Earnings Transcript for SHOP - Q2 Fiscal Year 2023

Carrie Gillard: Good afternoon, and thank you for joining Shopify's Second Quarter 2023 Conference Call. Harley Finkelstein, Shopify's President; and Jeff Hoffmeister, our CFO are with us today. After their prepared remarks, we will open it up for your questions. We will make forward-looking statements on our call today that are based on assumptions and therefore, are subject to risks and uncertainties that could cause actual results to differ materially from those projected. We undertake no obligation to update these statements except as required by law. You can read about these assumptions, risks and uncertainties in our press release this afternoon, as well as our filings with the U.S. and Canadian regulators. We will also speak to adjusted financial measures, which are non-GAAP and not a substitute for GAAP financial measures. Reconciliations between the two are in the tables at the end of our press release. And finally, we report in U.S. dollars. So all amounts discussed today are in U.S. dollars unless otherwise indicated. With that, I will turn the call over to Harley

Harley Finkelstein: Thanks, Carrie, and good afternoon, everyone. Back in June, Shopify entered its eighth year as a public company and 17th year in existence, an incredible testament to the resilience of our merchants, who propel the economy and our team that shows up every day to help power their success. While a lot has changed since 2006 across the consumer landscape commerce and Shopify. Our commitment to solving the biggest challenges in commerce remains front and center, as we ship more products and solutions to make commerce better for everyone. As a founder-led company, Shopify contains a distinctive mix of passion, vision and entrepreneurial spirit that drives innovation and a deep understanding of our customer base. In our 17-year history, we've demonstrated our commitment to investing in innovative solutions that simplify commerce and add value for merchants everywhere. Our Q2 results are clear proof points. Revenue growth accelerated to 31%. Our product attach rate continued to expand and we delivered our third consecutive quarter of positive free cash flow, which we expect to continue to trend even higher throughout the rest of the year. We are quickly positioning ourselves to build on the momentum we're seeing across our business, making purposeful changes that support our core focus on commerce and unlock what we believe is a new era of data-driven entrepreneurship and growth, an era where AI becomes the most powerful sidekick for business creation. Commerce is available everywhere anywhere and always, and Shopify's cutting-edge solutions will enable more businesses, large and small local and global to achieve even greater success. Last quarter, I talked about the evolving shape of the larger commerce ecosystem and changes we have made at Shopify to meet that moment. We are already well underway in operating within the new shape of Shopify, a shape that can execute with greater speed and agility on a much larger scale to ship products faster, to bring more merchants onto the platform and further supercharge our merchants' growth for years to come. To do this, we remain committed to the areas where we can add the most value for our merchants, including expanding from first sale to full-scale, building consumer relationships and going global. So let's dive into each area and the key accomplishments we are driving to execute on the massive opportunity ahead. Starting with helping our merchants expand from first sale to full scale. We recognize the immense potential of AI to transform the consumer landscape and commerce more broadly, and we are committed to harnessing its power to help our merchants succeed. We believe AI is making the impossible possible, giving everyone superpowers to be more productive, more creative and more successful than ever before. So, of course, we are building that directly into Shopify. In our additions last week, we unveiled Shopify Magic our suite of free AI-enabled features that are integrated across Shopify's products and workflows, everything from inbox to online store builder and app store to merchandising to unlock creativity and increase productivity. One of the most exciting products, we will be launching soon in early access is our new AI-enabled commerce assistant Sidekick. Powered by Shopify Magic, Sidekick is a new chat interface packed with advanced AI capabilities purposely built for commerce. Merchants will now have a commerce expert in their corner who is deeply competent, incredibly intelligent and always available. With Sidekick, no matter your expertise or skill set it allows entrepreneurs to use everyday language to have conversations that jump start to the creative process, tackle time-consuming tasks and make smarter business decisions. By harnessing a deep understanding of systems and available data, Sidekick integrates seamlessly with the Shopify admin enhancing and streamlining merchant operations. While, we're at the very early stages, the power of Sidekick is already incredible and it's developing fast. By integrating AI directly into Shopify, we are providing businesses with the most modern tools that will enable them to make data-driven decisions, optimize their operations and ultimately achieve greater success from first sale to full scale in today's competitive market. And that's just the beginning. As commerce has continued to evolve pushing transactions far beyond the traditional retail or online stores, we are building the right tools for commerce to be available everywhere, anywhere and always. And that is one of our superpowers and why merchants of all sizes are coming to and building their future on Shopify. We've enabled our merchants to reach a larger base of audiences through deep partnerships with social platforms, apps and creators. Q2 GMV through these channels nearly doubled year-over-year as merchants are adopting these new ways of reaching customers. It's really about leveraging your scale and the breadth of growing brands across the platform to unleash new opportunities that simply do not exist if you are not on Shopify. We are fueling the Shopify flywheel with things like our recently launched Shopify Collective, which creates new pathways for our merchants to not only sell their products, but also each other's products. Collective allows retailers to discover and sell from other top Shopify brands who will ship directly to their customers, allowing them to expand their product offering without the cost and risk of buying inventory. This seamlessly aligns with the advancements, we are making in establishing our wholesale presence, which we refer to as our B2B on Shopify offering. With B2B GMV up 61% in the first half of 2023 and over 45 customizable features tailored to the unique needs of wholesale businesses launched in the past year alone we are getting traction. Some of the most well-known consumer brands around the world, including Kraft Heinz Company, Brooklinen and Momofuku have all adopted this product. We are working hard to create advanced features for B2B that we think will change how the industry works and help merchants grow in this area. Features like volume pricing, company account request and personalized storefronts are all seamlessly integrated into our core platform. This makes the wholesale buying process better and makes it easier to find and win over potential wholesale customers. Even though B2B currently makes up a small portion of our revenue, it represents a huge untapped potential for Shopify and is a channel that we know is especially important for enterprise level merchants. It not only allows us to deepen our engagement with our existing merchants and help them grow this channel, but it also opens up opportunities to serve a new group of merchants who solely conduct B2B transactions. Within retail, our momentum continues. In Q2, offline GMV increased 23% year-over-year as we won larger multi-location merchants across the 14 countries where Shopify point-of-sale operates today. Compared to even a year ago, our deep investment in our point-of-sale platform coupled with transformation in our go-to-market process are enabling us to sell our retail offering more effectively, especially with larger merchants. Among Shopify point-of-sale retailers with more than 20 locations, their Q2 GMV grew over 120% year-on-year, with more than 70% of their GMV coming through Shopify Payments, demonstrating our ability to monetize as we move upmarket. The work we've been doing to transform our go-to-market engine resulted in our Q2 retail point-of-sale business, delivering the highest quarterly GMV wins ever and we believe our momentum is only growing. In addition to bringing on more new brands to point-of-sale in the quarter we're also seeing existing merchants, expand their retail presence with brands like REEF (ph) adding more locations in the quarter. We're also enabling online first Shopify merchants like Babylist to venture into physical retail by opening their first flagship store powered by Shopify point-of-sale. Bringing all of the capabilities that we offer for online, to point-of-sale remains a big opportunity for us, especially as our retail offering represents additional pathways to bring even more merchants and customers into the Shopify flywheel. One example of that integration is Shop Pay instalments for point-of-sale. This feature allows retailers using Shopify point-of-sale to offer their in-store shoppers the same flexible buy-now-pay-later options that they offer their online shoppers. Early results show a 5x increase to retail average order value from installment transactions compared to standard in-store transactions. Beyond driving larger purchases Shop Pay instalments is a major step towards increasing buyer attribution for offline sales, as all in-store Shop Pay instalment orders are associated with the customer. More known buyers means more opportunity to build relationships and drive repurchase activity which fuels our merchants growth. Two years ago, we launched Hydrogen & Oxygen to give merchants that wanted to go headless, an easier development path that would help them get to market faster. Hydrogen, our React-based toolkit is a front-end web development framework used for building custom storefronts. This product just passed an incredible milestone hitting the $1 billion in cumulative GMV mark with 2023 GMV so far this year already 2x as much as we did in all of 2022, validating Shopify as their trusted commerce partner in their shift towards headless commerce. Beyond shipping great products and building more products for every level of complexity from first sale to full scale, we've also been transforming our go-to-market engine. Led by Bobby Morrison, our Chief Revenue Officer over the past year or so our team has been working on implementing new tactics, KPIs and capabilities to accelerate sales, reduce costs and ensure merchant success and it's working. In the past few quarters alone, we've seen sales volumes across key products like Capital, Retail and Payments, gain momentum leading to some of the highest cross-sell volumes, we've ever achieved. But that's not all. We're implementing an end-to-end sales process and methodology that's designed for increased effectiveness and efficiency tailored to various merchant segments and industries and consistently enabled for scalable execution throughout the revenue cycles, Shopify's go-to-market strategy is operating at an unprecedented level. Whether it's attracting new customers to the Shopify platform delivering ongoing value to existing customers or encouraging current customers to utilize more of Shopify's offerings, our team is working tirelessly and executing effectively. With this powerful go-to-market engine beginning to fire on all cylinders, we are seeing more brands come to Shopify across the spectrum from entrepreneur to enterprise. In particular, we continue to bring more of consumers' favorite brands to Shopify including recently signed deals with women's fashion apparel company Soft Surroundings, beauty and skincare brand JAFRA Cosmetics, boots and accessories company Hunter and Meta, who will sell Quest through integration Shopify has with multiple channels. We also saw brands launched in the quarter including subscription Bellwether, Dollar Shave Club, workwear retailer for women, New York & Company, baked goods manufacturer of Mrs. Fields as well as international launches including Paris Fashion House, Nina Ricci owned by Puig, International sites for American headwear company New Era, along with more brands from CPG giant, Nestle and Unilever. Our platform remains the go-to for top celebrities and creators to build their brands. In July, Taylor Swift launched her Era Tour merch shop with us, experiencing unprecedented volume of sales and site visitors on launch day and we were ready for it, proving once again that our infrastructure is scalable, flexible and most importantly reliable. That same week, musician Drake, released his new store Drake Related using our new product Shopify Collective that I mentioned earlier. And finally, Mr.Beast, one of the world's most popular YouTubers revamped his store using one of Shopify's out-of-the-box free themes. This showcases the immense value, accessibility and scalability, we've integrated into every facet of our business. These brands along with many others are recognizing that the speed at which we deliver products and innovate is unmatched. We help them prepare for the future in a world where technology, customer needs and markets are changing quickly. Next is building consumer relationships. Starting with Shopify Checkout which has proven to be the best converting checkout on the Internet. We've invested and our evolved platform because we know that not all checkouts are created equal. Ours convert better, while we have known for years that our checkout is the best, a recent external study from a leading global management consulting firm has confirmed it. In fact, Shopify's overall conversion rate outpaced the competition by up to 36% and on average 15% more than others. The April study also revealed the power of Shop Pay, the highest converting accelerated checkout on the internet. The data shows that the mere presence of Shop Pay even when it is not used by a buyer can boost lower funnel conversion by 5% and when it is used can lift conversion by as much as 50% versus guest checkout. With our accelerated checkout outperforming all other major players by nearly 10%, it is now a competitive disadvantage not to be on Shopify. Even as powerful as our accelerated checkout has become, we know every second matters when it comes to making a sale. And that is why we introduced Sign in with Shop. This enables customers to use their Shop account to log in to merchants' online stores. By Sign in with Shop, shoppers can access their customer account, speed through checkout with prefilled payment and address details and unlock discount codes that will automatically be applied at checkout. By lowering friction, giving faster access to payment details Sign in with Shop is making the Internet's best-converting checkout even better. Shopping behavior continues to shift to mobile with over 70% of online checkouts happening on phones and other small-screen devices in Q2. With this shift, we've seen major brands like Thrive Causemetics, Vessi, and Todd Snyder launched custom Shop storefronts to optimize this shift and we can expect even more brands to follow. Not only because of the Shop app offers an immediate out-of-the-box mobile storefront but also because they can tap in the rapidly growing audience of buyers to reach and retain new customers. For the quarter, Shop Pay facilitated $11 billion in GMV, that's up 37% year-over-year and cumulatively $98 billion since its launch in 2017. As of today, we have now surpassed $100 billion in cumulative dollars through Shop Pay, which is an incredible milestone for the company. Moving on to going global. Our international solutions make it easier for our merchants to take their business to any customer around the world. And we continue to invest in helping merchants of all sizes start and scale their global business all from within their Shopify admin. During the quarter, approximately 15% of total GMV were cross-border sales, supported by the continued adoption of our Markets and Markets Pro offering. In the EMEA region, the rate of new merchant growth continues to surpass that of North America, contributing to the strong growth we witnessed in Europe in the quarter. This was led by Germany, France, Spain, and Italy, all of which experienced GMV growth exceeding 40%. With our Markets Pro offering, which is still an early access and slated for a rollout later this year, we make it easy to expand our merchant's business to over 150 markets all within a single view in the Shopify admin. We are simplifying the onboarding experience expanding shipping support and enabling Shop Pay to all international purchases to continue to enhance the product even further. As a result, more and more merchants across all sizes from SMB to Plus are adopting it and we are excited to bring it to all our U.S. merchants later this year. On top of that, we continue to upgrade capabilities that give merchants more control when selling internationally. Merchants can now effortlessly tailor different experiences and product assortments for various markets. So an apparel merchant like Vuori can promote summer collection in the U.S. and the winter collection in Australia at the same time all from their online store. Our work here includes features like smart order routing, multicurrency payouts and market support for Shopify Functions. These enhancements significantly benefit our merchants making their global expansion goals more attainable simpler to navigate and more customized for each customer in every market that they penetrate. In closing Shopify is rapidly strengthening its position as a leading enabler of global commerce and entrepreneurship. We have successfully established and expanded our unified commerce platform that has continuously gain the trust of our merchants attracted new merchants sped up our momentum and broaden our market presence. The new shape of Shopify is enabling us to make faster decisions, flex with the rapid pace of technology and deliver innovative solutions that increase our merchants' odds of success. And what's most exciting is that even after 17 years and all the changes we have made recently, we know that the opportunities for Shopify are only growing whether that's online or in person, SMB or enterprise, direct-to-consumer or wholesale, domestic or global. We are positioning ourselves to capture it all by innovating, pushing boundaries and leaning even deeper into our mission to make commerce simpler, easier, more democratized, more participatory and more common. And with that, let me turn the call over to Jeff

Jeff Hoffmeister: Excellent. Thanks, Harley. We had another quarter of strong financial results. We are shipping products faster, growing our merchant base, expanding around the world and improving our profitability. All of these factors contribute to our flywheel and ensure that we continue to build the best product in the world to make commerce better for everyone. Let's dive into our Q2 results starting with GMV. GMV in Q2 was $55 billion, up 17% year-over-year as merchants delivered another strong quarter of growth. We achieved this GMV strength primarily through growth in our merchant base globally with such being the largest driver of GMV outperformance this quarter, continued resilience of our merchants' consumers with strength in Europe being particularly notable, not only in terms of the durable, same-store sales strength of our existing European merchant base, but even more so on the new merchant acquisition front and same-store sales growth for our existing merchants. Revenue for the second quarter was $1.7 billion, up 31% year-over-year. Key contributors to our revenue growth included

A - Carrie Gillard: We will now open the call for your questions. [Operator Instructions] Our first question comes from Richard Tse at National Bank.

Richard Tse: Yes. Thank you. In light of the recent pricing changes that have been quite successful, how do you think about extracting increasing value from your customers as you add meaningful features like Shopify Magic going forward?

Harley Finkelstein: It's Harley. I'll take that question. Look, in terms of the pricing increase, that was -- that increase we did a couple of months ago, that was the first increase we did in a very long time, and we saw that merchants were absolutely willing to pay for it, which I think evidence is that the value to cost ratio of Shopify, the product is very much on the side of value. So certainly, there is opportunities for us to continuously review our pricing and figure out where the right pricing is and we will continue to do that. But in terms of features like Magic and Sidekick, which we're really excited about, remember, when our merchants do better, Shopify does better, that is the business model. And so the more they can sell, the faster they can grow, the more we can share in that upside. But the other part that we talked about in the prepared remarks, it's just worthwhile mentioning again is that product attach rate. The fact that we're still -- we're growing that, that we're still above 3%, which is really high. It means that, as we introduce new products and new merchant solutions, whether it's payment solutions, shipping, things like Audiences, anything like Collabs, Collective, more of our merchants are taking more of our solutions. And that is very important because it means that Shopify is becoming the most important piece of software that the millions of merchants on the platform use. And we were happy to see that merchants felt that the additional increase in price was still really good value for the product.

Carrie Gillard: Thank you for your question. Our next question comes from Gabriela Borges at Goldman Sachs.

Gabriela Borges: Good afternoon. Thank you. Jeff and Harley, I wanted to follow up on how you're thinking about the long-term margin profile of this business. Given your comments on the 3 positive quarters of free cash flow and the exit of logistics. So would love to your thoughts, what sort of free cash flow or EBITDA margin profile do you think Shopify can support longer term? Thank you.

Jeff Hoffmeister: Yeah, Gabriela. Thanks for the question. We obviously gave some guidance on Q3 in terms of how we think about gross margin. And you saw in terms of the movement we saw in our margins on the Subscription Solutions side, very positive, up 400 basis points over the quarter. And we talked obviously about some of the margins on the Merchant Solutions side, which with the removal of logistics, obviously, those will be some strong tailwinds for us. We haven't obviously given guidance as it relates to Q4 or long-term in terms of what the operating model looks like. You can sense clearly, though, from what we've said about margins on both of those pieces, both Subscription Solutions as well as Merchant Solutions, that we've gotten to a gross margin profile, which is more similar to where we were, for example, Q1 and Q2 of last year before we got into logistics. And our goal is to, as I alluded to when we were talking about operating expenses, continue to make sure that we stand with this, I guess, stub function, I would say, that we've done in terms of when I talked about the 10% sequential decline in operating expenses and the 12% sequential increase in revenue, talking about a new ratio between those 2 in terms of how we can sustain that going forward and continue to make sure we're doing as much as we can with every OpEx dollar. So I'd love to give you more clarity on what the long-term margin looks like. But I think as you look at Q3, that's -- it's a pretty good snapshot for what the future looks like based on the removal of logistics.

Carrie Gillard: Thank you for your question. Our next question comes from Keith Weiss of Morgan Stanley.

Keith Weiss: A really nice quarter. And maybe following on Gabriela's question, but talking more about the top line. You guys have a broad solution portfolio already, but the fulfillment business was a big initiative for you guys. And definitely, a big part, I think, of investors' models on like how take rate expands over time. Is there a replacement we should be thinking about? Is there like one initiative or new initiatives that we should think about taking into place of what we had in our model for fulfillment? Or is it just fundamentally a new type of growth profile on a go-forward basis?

Harley Finkelstein: Keith, thank you for the kind words, and good to hear from you. Look, part of the model of Shopify is that to get as many merchants using our product as possible, whether they're small merchants or they're large merchants like Mattel, [indiscernible], BLACK+DECKER, Staples, Glossier, some of the ones I mentioned like Dollar Shave Club and now Meta using the product. The key, though, is that if we want to qualify and requalify to be the central nervous system of their business, we have to ensure that whatever issue they have when it comes to commerce and retail, we can serve them. So for example, we talked a little bit about Collabs and what we're doing there. This idea that we can actually match incredible audience -- content creators that have massive audiences with incredible brands, that's not going to be for every merchant or every content creator, but the ones that it is for we'll use it with great efficacy. Things like Audiences, for example, we talked about Audiences 2.0, which, in some cases, are showing a 50% lift in ROAS, Again, not every merchant is always going to use every single merchant solution. But as we build more and more, what it means is that we can help them with a larger piece of their business. And that is really what we're focused on. And then when you think about some of the new things from the new areas we're going into, for example, B2B, which historically, we really focus on the direct-to-consumer point, we know there's pent-up demand to use Shopify for B2B. And so you're seeing us introduce new things like Collective, for example. There's about 45 new features that have come out around just B2B by itself in the last 12 months. So again, there's not going to be one particular merchant solution that every merchant is going to use. I mean, obviously, Shopify Payments is one of those because everyone needs to accept payments. But the idea really is to ensure that we fix merchant pain and give them this incredibly scalable product no matter what they want to achieve on the platform.

Carrie Gillard: Thanks, Keith. Our next question comes from Mark Zgutowicz The Benchmark Company.

Mark Zgutowicz: Thank you, Carrie. Just a follow-up on the Flexport. Jeff, I know you said you haven't yet signed the commercial agreement. But maybe just 2 related questions. One, can you talk about the integration of Deliverr with Flexport right now and how much of your holiday GMV will be supported by Flexport capacity? And then at a very high level, what -- is it safe to say the considerations in terms of Flexport economics are predominantly profit versus any type of revenue share? Thanks.

Jeff Hoffmeister: Yeah. Thanks for your question. I think, firstly, as it relates to just the timing of the commercial agreement, to your point, these are obviously agreements which involve a lot of data flows, co-marketing, a bunch of other things just in terms of integration of the products. We want to make sure that we, of course, get that right and get our merchants up and running. I don't have guidance for you in terms of what percentage of our holiday traffic will be going through Deliverr. So I wish I could give you that perspective. We obviously just don't have that yet at this point. But we're still very excited about the partnership. We think [the world of] that team over there. We've known Ryan, the Founder, for a long, long time. Dave was a great addition. And that management team is really strong. So we think that's going to really assist our merchants and accelerating what they're trying to do. So we're excited about it. I just don't have a snapshot for you in terms of holiday traffic and how much will be going through them.

Carrie Gillard: Thank you for your question. Our next question comes from Andrew Boone at JMP Securities.

Andrew Boone: Hi. Thanks for taking my questions. I wanted to go back to Shopify Magic and Sidekick. I'm just asked about the near-term vision for the products. What do you think is the easiest thing that gets solved? And then what do you guys see as you guys involve your own data as well as relationships and knowledge. Where does this go over time? Thanks so much.

Harley Finkelstein: Yeah. It's great question. Look, we're taking a very, very practical approach when it comes to AI. And we think that Shopify is uniquely positioned to harness the power of AI in order to unlock incredible capabilities that we think will help our merchants grow their business. Starting with Shopify Magic. I mean, unlike other generative AI products, Shopify Magic is specifically designed for commerce. And it's not just embedded in one place, it's embedded throughout the entire product. So for example, the ability to generate blog posts instantaneously or write incredibly high converting product descriptions or create highly contextualized content for your business. That is where we feel like AI really can play a big role here in making merchants' lives better. Built on top of that, of course, is Sidekick, which Toby announced over video about 2 weeks ago right before Editions. And that really is our -- the first of its kind AI-enabled assistant, again, built for commerce. And with Sidekick, you can do these incredible things like you can analyze sales and you can ideate on store design or you can even give instructions on how to run promotions. But when you think about these things altogether, ultimately, what we are giving merchants is a better, faster, more creative way to build businesses. And I think that it's something that only Shopify can offer and by embedding it across the entire product rather than simply one area of the product, merchants are going to see this efficacy and the speed of building and scaling only on Shopify. And again, back to that business model, a comment I made a couple of minutes ago, when our merchants succeed, we succeed. And so we think that leveraging the power of AI to get every entrepreneur incredible superpowers is going to be really incredible, and it's something we're very excited by. And you'll see more of that roll out in the next couple of weeks.

Carrie Gillard: Thanks, Andrew. Our next question comes from Kevin Krishnaratne at Scotiabank.

Kevin Krishnaratne: Good evening. Just on the Shop case trend, I think $11 billion of the $55 billion in GMV, it just keeps tracking higher. How do we think about the opportunity there and maybe thoughts on penetration of Plus versus SMB and how much of the GMV it can drive? It also just seems like pay is something to stimulate GMV. So also wondering how it's helping to influence a merchant same-store sales growth. Thanks.

Jeff Hoffmeister: Thanks for the question, Andrew (ph). Yes, for the quarter, I mean, Shop Pay facilitated about $11 billion of GMV. That's up 37% year-on-year. And now as of today, we've now surpassed $100 billion, in cumulative dollars, which is an incredible milestone for the company. But the most important part of it is that it is the highest converting accelerated checkout on the Internet. It's also the most popular accelerated checkout on Shopify. And so actually, a study that we recently did with a big 3 consulting firm shows that the mere presence of showing Shop Pay adds a 5% boost in terms of funnel conversion. And when it is used, the conversion can be as much as 50% versus guest checkout. So it is something that a lot of merchants want. And that is not necessarily just small merchants. It is also very large merchants, large brands want that. One of the reasons that we think Shopify Commerce Components are so important is because it allows us -- if a large brand that's not ready to migrate entirely over to Shopify, but wants to begin a business relationship with us, things like checkout as a commerce component is a great way for us to do so. But again, this incredible way to check out for consumers around the world is only available on Shopify, which means that if you want to be able to offer that to your consumer, you have to be on our platform.

Carrie Gillard: Thank you for your question. Our next question will come from Michael Morton at Moffett Nathanson.

Michael Morton: Hi. Thank you for the question. As Shopify is starting to approach the 1-year point from when you began entering the partnerships with the large system integrators. We were wondering if you could provide an update on how these relationships are materializing and if they're contributing to the funnel for enterprise commerce players. And like following through with that, like you've discussed 2023 being an investment year for the enterprise. It would be great to hear how you view the enterprise sales team and if there's an opportunity for additional investment around that channel. Thank you so much.

Jeff Hoffmeister: Yeah. Thanks for the question on that. More -- unequipped, more large retailers are coming to Shopify. I mentioned some household names like Dollar Shave Club and Ricci and then Sage at Beverly Hills, but also Hunter Boots and Meta signing for the quarter. So in that way, we are certainly seeing more large brands, more large merchants come to the platform that obviously helps us sign even further. As of now, we have signed partnership agreements with Deloitte, EY, KPMG, Accenture, last earnings call, we mentioned IBM Consulting, Cognizant. So they continue to build practices around Shopify and Shopify Plus and Commerce Components inside of their own sales teams. And what we've been spending time on is training them up to how to best sell Shopify most effectively. In some cases, it's actually leading to really wonderful new brands. On the international side, like New Era, for example, or [Indiscernible] Israel from Nestle. So we are working hand in hand with a lot of these systems integrators. A lot of these sales cycles are a little bit longer than traditionally we are used to, but they do bring on very, very large brands and merchants to Shopify. So we're really excited about that. In terms of the go-to-market, I think it's really important. We have been transforming this go-to-market engine at Shopify for a number of years. But this is really led by Bobby, our Chief Revenue Officer. And over the past year or so, that team has been working to implement new tactics, new KPIs, but really focusing on not just bringing on large merchants to Shopify, but also ensuring that we also cross-sell. And this end-to-end sales process and methodology, it's really designed for us to increase the pace, and frankly, the velocity of bringing on these larger merchants. But the end result is in the last 2 quarters alone, we have seen sales volumes across key products like Capital, Retail and Payments, gain momentum, which has actually led to some of the highest cross-sell volumes we have ever achieved. So the team is working tirelessly, they're executing it really effectively. But this go-to-market engine is now starting to crank. And the results, as we mentioned today, are more merchants coming to Shopify, much larger merchants coming to Shopify. But the end result is in the last two quarters alone we've seen sales volumes across key products like capital retail and payments gain momentum, which has actually led to some of the highest cross-sell volumes we have ever achieved. So, the team is working tirelessly. They're executing really effectively. But this go-to-market engine is now starting to crank and the results -- the results are as we mentioned today are more merchants coming to Shopify much more larger merchants come to Shopify.

Carrie Gillard: Thank you for your question. Our next question will come from Mark Mahaney at Evercore ISI.

Jocelyn Hung: Hi. This is Jocelyn asking a question for Mark. Could you hear me?

Jeff Hoffmeister: Yes.

Jocelyn Hung: Okay. Can I ask a quick question maybe on Amazon? Just, I know before to sell, to explore Amazon partnership was on the table. So, I wonder like, is there still possible not maybe not just in terms of buyer's time, but also payments or kind of help us think about what are some considerations you have there?

Jeff Hoffmeister: Yeah, I mean conversations with Amazon remain productive, but no news to share right now.

Jocelyn Hung: Okay. Got it. Thank you. And then maybe [Technical Difficulty]

Carrie Gillard: Thank you for your question. Our next question will come from Samad Samana at Jefferies. It looks like he dropped out of the queue. Our next question will come from Paul Treiber at RBC Capital. Paul, are you there?

Paul Treiber: Yes. Sorry, I was muted. Thanks very much. Just on the large enterprise, you called out a number of wins. Should we assume that most of the growth that you're seeing in large enterprise is Shopify Plus? Or are you seeing a lot of the growth and momentum pick up in Commerce Components? And is there any metrics that you can share just on the growth in Commerce Components in general?

Jeff Hoffmeister: Yeah. I mean, look, in terms of Shopify Plus, very strong year-on-year plus growth in Q2. We actually outpaced GMV growth from Standard merchants and we'll continue to see that Plus business grow. The Plus merchant base saw really strong year-on-year growth as a result of both upgrades and also new brands joining, that's important to us because we want to make sure that the most successful brands, the home-grown success stories graduate on Shopify and never leave us, and we're seeing that, but we're also seeing a lot of new brands joined the platform as well. The reason that CCS or Commerce Components is important to us is, again, it starts the business relationship with businesses that aren't necessarily ready to fully migrate over. So by giving them a really a selection of 30 modular components from storefront to checkout to omnichannel capabilities, it means that we're able to begin that relationship, and over time, get more and more of their business. A lot of the names that you're hearing about today, obviously, there's a little bit of a longer sales cycle with some of the large enterprise brands. A lot of them those conversations started before we announced Commerce Components. But the fact that we have this incredible enterprise solution in a box with Plus, and we also have this alternative, which is this modern composable commerce stack for enterprise retailers means that we can have conversations with, frankly, pretty much every major brand -- pretty much every retailer on the planet, and that wasn't possible years before.

Carrie Gillard: Thank you for your question. Our next question will come from Todd Copeland at CIBC.

Todd Copeland: Good evening, everyone. I wanted to ask about your GMV strength and what you think it says about the possibility of a recession. Thanks a lot.

Jeff Hoffmeister: Go ahead, Harley.

A – Harley Finkelstein: Yeah. I'll just kick off, and I'll hand it over to Jeff. I mean, obviously, GMV being up 70% year-on-year in Q2. We outpaced the broader U.S. retail market. In terms of trends, I mean, Shopify has so many millions of merchants and stuff. And so the one thing that connects most of the merchants -- all the merchants on the platform is that fundamentally the merchants on Shopify have consumers' favorite brands. And so we continuously see and we've seen this for a long time now that merchants are -- that consumers are voting with their wallets to buy from their favorite brands. And we are fortunate, and we work hard at this, but those favorite brands are on Shopify. So whether it's something like the Barbie effect that is happening right now, obviously, we're the commerce partner for Mattel, across the board, we're seeing doll sales up 56% and play vehicles up 70%. So ultimately, I think it's important this direct-to-consumer trend is happening. It continues to grow. But the key for us is to make sure that the best, most important and the brands that consumers love are on Shopify. Jeff, do you want to add?

Jeff Hoffmeister: Yeah. Todd, the only point, I think we all see the same economic data that you're watching. And we talked before, both Harley and did talk about the strength you're seeing in Europe, I think we're doing better in Europe than others are. So I think that is one spot particular strength for us. And what we're seeing in North America continues as it was last quarter to be a good mix in terms of same-store sales growth for our existing merchants as well as a strong merchant acquisition model. So I don't think I have anything that I can extrapolate into broader comments around the probability of recession. I can just speak to the strength of our business and we're really firing on all cylinders.

Carrie Gillard: And our final question will come from Trevor Young at Barclays.

Trevor Young: Great. Thanks. Just on audiences. Any update on whether monetization of that has moved up in terms of priority and them the possible mechanisms for monetizing that whether it will be like a per user subscription type fee. So just timing and method for monetizing audiences?

Jeff Hoffmeister: Yeah. I mean Audiences, we talked a bit about this at Editions, which happened last week. We rolled out audiences too. The algorithm keeps getting better. We keep seeing increased adoption. Right now the monetization is happening indirectly obviously through GMV. No necessarily news on that. But we feel like the better audiences become -- the more it becomes something that every merchant wants to use and effectively becomes the must have when they're running ads across the major ad platforms that provides us with incredible leverage and again that's it's only available on Shopify. So right now, we're focused on indirectly monetization for audiences, but that obviously levers available to us in the future.

Carrie Gillard: This concludes our second quarter of 2023 conference call. Thank you for joining us. Good-bye.