement during the quarter and believe they are simply taking share. Their diverse set of verticals and merchants across geographies helps them outperform competitors.
- Strong growth in Shopify's point-of-sale (POS) solutions, with off-line GMV up 27% year-over-year. They are displacing incumbent legacy systems among retailers, including those with over 100 physical locations across multiple regions. Shopify has also rolled out POS terminals in 8 additional countries across the EU and APAC, expanding their international presence.
- Successful penetration into the enterprise market, signing up notable large customers such as Toys"R"Us, Barnes & Noble, and QVC. They are attracting both established brands and first-gen direct-to-consumer companies that previously built their own stacks. Partnerships with companies like Oracle and agencies building e-commerce practices around Shopify further strengthen their enterprise position.
- Increased Operating Expenses May Pressure Margins: Shopify expects higher operating expenses in Q3, driven by increased marketing spend to support growth initiatives and higher compensation expenses due to pay increases and planned hiring in sales and R&D. These increased expenses could potentially pressure margins in future quarters.
- Potential Impact from Macroeconomic Headwinds: While Shopify has not yet seen significant deterioration, there are concerns about softening consumer spending in the market. If consumer spending weakens further, it could impact Shopify's merchants and their GMV growth.
- Sustainability of MRR Growth Questioned Due to Shortened Paid Trials: The significant growth in Monthly Recurring Revenue (MRR) in Q2 was partly attributed to the shortening of paid trials from three months to one month. This change may not represent sustainable long-term growth, as it accelerates revenue recognition without necessarily reflecting ongoing merchant additions.
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Macro Environment Impact
Q: How is the macro environment affecting your business?
A: The quarter was consistent with our expectations, without significant deterioration or improvement in consumer spending. While others report softening, we're not seeing issues among our merchants. We believe we're taking market share, supported by our diverse set of merchants across various verticals and geographies. -
MRR Growth and Revenue Guidance
Q: How should we think about MRR growth and revenue guidance?
A: Our marketing investments, with an 18-month payback, are expected to impact 2025 more than 2024. In Q2, MRR saw uplift due to shortening paid trials, which won't recur next quarter. The Plus pricing change was done mid-Q2, so its impact will be more incremental in Q3 revenues. Our consistent revenue growth and strong merchant additions make us confident in our revenue guidance. -
Marketing Spend Optimization
Q: How are you optimizing marketing spend and testing new channels?
A: We've built data-driven marketing systems with an 18-month payback guardrail. We test and double down on successful channels, like an emerging social platform that led to a 51% quarter-over-quarter increase in merchant acquisition in Q2, with over 50% of new merchants from international markets. We focus on maximizing returns and staying ahead of the curve. -
Enterprise Market Progress
Q: How is your progress in the enterprise market?
A: We're gaining traction in the enterprise segment, attracting big brands like Toys"R"Us, Barnes & Noble, and QVC, along with first-gen direct-to-consumer companies now joining Shopify. Our enterprise offerings provide speed and flexibility, with features like Shop Pay offering 36% conversion rates, 15% better than competitors. Partnerships with agencies and companies like Oracle are expanding our reach, and we're winning more deals as momentum grows. -
Attach Rate Outlook
Q: How are you thinking about attach rate moving forward?
A: We expect attach rate to continue improving due to increased payments penetration, adoption of new products, and pricing. Expansion in Europe and with large enterprises may create some headwinds, but overall, the metric should trend positively. However, we focus on driving value to merchants rather than targeting attach rate itself. -
Shopify Payments Margins
Q: How will Shopify Payments impact margins as you expand?
A: Enterprise and high-volume merchants are increasingly adopting Shopify Payments, with brands like Grove, Tonal, SodaStream, and Athletic Greens joining recently. While Payments may have lower margins, it leads to adoption of higher-margin products, improving overall blended margins. In Europe, as we roll out more solutions, opportunities will expand. Payments often serve as a gateway to other offerings, positively affecting margins over time. -
Point-of-Sale Momentum
Q: Are you displacing incumbents in point-of-sale or serving new entrants?
A: Both. We're displacing legacy POS systems lacking functionality and supporting new brands entering physical retail. Brands like Mejuri are replacing existing systems with ours online and offline. We're winning larger merchants with over 100 locations and launched POS terminals in 8 additional countries in the EU and APAC. Our unified commerce system is compelling, and in Q2, offline GMV grew 27%. We expect POS to be a key driver going forward. -
Shop App GMV Contribution
Q: How large is Shop App's GMV mix and its impact?
A: While we haven't shared new data, previously we mentioned Shop App nearly reached $100 million in GMV in a single month. Over 70% of online checkouts were made via mobile devices. During Shop Week, 10,000 merchants had their best GMV week ever on Shop App. Merchants using shop campaigns and Shop Cash see GMV growth and continue to leverage the platform for marketing. -
Marketing Payback Period
Q: Why is an 18-month payback the right threshold?
A: We've set an 18-month payback as a guardrail based on years of data-driven optimization. While we could shorten it to drive faster growth, we believe our current approach balances growth with efficiency. Some MRR growth came from shortening paid trials, but overall, we're successfully adding merchants with our current strategy. Our consistent revenue growth reflects this performance. -
MRR Growth and Merchant Adds
Q: Can you elaborate on drivers of MRR growth and merchant adds?
A: We're seeing strong merchant additions across all geographies and sizes, driven by marketing efforts and shortening paid trials. The strength is broad-based with no particular area to single out. Our efforts are resulting in healthy growth in Monthly Recurring Revenue.