Shopify(SHOP) - 2022 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue for Q3 2022 grew to nearly $1.4 billion, a 22% increase year-over-year, primarily driven by Merchant Solutions revenue growth [60] - Total GMV in Q3 was $46.2 billion, which grew 11% year-over-year or 15% on a constant currency basis, higher than the overall U.S. retail growth of about 9% [61] - Merchant Solutions revenue increased to $989.9 million, up 26% year-over-year, with a 3 percentage point negative impact from the strengthening U.S. dollar [62][63] - Adjusted gross profit was $681.8 million, up nearly 11% compared to $616.4 million in Q3 2021 [68] - Adjusted operating loss was $45.1 million in Q3, compared to adjusted operating income of $140.2 million a year ago [69][72] Business Line Data and Key Metrics Changes - Merchant Solutions revenue growth was driven by increased GMV penetration of Shopify Payments, Shopify Capital, and Shopify Markets, with a 54% penetration of GMV through Shopify Payments [62][63] - Subscription Solutions revenue grew to $376.3 million, a 12% increase year-over-year, with monthly recurring revenue at $107 million, up 8% year-over-year [65][66] - The adjusted operating loss was impacted by increased headcount and marketing program spend, with a focus on streamlining operations [69][71] Market Data and Key Metrics Changes - Over half of the rapid adoption of point-of-sale Pro is driven by new SMB retailers, with Plus merchants accounting for approximately 35% of all point-of-sale pro sales closed in Q3, up from 14% a year ago [8][10] - GMV through native checkout integrations on key partner services such as Facebook, Instagram, and Google more than tripled from Q3 last year [15] - International retailers outside of North America comprised 45% of all merchants in Q3, reflecting the success of Shopify's global expansion efforts [24] Company Strategy and Development Direction - Shopify aims to simplify logistics and enhance fulfillment capabilities through the Shopify Fulfillment Network (SFN), integrating Deliver to create an end-to-end logistics platform [37][40] - The company is focused on lowering barriers to entrepreneurship globally, with localized subscription plans introduced in over 200 countries [24] - Shopify continues to invest in partnerships with major firms like Ernst & Young and KPMG to support the adoption of Shopify by large brands [34][35] Management's Comments on Operating Environment and Future Outlook - Management noted that high inflation and rising interest rates are affecting consumer purchasing power, leading to a preference for discount retailers [61][79] - The company expects GMV growth to continue to outpace the broader retail market in Q4, with Merchant Solutions revenue growth expected to be more than double that of Subscription Solutions revenue growth for the full year [80] - Management emphasized the importance of fast and reliable fulfillment as a value driver for merchants, with expectations for SFN to significantly enhance customer conversion rates [92][109] Other Important Information - Shopify's adjusted operating loss for Q3 included one-time charges related to severance and pending litigation cases totaling approximately $127 million [70] - The company implemented a new compensation system called Flex Comp to attract and retain talent, allowing employees to choose between cash and equity [75][76] Q&A Session Summary Question: Improvement in take rates - Management noted a sizable increase in Merchant Services solutions take rate, driven by payments, capital products, and the addition of Deliver [85][86] Question: Commentary on merchant growth and fulfillment investment - Management clarified that the primary objective is to support entrepreneurs and that they are satisfied with the current state of SFN, believing it will create value for merchants [88][91] Question: AI efforts and future advancements - Management discussed the significant potential of AI and machine learning in enhancing Shopify's offerings, particularly in fraud prevention and marketing tools [96][100] Question: Fulfillment adoption of SFN - Management indicated a targeted approach to fulfillment, focusing on specific product-market fits and emphasizing the importance of anticipated delivery times for consumer expectations [105][108] Question: Strategy for targeting larger merchants - Management highlighted the growing migration of larger brands to Shopify Plus, driven by the platform's flexibility and the addition of enterprise features [111][114]