Q4 2023 Earnings Summary
- Shopify is experiencing strong international growth, particularly in EMEA, where GMV grew 40% year-over-year in Q4, and EMEA now represents $1.2 billion in annual revenue and 27% of the total merchant base, highlighting significant global market opportunity.
- Shopify is gaining significant traction in the enterprise segment, recognized as a leader by IDC and Gartner, with an expanding enterprise pipeline driven by partnerships with major firms like Miracle, Google Cloud, Deloitte, and Accenture, positioning Shopify to take share from legacy providers.
- Despite macroeconomic concerns, consumer spending remains resilient, especially towards brands they love, many of which are on Shopify, resulting in continued growth of Shopify's merchant base and fueling their success. Entrepreneurship remains strong, and Shopify is attracting more of these favored brands every day.
- Shopify expects operating expenses in Q1 2024 to increase at a low teens percentage rate compared to Q4 2023 operating expenses of $773 million, primarily due to increased marketing spend and employee-related expenses, which may pressure profitability and margins.
- In Q4 2023, Shopify's attach rate remained flat at around 3% for the year and showed a slight sequential decline due to outsized GMV in the quarter and some non-cash revenue not scaling, indicating potential challenges in further increasing monetization per unit of GMV.
- Shopify anticipates its Q1 2024 free cash flow margin will be in the high single-digit percentage of revenue, significantly lower than the 21% achieved in Q4 2023, suggesting potential near-term cash flow pressure.
-
Shopify Plus Pricing Impact
Q: How will Shopify Plus pricing changes affect revenue?
A: The impact will mostly come in the latter half of the year, with full effect in May. It's too early to give exact numbers, but we expect merchants to stay on the platform due to our strong value proposition. -
Enterprise Pipeline Growth
Q: Can you expand on enterprise pipeline growth from NRF?
A: NRF was remarkable, showcasing Shopify's strong presence. We are winning more deals due to our product's strength and new partnerships with major SIs like Deloitte and Accenture. Our total cost of ownership is much lower than competitors, attracting large brands like Nike and On Running. -
Growth Outside North America
Q: What's driving growth outside North America?
A: Investments in international markets are paying off, especially in Europe, where GMV in EMEA grew 40% in Q4 year-on-year. EMEA has reached about $1.2 billion in annual revenue and 27% of our total merchant base. -
OpEx Guidance and Marketing Spend
Q: Why is first-quarter OpEx growing faster?
A: The increase from Q4 to Q1 OpEx is due to higher marketing spend and employee-related expenses, roughly balanced. We're investing in marketing and point-of-sale to drive future growth while maintaining discipline. -
Churn Rate Trends
Q: How has churn rate changed over recent years?
A: Our churn has been very strong and industry-leading, especially as we expand in enterprise where churn is lower. Our success rate in retaining merchants has been very high. -
Merchant Solutions Take Rate
Q: Why did Merchant Solutions take rate tick down?
A: The attach rate was around 3% for the year. In quarters like Q4 with outsized GMV due to seasonal trends, you may see a small dip. We're focused on driving GMV and revenue, and expect attach rates to continue increasing over time. -
Entering Advertising Market
Q: What's the value proposition in advertising for merchants?
A: With Shop Campaigns, buyers earn Shop Cash when using Shop Pay at checkout. This acts as a buyer acquisition tool, helping merchants find over 1 million new buyers and driving up to 24% new customer growth. -
Point-of-Sale Growth
Q: How is POS performing in large retailers?
A: Offline GMV revenue exceeded $440 million, making it 5x what it was four years ago. Offline GMV grew 28% in the quarter. We're seeing a mix of existing online brands expanding offline and new merchants joining via POS. -
Impact from Lower Volumes in January
Q: Any impact from lower credit card volumes in January?
A: We're not seeing significant changes affecting our success. Consumers remain resilient and continue to buy from their favorite brands, benefiting Shopify merchants. -
Marketing Spend Payback Timing
Q: How quickly will increased marketing spend pay back?
A: The impact will vary based on merchant size, with some benefits seen this year and others in the future. We're investing in performance marketing and POS to drive both short-term and long-term growth.
Research analysts covering SHOPIFY.