Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Shopify Inc (SHOP, Financial) reported a 25% revenue growth in Q2 2024, excluding logistics, with gross profit growing faster than revenue.
- Operating expenses decreased quarter-over-quarter, and free cash flow margin more than doubled to 16% from last year.
- The company introduced over 150 new product updates and features, and crossed the $1 trillion mark for cumulative GMV processed through Shopify.
- Shopify's point-of-sale solution saw a 27% year-over-year increase in offline GMV, attracting larger global merchants with multiple store locations.
- B2B commerce recorded its highest ever GMV month with a 140% year-over-year increase, driven by the growth of Plus merchants.
Negative Points
- Despite the strong performance, the macroeconomic environment remains uneven, with mixed consumer spending trends.
- Shopify Payments, while growing, continues to be a drag on margins due to its lower profitability compared to other Merchant Solutions.
- The company faces challenges in Europe with lower attach rates due to fewer available products compared to North America.
- Marketing expenses are expected to increase in the second half of the year, particularly to support enterprise efforts.
- Stock-based compensation and compensation expenses are anticipated to rise, impacting overall operating expenses.
Q & A Highlights
Q: Jeff, just on the MRR growth, it was really impressive in the quarter, and it looks like a lot of the strength came from merchant adds. Can you just maybe elaborate on where you're seeing a lot of that success? What type of merchants are you now bringing to the platform? And how much of it is a function of the marketing spend that you've seen bear fruit?
A: Jeff Hoffmeister, CFO: We're seeing a lot of strength in terms of the types of merchants that we're bringing on board, and it's really a full spectrum. It's been very strong and impressive. It is a combination of marketing and the shortening of paid trials. The key message is we're seeing strength in merchant additions across the board, in all geographies and sizes.
Q: My question was just on take rate. Jeff, you mentioned some of the moving pieces that might have pressured it this quarter. Just wanted to get a sense for how you're thinking about take rate, attach rate going forward. Is it going to move up from the current levels now that we've accounted for in the partner deferred?
A: Jeff Hoffmeister, CFO: We feel strongly that this will continue to move in the right direction given increased payments penetration, adoption of new products, and pricing. While there may be some variability quarter-to-quarter, this metric continues to go in the right direction. However, it's an output for us, not an input; we focus on driving value to merchants.
Q: Just a question here on some of the efforts you alluded to earlier in the call with regard to some of the testing and performance areas that you're exploring with marketing spend. You alluded to some guardrails, Harley. I'd love to get some color from you on just how you're thinking philosophically on testing effort to optimize the marketing spend.
A: Harley Finkelstein, President: We built these marketing systems over a long time to be highly analytical and data-driven. We have guardrails in place, like an 18-month payback period. We experiment with new channels and double down on successful ones. For example, we saw a 51% increase in merchant acquisition quarter-over-quarter by leaning into a new social platform.
Q: I wanted to ask about your progress in the enterprise market. I would love to hear, especially given those investments tend to take a little bit longer, what are some of the milestones that we can be watching from the outside. And if you could just clarify, what drove your decision to push that one campaign into the back half of the year?
A: Harley Finkelstein, President: We moved the campaign based on data to optimize returns. In terms of enterprise, we are gaining traction with big brands and first-gen direct-to-consumer companies. Our go-to-market transformation is working well, and we are getting better at winning deals. The value of our enterprise offering is leaps and bounds ahead of competitors.
Q: I wanted to ask about Shopify Payments. Considering that it is a drag on margins as you grow that business, how should we think about the yield in that business changing over time as you push upmarket into enterprise while also expanding internationally?
A: Harley Finkelstein, President: We're seeing expansion in enterprise and high-volume merchants adopting Shopify Payments. Features like Shop Pay, Shop Pay Installments, and Shopify Balance require merchants to be on Payments, driving healthy penetration across merchant types and regions. Jeff Hoffmeister, CFO: Payments often bring other solutions along, improving blended margins. In Europe, as we roll out more products, the opportunity will expand.
Q: Jeff, I know you said that it's still an uneven macro backdrop. I was hoping you could give us some directionality to that. Do you see it getting any worse? Do you see it getting any better? How did it trend through the quarter for you guys?
A: Jeff Hoffmeister, CFO: The quarter was consistent in terms of macro trends. We didn't see significant deterioration or improvement. We are helping our merchants succeed in this environment and continue to gain market share.
Q: You're seeing very good success after the changes that you made in performance marketing. The question is, why is the 12-month payback period the right return threshold, considering you could lower the payback to drive faster growth and market share gains?
A: Jeff Hoffmeister, CFO: We've optimized our marketing around an 18-month payback period, which feels like the right mix. Harley Finkelstein, President: We push the envelope to maximize returns and stay ahead of the competition. The 18-month guardrail holds everyone accountable for delivering the highest bang for buck.
Q: I know that you mentioned some of the success that many merchants had with Shop App this past quarter. I was hoping you could give a little bit more context on how large Shop App is in terms of your overall GMV mix.
A: Harley Finkelstein, President: Shop App has nearly reached $100 million in GMV in a single month. It helps merchants drive traffic and engagement. During Shop Week, 10,000 merchants posted their best GMV week ever on the Shop App. We continue to enhance the app for both consumers and merchants.
Q: With respect to point of sale, you seem to be getting some good momentum there. Are you displacing the incumbents in the market? Are these sales to vendors without a service provider, meaning they're newer enterprises?
A: Harley Finkelstein, President: We are displacing incumbent legacy systems and also supporting new enterprises. We are winning larger merchants with multiple locations and expanding our point-of-sale terminal to more countries. Our unified commerce system is compelling for both online and offline retailers.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
