Shopify Q4 2024 Earnings Report

Shopify EPS Results

• Actual EPS: $0.34
• Consensus EPS: $0.44
• Beat/Miss: Missed by -$0.10
• One Year Ago EPS: N/A

Shopify Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $2.73 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Shopify Announcement Details

• Quarter: Q4 2024
• Date: 2/11/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, February 11, 2025
• Conference Call Time: 8:30AM ET

Shopify (NYSE:SHOP) is a commerce platform and eCommerce infrastructure provider connecting small businesses with a large and growing global marketplace. The company was formed in 2004 in Ottawa, Canada as Jaded Pixel Technologies but changed its name to Shopify Inc in 2011. The name change was part of a rebranding strategy that helped accelerate the business and drive it to $5.5 billion in sales in 2022.

As of October 2022, the company boasted “millions” of merchants in 175 countries with more than $543 billion in economic activity generated since launch. In terms of scale, Shopify employs more than 10,000 individuals and is among the top 20 publicly traded companies in Canada.

Shopify was founded by Tobi Lütke. Mr. Lütke had been working on a website for a snowboard store but quickly realized the software was more valuable than just selling snowboards so his team switched gears. The platform was launched in 2006 and it quickly gained momentum. Mr. Lütke is a member of the board of directors and the company’s CEO, a position he has held since 2008.

Shopify is a commerce company but, more importantly, it is an eCommerce commerce company that can assist small businesses with all aspects of their operations. The company is in business to provide an eCommerce platform for small businesses globally. Its platform enables merchants to market, manage, and sell their products through a variety of sales channels that include but are not limited to eCommerce. Channels include the company’s core Shopify.com website as well as brick & mortar locations, pop-ups, social media, and buy-now buttons.

Because branding is such an important part of a business's success the company goes to great lengths to assist its merchants in that regard. The Shopify.com website includes several tools to help with branding that include a business name generator and a logo maker as well as a website builder and a full range of marketing products. Marketing products help merchants with email marketing and Facebook ads as well as automation of the same.

Among the many benefits of using Shopify is acceleration. Businesses that use the website to its fullest are able to accelerate their growth and reach milestones years ahead of their competitors. Brands that use Shopify.com include Heinz, Tupperware, and Netflix. According to data from BuiltWith, the Shopify platform was host to more than 1.58 million websites in 2021 and the figure is growing. Data from W3Techs suggest that more than 4.0% of the top 10 million websites are using Shopify.

 

Shopify Q4 2024 Earnings Call Transcript

Presentation

[Carrie Gillard, IR at Shopify]

Good morning, and thank you for joining Shopify's fourth quarter twenty twenty four conference call. I'm Carey Dillard, director of investor relations. And joining us today are Harley Finkelstein, Shopify's president, and Jeff Hoffmeister, our CFO. 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 subject to risks and uncertainties that could cause actual results to differ materially from those projected.

[Carrie Gillard, IR at Shopify]

Undue reliance should not be placed on these forward looking statements. We undertake no obligation to update or revise these statements except as required by law. You can read about these assumptions, risks, and uncertainties in our press release this morning as well as in our filings with US and Canadian regulators. We'll also speak to adjusted financial measures, which are non GAAP and not a substitute for GAAP financial measures. Reconciliations between the two are provided in our press release.

[Carrie Gillard, IR at Shopify]

And finally, we report in US dollars, so all amounts discussed today are in US dollars unless otherwise indicated. With that, I'll turn the call over to Harley.

[Harley Finkelstein, President at Shopify]

Thanks, Carrie, and good morning, everyone. As we close another year, I've honestly never been more excited by what we've achieved and how it's positioning us for 2025. Twenty '20 '4 was one for the books. We executed with discipline just as we said we would. We maintain a rapid speed of product innovation marked by three, yes, three additions, and we further solidified our position as a leader in unified commerce.

[Harley Finkelstein, President at Shopify]

We continue to expand our global reach and scale, coming in just shy of $300,000,000,000 in GMV and $9,000,000,000 in revenue for the year. That is nearly 2.5 times more GMV and three times more revenue than 2020 just four years ago. Or to put it another way, we delivered annual revenue growth of 26% and an annual free cash flow margin of 18%. And we ended the year on a really high note with q four absolutely knocking it out of the park, delivering 31% revenue growth and 22% free cash flow margins, putting us in the rare air of hitting the rule of 50 at a size and scale that very few are achieving. We can deliver the success like we did throughout 2024 and specifically in q four because Shopify was founded on the belief that we grow by helping our merchants grow and succeed.

[Harley Finkelstein, President at Shopify]

In other words, their success fuels our own, and that remains the flywheel behind our success today. Our commitment to making entrepreneurship more common is why Shopify has become the go to platform across all corners of commerce. From local startups landing their very first sale to global brands pushing billions in GMV, merchants everywhere are choosing Shopify. I'm especially proud to share that in The US alone, Shopify is now over 12% of the ecommerce market share, and we continue to grow rapidly in places like Europe and Japan. Let's quickly touch on how we closed out 2024.

[Harley Finkelstein, President at Shopify]

From a regional perspective, North American revenue was up 23% with The US crossing $5,700,000,000 in revenue, which is more than our entire company's revenue in 2022. Our international regions continue to outperform North America, achieving a 33% growth rate for the year. With two consecutive years of international growth exceeding 30%, we are driving rapid growth at scale as we continue to expand our global presence. In offline, we grew revenue 33% to $588,000,000 for the year while also crossing $100,000,000,000 in cumulative offline GMV processed on Shopify. And finally, our merchants' full year GMV accelerated to 24% compared to last year, which includes our merchants' most successful Black Friday, Cyber Monday selling period ever, generating $11,500,000,000 in GMV.

[Harley Finkelstein, President at Shopify]

What's even more impressive about these growth numbers is that we did it while managing our operating expense growth to deliver an incredible milestone for Shopify. Our operating income surpassed $1,000,000,000 for the year, which is four times higher than our previous peak of $269,000,000 in 2021. And on top of that, our free cash flow margin expanded to 18%, up from 13% in 2023. I also wanna take a minute to mention some major milestones Shopify hit in 2024 that demonstrate our strength. Over eight seventy five million consumers bought something from a Shopify merchants online store.

[Harley Finkelstein, President at Shopify]

That is essentially one in every six Internet users. We passed a massive milestone crossing the $1,000,000,000,000 mark for cumulative GMV that has been processed through Shopify. And we now have hundreds of millions of Shop Pay users with Shop Pay representing 38% of GPV up from 33% of GPV in 2023. In my fifteen years of Shopify, I firmly believe this is the strongest and the most durable version of the company to date. Twenty twenty four was nothing short of spectacular, especially with a powerhouse q four.

[Harley Finkelstein, President at Shopify]

And if I may, I wanna pause for a second here and just make sure that is really, really clear. Nothing matters more than this. Q four was an incredible quarter, and even more importantly, the entire 2024 was exceptionally strong. On this very call one year ago, we laid out very clear goals, and then we set out, and we absolutely crushed them. We delivered 24% GMV growth, 26% revenue growth, and an 18 free cash flow margin.

[Harley Finkelstein, President at Shopify]

This is not just Shopify doing well. This is Shopify operating as a growth company at peak performance across our team, our products, our business model, and with operational discipline, exactly as we said we would. And even though we get to get on here four times a year to walk through the quarterly results, we are laser focused on the bigger picture. Our vision goes way beyond just the next quarter. We are committed to building a durable one hundred year company that doesn't just meet the needs of our merchants, but anticipates what they'll need in the next five, ten, even twenty years.

[Harley Finkelstein, President at Shopify]

We are really pleased with how things are shaping up. Our market position is strengthening. Our operating model is proving very effective, and our profitability levels are exactly where we want them to be. If you walk away from this call with nothing else, I hope it's that. Okay.

[Harley Finkelstein, President at Shopify]

Where was I? Okay. So in 2024, we focus a ton on optimizing and fortifying the incredible platform we have built. We fine tuned the edges, we improved performance, and we made sure everything works seamlessly together. Now while there were too many to listen to this call, I I wanna have a couple of the most impressive time saving features and new products that we launched this past year.

[Harley Finkelstein, President at Shopify]

First, our engineers focus on enhancing Shopify's intuitiveness and ease of use by streamlining operations and reducing friction. We increased varying limits to 2,000 to enable building even more complex catalogs for larger merchants. We enhanced customer account extensions so merchants can add features like loyalty programs without touching code. We launched Shopify Balancer Plus, introducing next day payouts and attractive APYs, and added flexible payment options in Shopify credit to improve cash flow management. We expanded Shopify tax to The UK and EU and enhanced Shopify inbox leveraging AI to make customer communications more efficient.

[Harley Finkelstein, President at Shopify]

In our offline business, we rolled out tap to pay in multiple countries, introduced Shopify bundles and customer meta fields, and launch robust order management features like ship to store and draft orders. We also help merchants turn their retail locations into powerful acquisition channels by capturing more emails at checkout powered by the network effect of Shop Pay. Internationally, we've taken big strides by expanding our POS terminal to eight additional countries and integrating payments in France. We also made it easier for merchants to discover and engage with their customers. The Shop app introduced a new merchant focused home feed highlighting the diversity and richness of brands.

[Harley Finkelstein, President at Shopify]

We also made Shop campaigns available to all Shopify plans, enabling more merchants to run acquisition campaigns on platforms like Shop, Google, and Meta, targeting new and lapsed customers with incentives in the shop out. As it relates to helping our merchants go global, we've significantly enhanced the global buyer experience by adding UPS as a carrier option in managed markets, expanding our comprehensive coverage for US outbound labels across economy, standard, and express services. We've expanded multi currency payouts across select parts of Europe, introduced Shopify plans in Japanese yen, and launched RISE, our first flagship theme tailored for the Japanese ecommerce market. Additionally, we've integrated Klarna into Shopify payments as a local payment method for certain countries, and we increased our local shipping options across Europe and The UK, further broadening our market coverage and streamlining operations for our merchants. Beyond our products, one of the greatest strength is our thriving partner ecosystem.

[Harley Finkelstein, President at Shopify]

We are widely recognized as one of the best companies in the world at fostering a long term mutually beneficial partnership. Last year, we became Roblox's first commerce integration partner. We integrated with YouTube Shopping in The US, expanded our payments offering through our partnership with PayPal, launched our first AI powered search integration with Perplexity, enabling new ways for buyers to find merchants, and launched a new collaboration with Oracle for enterprise. Additionally, over the past year, we have paid out $1,000,000,000 to partners for apps benefiting our merchants. We also added over 3,000 new apps to our app store, bringing our total to more than 16,000 apps by the end of twenty twenty four, including the over 675 that are part of our built for Shopify program.

[Harley Finkelstein, President at Shopify]

This is what differentiates us. We accomplish all of this product innovation in a single year. Again, in a single year. We are building for the long term, and 2024 shows just that. It's one of the strongest and most balanced years across all aspects of our business in our twenty year history.

[Harley Finkelstein, President at Shopify]

And with that in mind, let me take you through some of the accomplishments from our q four across our growth drivers, and then I'll wrap up by sharing an overview of our aims for 2025. So let's dive into q four. Shopify is expanding its merchant base to include larger, high volume global brands. Since our last earnings call, brands like Reebok, Champion, West Wing, and BarkBox all launched on Shopify. We also continue to deepen our portfolio of brands across our largest verticals, signing names from the apparel and accessories vertical like the Canadian behemoth Reitmans, David's Bridle, Uncommon Goods, and luxury handbag designer Dooney and Bourke, health and beauty companies like Goop, while adding to newer verticals, including the legendary Warner Music Group, and the renowned window covering company, Hunter Douglas.

[Harley Finkelstein, President at Shopify]

In Europe, we also signed iconic luxury fashion retailer, Karl Lagerfeld, who will launch over 70 global point of sale locations with Shopify. We're also thrilled to continue welcoming some of the biggest and the most renowned sports teams to Shopify. Most recently, FC Barcelona, the iconic soccer team with a global fan base of over 330,000,000 has expanded their use of our platform to include our unified commerce and point of sale system moving beyond just online. They joined an impressive roster of major sports teams already leveraging Shopify, including European football giants like Real Madrid and Newcastle United, NBA powerhouses such as the LA Lakers, Miami Heat, Dallas Mavericks, and Sacramento Kings, as well as the Toronto Maple Leafs and Red Bull Racing. Not to mention within global esports teams, including Team Liquid and, of course, our very own Shopify Rebellion.

[Harley Finkelstein, President at Shopify]

You could say we're knocking out of the park in the commerce game. Clearly, we are playing in a league of our own as the MVP, the most valuable platform. And that is just the beginning. Think about this. From top sports teams to major music labels and even one of the largest window covering businesses, Shopify powers them all.

[Harley Finkelstein, President at Shopify]

This diversity isn't just impressive. It proves that Shopify is the most compelling choice for any business looking to grow quickly, reliably, and at scale. No matter your industry, we have got you covered. In addition to new brands consistently choosing Shopify for its comprehensive enterprise level offerings, the Shop Pay commerce component has also become a compelling entry point into the Shopify ecosystem for enterprise brands. Take Everlane, for example.

[Harley Finkelstein, President at Shopify]

Everlane was the first merchant to sign up for Shop Pay commerce component about fifteen months ago. But since then, our partnership has only grown stronger. And by q four of this year, we've expanded our agreement with them, bringing more of their operations over to Shopify, and we believe this trend should continue to play out over time for the Shopify commerce component. We expect that enterprise retailers may often begin with a simple integration of Shop Pay and gradually over time adopt more and more of Shopify's products and services. Or here's another example.

[Harley Finkelstein, President at Shopify]

In q four, we signed three very large shoe brands, Aldo, Sperry, and Call It Spring, that combined will bring both their online and offline businesses to Shopify, including over 400 physical retail locations through point of sale. Initially, these brands were only looking at our shop pay commerce component. But after working closely with our team and seeing what our full unified e commerce offering can do, they each decided to go all in with us. I love this example because it highlights so clearly that our go to market strategy of offering a singular component as an option can open up conversations that lead to merchants adopting our entire platform. Now let's dive into shop products, the buyer facing side of Shopify that's all about making shopping simpler, more delightful, and becoming the most trusted brand for commerce everywhere.

[Harley Finkelstein, President at Shopify]

Our Shop products are anchored by four main pillars, Shop Pay, Shop Pay installments, sign in with Shop, and the Shop app. Let's start by talking about Shop Pay. The shop pay button has become a highly valuable piece of real estate for both merchants and buyers. We believe that buyers are actively seeking it out during checkout so much so that if not available, they are more likely to abandon their checkout. Now this behavior underscores what we and our merchants have long understood.

[Harley Finkelstein, President at Shopify]

Shop Pay's ability to drive conversions is very powerful. This quarter, Shop Pay processed $27,000,000,000 of GMV, up 50% from last year and double that of the next accelerated checkout on Shopify merchant stores. I wanna make sure that everybody caught that, nearly double that of the next closest option. So it's no surprise that the Shop Pay commerce component in particular has been generating very strong interest amongst enterprise level brands. In 2024, GMV from this component alone surged by nearly 20 x with major brands like Arctic, Boot Barn, and Bespoke Post adopting it.

[Harley Finkelstein, President at Shopify]

And this quarter, well known brands such as Crocs and GameStop also signed up for Shop ecommerce component, further expanding our reach. Now the Shop app, which has seen its GMV grow six x in the past two years alone, continues to scale across active users and in app native GMV. In fact, q four Shop App native GMV was up 84% versus the prior year as we continue to make it an even more compelling destination for buyers to find their favorite brands on their mobile devices. Recent improvements include a more personalized and fresh shopping feed, new curated shopping events and category browsing, and the launch of cart syncing, which allows users to complete abandoned Shop Pay web checkouts through the Shop app. This is really, really cool.

[Harley Finkelstein, President at Shopify]

And finally, let's quickly touch on offline and b two b before we turn our focus to 2025. Q '4 offline GMV grew 26%, thanks largely to our focus effort on expanding our reach with large, multi location merchants. Notably, we launched three new brands in the Asia Pacific region with over three twenty locations and celebrated the opening of SKIMS' first location NYC and Beam's first pop up store. Additionally, a recent Ernst and Young market report has validated our leadership in unified commerce, recognizing Shopify point of sale for its efficiency and cost effectiveness. Highlighted that because of our best in class architecture, Shopify point of sale enables enterprise retailers to achieve 22% lower cost of ownership and 20% faster point of sale implementation, enhancing both operational and revenue efficiencies.

[Harley Finkelstein, President at Shopify]

This is a really, really big deal in the physical retail industry. In b to b, Shopify is really crushing it with six straight quarters of over 100% year over year GMV growth. In fact, q four alone was a 32% increase, and November smashed records with an all time high in monthly GMV. Throughout the year, our b to b GMV climbed by more than a 40% compared to 2023. In 2024, we also secured a top spot in the Forrester Wave rankings, a recognition that not only showcases our robust b to b capabilities, but also enhances our appeal to larger merchants.

[Harley Finkelstein, President at Shopify]

We also welcome new brands from various industries, expanding our market reach and customer base. While b to b still accounts for a small portion of our GMV, the strong growth we are experiencing highlights the vast opportunities ahead. Our aim is to make Shopify the premier self serve wholesale purchasing platform, offering a unified solution that powers commerce online, offline, and everywhere in between. And we are well on our way to achieving that. Okay.

[Harley Finkelstein, President at Shopify]

So, yes, 2024 was an incredible year capped off by a particularly strong q four. But as you all know by now, we are already full steam ahead into 2025, actively building on the scaling foundations we have built. Every year, Toby sets the core themes for our company, reminding us of the impact of her work and guiding our focus for the year ahead. This year's aims build directly off of last year's successes, emphasizing a continued commitment to strong operational performance, rapid product innovation, and most importantly, the continued success and the growth of our merchants. First, we remain committed to nailing the basics.

[Harley Finkelstein, President at Shopify]

And as a result, continuing our focus on simplification is front and center. Everything we build and do should make Shopify even more user friendly for our merchants. This means stripping away unnecessary processes and focusing on what truly adds value. In other words, help our merchants to grow revenue with a growing complexity for their business. Next, we will continue to embrace the transformative potential of AI.

[Harley Finkelstein, President at Shopify]

This technology is not just a part of the future. It is redefining it. We've anticipated this, so we're already transforming Shopify into a platform where users and machines work seamlessly together. We plan to deepen our investment in Sidekiq and other AI capabilities to help not just brand new merchants to launch, but also to help larger merchants scale faster and drive greater productivity. Our efforts to shift towards more goal oriented software will further help to streamline operations and improve decision making.

[Harley Finkelstein, President at Shopify]

This focus on embracing new ways of thinking and working positions us not only as the platform of choice today, but also as a leader for commerce in the AI driven era with a relentless focus on cutting edge technology. Additionally, expansion remains a cornerstone for our ability to build for the long term. In 2025, we plan to continue to grow our reach across various merchant sizes from entrepreneur to enterprise and gain greater presence and market share across all geographies, particularly internationally in Europe and countries like Japan. We will continue to defend and to grow our leadership position as the place to start an online business. We are dedicated to reinforcing our position as the go to platform for starting online business and driving growth in areas like point of sale, b two b, and shop supported by further strategic marketing and targeted go to market initiatives.

[Harley Finkelstein, President at Shopify]

This expansion is not just about increasing our footprint. It's about strengthening the trust and reliability that our merchants expect from Shopify, all while working to become the gold standard for trusted commerce by buyers across the Internet. And all of this is backed by our continued commitment to a strong free cash flow margin profile. We plan to continue to operate efficiently as possible to create the flexibility we want for further investment in the multiple areas of growth that we see before us. This disciplined approach allows us to focus on investing in long term strategies rather than just short term gains.

[Harley Finkelstein, President at Shopify]

Okay. To close this out, our path is clear, and we are executing. We've consistently demonstrated our commitment to financial discipline, enabling solid free cash flow margins that position us well for future growth and profitability. In 2025, we will continue to invest in our core platform and in key areas like enterprise, offline, and international markets as these key growth drivers are helping to fuel our top line growth and laying the groundwork for ongoing success and innovation. As the commerce landscape evolves, we firmly believe Shopify is best positioned to thrive, thanks to our proven track record, agile platform, relentless focus on product innovation, and the success of our merchants.

[Harley Finkelstein, President at Shopify]

We are entering an exciting era of commerce driven by transformative shifts in technology like AI. We are ready to embrace this change and the competition it brings, confident in our ability to continue leading the way. So thank you to the entire Shopify team, to our partner ecosystem, and to all our merchants for another amazing year of making commerce better for everyone. As I hope is evidenced at this point, we are ready, and we are excited for what is next. And with that, let me turn the call over to Jeff.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

Thank you, Harley. Q four was an exceptional quarter for us, capped in a year where we delivered 25% or greater top line growth in each quarter when excluding logistics and expanded our free cash flow margin to 18% for the year. This marks our seventh straight quarter of delivering pro form a revenue growth of 25% or greater, sixth consecutive quarter of GMV growth rate exceeding 20%, ninth consecutive quarter of positive free cash flow and sixth consecutive quarter of double digit free cash flow margins. We also achieved some significant milestones on the expense side, but more on that later. We are delivering growth across multiple products, multiple geographies, and multiple merchant sizes and types, all while being disciplined on expenses but thoughtfully investing for Shopify's continued growth.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

Now let's dive into our Q4 results. In Q4, GMV increased 26% year over year, marking the highest quarterly GMV rate since the pandemic driven growth rate of 31% in Q4 twenty twenty one. The Q4 GMV results were driven primarily by same store sales growth from our existing merchants, led by our Plus merchants growth in the number of merchants on our platform, continued strength internationally with GMV outside North America growing 33% in Q4. This continued momentum was led by 37% growth from the combined region of Europe, The Middle East and Africa with growth in that region slightly weighted to same store sales growth versus new merchant acquisition and fourth, online, our point of sale, where we had 26% GMV growth year over year. In terms of industry verticals, Q4 saw notable growth from Health and Beauty, Food and Beverage, Home and Garden and Apparel and Accessories.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

We also had in Q4 notable strength from a few interesting but smaller verticals for us like Toys and Games and Animals and Pet Supply. Q4 revenue was $2,800,000,000 up 31% year over year and full year revenue was up 26% to $8,900,000,000 The key drivers were the GMV growth that I just mentioned, growth in subscription solutions revenue stemming from the growth in the number of merchants on our platform and, to a lesser degree, variable platform fees and apps and domains, and increased payments penetration, which hit 64% for Q4. The revenue outperformance relative to our outlook was driven by North America representing a larger percentage of GMV than expected. More of our products are available in North America versus other geographies, so outperformance in The U. S.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

And Canada brings higher revenue per merchant. Q4 Merchant Solutions revenue increased 33% year over year, primarily driven by the continued strength in GMV and increased penetration of Shopify Payments. $61,000,000,000 of GMV was processed on Shopify payments in Q4. That's 35 percent higher than last year and 64% of GMV compared to 60% in Q4 of twenty twenty three. Several factors drove the quarter's higher gross payments volume, including the strong performance of merchants who use Shopify Payments, an increasing percentage of which are on Shopify Plus more merchants across the globe adopting payments and greater penetration of Shop Pay, which was 41% of GPV in the quarter.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

As a reminder, Q4 is a quarter which traditionally sees the highest percentage of revenue from payments. For the year, GPV penetration was 62%, up from 58% in 2023. Subscription solutions revenue was up 27% over Q4 of last year. The growth was driven by an increase in the number of merchants on our platform and, to a lesser degree, higher variable platform fees and the benefit from the Plus pricing change. We continue to execute at an impressive scale, driving both commerce overall and our share of the commerce market.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

Q4 MRR was up 24% year over year with continued growth in each of standard, plus and offline with all three categories seeing an increase in the number of merchants. Plus represented 33% of MRR for the quarter, consistent with Q3. Important note that during Q4, we started shifting to a three month paid trial in certain markets versus our previously predominantly one month paid trials. This change was a headwind to our Q4 MRR growth, particularly in standard and offline. Moreover, based on the timing of our rollouts, we expect it to impact Q1 and Q2.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

As you know, we are always iterating on our approach to merchant acquisition, focusing on enabling and accelerating merchant success for the long term. With respect to paid trials, the one month trials yielded revenue to Shopify faster, but our data also suggested that it came with a cost of durability, specifically given merchants a little bit more time to experiment with our platform, increased the likelihood that they were setting themselves up for greater GMV success over the long term. This point became clear through testing that we did regarding how quickly merchants from various trial lengths achieved certain GMV milestones. For nearly every lens of our business, like geography or merchant type, the three month trial yielded better long term results for merchants and Shopify. Therefore, we are moving to three month trials in most geographies.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

As a reminder, paid trials are just one of our merchant acquisition tools. Q4 gross profit was $1,400,000,000 for the quarter, up 27% year over year, and our full year gross profit was up 27% to $4,500,000,000 Subscription Solutions gross margin was 79.9% compared to 81.5% in the prior year. The decrease was mainly due to higher cloud and infrastructure hosting costs in part to support our higher volume fourth quarter, but we do not expect this to have as much of an impact going forward. Merchant Solutions gross margin was 38.2% compared to 39.2% in Q4 of twenty twenty three. The decrease was primarily driven by lower noncash revenues from certain partnerships, which carry a high gross margin, and the impact from the expanded partnership with PayPal.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

Partially offsetting these headwinds in Q4 was strength in our other merchant solutions products led by international selling, previously known as markets. Now let's turn to operating expenses. Reflecting on just the past two years, we've made significant strides. In q four twenty twenty two, operating expenses, excluding the real estate charge, were 52% of revenues. That went down to 36% in Q4 of twenty twenty three and further down to 32% this Q4, which was right in line with the outlook we provided.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

We have come a long way. In Q4, we achieved operating expense leverage in each of R and D, sales and marketing and G and A, largely due to our disciplined management of headcount. As of 12/31/2024, our headcount was just under 8,100 employees, down from approximately 8,300 at the end of twenty twenty three. In the fourth and smallest of our four operating expense categories that we have on the income statement, transaction loans and losses, which does not involve headcount, we saw a slight increase as a percentage of revenue to 3% from 2% the previous year. This increase is simply a function of higher volumes for both our payments and capital businesses.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

Important to note that our loss ratios for each remained within a consistent range. Payments and capital are growing well, and this was an outgrowth of that. I want to take a moment to thank all my colleagues for the hard work and discipline they're exercising on headcount and the constant innovation and leveraging of automation, all while we continue to invest in key growth opportunities. In my opening remarks, I referenced some milestones on the expense side. In Q4 and for the year, we reached four milestones for the first time since going public nearly a decade ago.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

Operating expenses for the year were down to 38% of revenues. Operating expenses for Q4 were down to 32% of revenues. Operating margin for the year hit 12%, double that of our previous peak in 2021, and operating margin for the quarter was 17%. All of these metrics represent the strongest profitability levels that we have achieved since going public in 2015, all while maintaining and, in many instances, accelerating growth at scale. Stock based compensation was $118,000,000 for the quarter.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

Q4 free cash flow was $611,000,000 or 22% of revenue, coming in better than our outlook primarily due to our revenue outperformance. We delivered increases in both free cash flow margin and free cash flow dollars each successive quarter last year, delivering 12% in Q1, '16 percent in Q2, '19 percent in Q3 and 22% this past quarter. For the year, free cash flow was $1,600,000,000 up 77%, achieving a free cash flow margin of 18% for the year. Our free cash flow levels are the manifestation of the hard work throughout 2022 and 2023. I believe the strength of our business allows us to achieve these attractive free cash flow margins, but still importantly, invest in the future.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

To be clear, we are a growth company. We plan to prioritize investing further in key areas like our core platform, international, B2B, enterprise and offline, as opposed to driving for higher free cash flow margins in the near term. It's simply the right thing to do with the immense opportunities we see ahead, but delivers a profitability level that we are proud of and believe we can maintain without impacting future growth. Before diving into outlook for Q1, '1 additional dynamic for the full year 2025 to call out. This year, we expect to return to the normal pattern of merchant solutions growing quicker than subscription solutions.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

A recurring theme of merchant solutions outperformance over the years has been the strength of our payments product, the growing number of our merchant solutions products that we offer, and our ability to drive merchant adoption of these offerings. Two things are expected to impact subscription solutions growth this year. First, the move to three month trials. Second, our subscription solutions revenue recently benefited from the changes in our pricing plans for Standard and Plus. While we always examine pricing across products and geographies, we don't expect to have substantive pricing changes this year, and therefore expect this benefit to subscription solutions growth to normalize.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

With this backdrop, let's move to our expectations for Q1. We expect Q1 revenue growth to be in the mid-20s year over year, driven by many of the same factors that supported our strong revenue growth in 2024, noting that Q4 specifically is our seasonally strongest quarter. Turning to gross profit. We expect our gross profit dollars to grow in the low 20s. The year over year gross margin impact versus Q1 of twenty twenty four is driven by the mix shift between the growth rates of Merchant Solutions and Subscription Solutions that I just mentioned, the continued strength of payments, including the growth of Plus and Enterprise and the two dynamics that I mentioned regarding Q4 gross margins: PayPal accounting and lower noncash revenues.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

We expect that our Q1 operating expenses will be 41% to 42% of revenues, reflecting a 500 to 600 basis point improvement from Q1 last year. The factors that contributed to our expense leverage in Q4, as I detailed earlier, are expected to continue into Q1. We are committed to finding opportunities for operating leverage, but notably want to make sure that we are investing in R and D talent and will continue to invest in marketing to support our key growth areas, including enterprise, offline and international. Stock based compensation is expected to be $120,000,000 in Q1. Finally, free cash flow margin.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

Q1 is typically our lowest GMV quarter, which naturally affects our revenue scale and thereby our free cash flow margin. Despite this, we still expect our Q1 free cash flow margin to be in the mid teens, up from 12% last year. It is important to note that while we've significantly expanded our free cash flow margins over the last two years, as we move into 2025 and as I mentioned on our last call, we believe the free cash flow margin profile that we have achieved in 2024 strikes the right balance between profitability and investing in building the best products for our merchants today and into the future. We aim to maintain this level of cash flow profitability rather than optimizing for further margin expansion in the near term. There are simply too many compelling growth opportunities ahead.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

And with that, I'll turn the call back over to Carrie for your questions.

[Carrie Gillard, IR at Shopify]

Thanks, Jeff. We will now take your questions before turning the call back to Harley for some final words. Please use the raise hand feature in Zoom to ask your question. If you are dialing in by phone, you will need to press 9 to join the queue and 6 to unmute yourself. We ask that you limit yourself to one question so we can try to get to as many questions as possible.

[Carrie Gillard, IR at Shopify]

Our first question comes from Andrew Bausch at Wells Fargo.

[Andrew Bauch, Director - Equity Research at Wells Fargo]

Hey, guys. Thanks for taking the question and nice set of results here. Maybe we can just start with the free cash flow guide for the first quarter. It looks like you're calling for roughly 200 basis points of free cash flow margin expansion. Is this the right way to think about the margin expansion as we kind of move through the remainder of the year?

[Andrew Bauch, Director - Equity Research at Wells Fargo]

And then if we think about the investments that you're making, you know, last year was a lot of the performance marketing was a key theme. Is it consistent with what you're kind of investing in now for these new opportunities?

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

Yes, I'll start with that. As it relates to the quarterly aspect of free cash flow, I'm not looking to get into the differentials in any given quarter. I'd go back to the comments I made, Andrew, in terms of the overall level of free cash flow margins, how we think about it. And we believe we've gotten to a very good level, which allows us to obviously maintain this profitability, but also invest back into the future and what we want to accomplish. So it's I made some comments in the past as it relates to the quarterly evolution of free cash flows.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

I stand by that. As you know, Q4 traditionally is just our just in terms of GMV dollars is our largest quarter in terms of the GMV, which then translates into revenue, which obviously then translates down into free cash flow margin. But in the aggregate, in terms of how we think about these margins, again, I go back to my perspective on this feels like we're at the right level. And as it relates to performance marketing, that obviously continues to be the majority of our marketing spend. We still on the marketing side are focused on the paybacks we've talked about on numerous calls.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

They're performing very well. As you know, we're always testing. We're always analyzing. We're always looking at where that best incremental dollar of marketing spend could be put to work, but nothing's changed in our strategy there.

[Carrie Gillard, IR at Shopify]

Thank you. Our next question will come from Jeff Cantwell at Seaport Research.

[Jeff Cantwell, Senior Analyst at Seaport Research Partners]

Hey. Thank you for taking my question. Can you hear me?

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

Yes.

[Jeff Cantwell, Senior Analyst at Seaport Research Partners]

Great.

[Jeff Cantwell, Senior Analyst at Seaport Research Partners]

Great.

[Jeff Cantwell, Senior Analyst at Seaport Research Partners]

Maybe just to clarify, it looks like your merchant solutions take rate was higher than expected this quarter. But how should we think about that in Q1? Obviously, there's going to be some seasonality there. But on a year over year basis, it sounds like we should maybe be contemplating a higher take rate there in merchant solutions, given all the momentum we're seeing across the platform. And then the gross margins, it looks like you're guiding low 20s.

[Jeff Cantwell, Senior Analyst at Seaport Research Partners]

Do you mind just drilling down on that a little bit? How much of the delta there versus the revenue growth guide was due to success moving on market to enterprise? And I think you said PayPal accounting. So just trying to get more clarity on that to think about to go forward. Thanks.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

Yes. As it relates to merchant solutions and the attach rate, obviously, what is going into merchant solutions is the strength of payments as well as the continued growth of the products like capital and tax and all the additional products which we're adding. And that's if you look at it on a year over year basis, obviously, '24 over '23, you got to keep in mind the impact of performing out logistics. And so that actually would add some additional strength in terms of what you're seeing on the merchant solutions attach rate. So we will obviously continue to drive all the products within merchant solutions and that will be reflective of what you see in the attach rate.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

We're recognizing again that as we've talked about in the past, attach rate for us is more of an output. We're obviously trying to build great products for our merchants that drive their GMV. And from that, we'll obviously come the success in terms of what we realized in revenue and the monetization there. But yes, as your question alludes, we're performing well on the Merchant Solutions side. As it relates to gross margins for Q1, obviously, I talked through from a guidance perspective the year over year impact and the trends that are at play there.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

Part of what I alluded to in terms of the relative growth rates of merchant solutions and subscription solutions will have an impact on gross margin. And part of that is just a function, as I alluded to, in terms of what we're seeing on the paid trials this year, which will be something which will have some headwinds for the first half of the year, but obviously that will then normalize. So, I don't think there's anything beyond what I covered in the primary call. Those are the key drivers.

[Carrie Gillard, IR at Shopify]

Thank you for your question. Our next question comes from Craig Maurer at Financial Technology Partners.

[Craig Maurer, Managing Director at Financial Technology Partners]

Yes. Good morning. Thanks for taking the questions. First, I wanted to understand how the de minimis exemption impacts your business and how we should think about that should tariffs include that and come into play? Second, I just wanted to understand how AI can help you with content or listing moderation considering the controversy around the Super Bowl advertisement that took place?

[Craig Maurer, Managing Director at Financial Technology Partners]

Thanks.

[Harley Finkelstein, President at Shopify]

I'll start there with that question. Let's sort of start with sort of the question of de minimis and just tariffs in general. Look, I think small businesses are responsible for something like two thirds of all jobs created. They account for almost all the new job creation And our merchants alone move billions across the border. So, obviously, tariffs impact real entrepreneurs that are carving out livelihoods for themselves.

[Harley Finkelstein, President at Shopify]

And what we try to do at Shopify every day is we try to protect and empower every business we can. But obviously, especially, we care about the underdogs. So as soon as we've seen anything, whether it's tariffs or de minimis, we usually get to work from a product perspective. And we did that right away. I mean, all merchants can now display and collect duties during checkout.

[Harley Finkelstein, President at Shopify]

Consumers can actually easily shop from their home country using shop apps, new search filters. And what specifically it comes to de minimis, I mean, we think protections like de minimis are crucial for small business that engage in trade. By exempting these sort of low value shipments from taxes and duties, they keep cost down and allow entrepreneurs, I think, to compete on a much larger scale. So I think rather than eliminating de minimis, countries should really try to streamline these custom processes and improve digital duty collection to make things a lot easier.

[Carrie Gillard, IR at Shopify]

Okay. And our next question will come from Mark Mahaney at Evercore ISI.

[Mark Mahaney, Senior Managing Director at Evercore ISI]

Okay. Great. Two questions, please. Headcount growth you pointed out was you know, or headcount sort of declined in the fourth quarter. Just how do you think about headcount going forward?

[Mark Mahaney, Senior Managing Director at Evercore ISI]

Do you think you've got enough operational efficiencies that we should expect relatively modest headcount growth for Shopify going forward for the next year or two? And then, if you look back on the pricing actions that you've taken over the last, you know, year or two, the lessons that you've drawn from that and your level of confidence that the value you're creating, for your customers is that will allow you from time to time to take more pricing actions? Thank you very much.

[Harley Finkelstein, President at Shopify]

So maybe I'll start there, Jeff, and you can kind of jump in. On the Hencount thing, we think we're at a point now where we continue to grow the business, both merchant based, GMV revenue, and leave our headcount fairly flat. We like the size of Shopify. We like the shape of Shopify. It's been maybe about twenty four months now since we sort of talked about this new shape of Shopify, focus on Main Quest only, focus on making sure we help entrepreneurs all the way to enterprise merchants, not just sell online with us, but sell across every single service area.

[Harley Finkelstein, President at Shopify]

Obviously, merchant solutions and making sure that they take more of our products is something that's also very important to us. But we think we can do so without growing our headcount meaningfully, which really, really matters. In terms of your question around I think your question was really around value related to the product of Shopify and particularly when it comes to enterprise. What we've noticed is that merchants believe that Shopify is still the best deal in town, including at the enterprise level. I mentioned this previously, but one of the cool parts of seeing companies like Everlane, for example, come to us initially simply for a component and then eventually coming on entirely to Shopify or another example is Aldo, where the conversation started with the commerce component and ended up turning into the entire unified commerce product that we offer them.

[Harley Finkelstein, President at Shopify]

We are seeing more and more of these merchants that come. They want to learn about Shopify. And I'll just say from personal experience, we finished NRF in January. Pretty much every retailer and every major brand on the planet is now looking to Shopify or at least coming and introducing themselves to Shopify to figure out how, if we can work with them. That was not happened even twelve months ago.

[Harley Finkelstein, President at Shopify]

And I think the two things that really are helpful to them is one, the product. This is a future proof product, which means no matter where they want to sell long term, they can, but also the value. Shopify is incredibly high value. Relative to all the other enterprise players, it's still the best deal in town. Certainly, there is some price elasticity and some room for us to increase pricing.

[Harley Finkelstein, President at Shopify]

But right now, we're winning so many of these large merchants and creating this incredible flywheel that doesn't seem like it's the right time immediately. But that being said, we're going to keep driving that. And I also think that when it comes to pricing, we had mentioned to you a little while back in one of our previous earnings calls, six earnings calls ago, about changing our pricing on our basic plan from $29 to $39 And again, even at the lower end of our pricing plans, we saw very little people very few merchants feel like that wasn't it's still not great value. We saw very little pushback on that, which tells us that we are still deriving an incredible amount of price to value ratio.

[Carrie Gillard, IR at Shopify]

Okay. Thank you for your question. Our next question comes from Brad Sills at Bank of America.

[Bradley Sills, Managing Director at Bank of America Merrill Lynch]

Wonderful. Thank you so much. I wanted to ask about international. Sounds like some exciting expansion opportunity there. Could you just give us a sense for which regions, which countries you're making a bigger push?

[Bradley Sills, Managing Director at Bank of America Merrill Lynch]

And also, what is the kind of investment that you're making there? Is it you know, more setup experts, you know, direct marketing presence? Any any color on how you're investing in some of these new geographies? Thank you.

[Harley Finkelstein, President at Shopify]

Yeah. I'm glad you asked the question. Look, international expansion is a key growth driver for Shopify. It certainly was in Q4 and for all of 2024. In particular, you saw GMV delivered 33 growth in Q4, which outpaced North American GMV.

[Harley Finkelstein, President at Shopify]

In particular, obviously, EMEA and Europe, Middle East and Africa GMV grew 37% Q4 year over year. That was led by countries like UK, Germany, France, Netherlands. We're also seeing a lot of very large brands, a lot of large retailers, whether it's FC Barcelona or or Karl Lagerfeld or Luxottica are on and running or Ami Paris come to Shopify now. So it's an area that we keep investing in certainly from a product perspective, things like frictionless sign up to drive adoption, things like localization of Shopify.com, compliance improvements, rolling a Klarna as a local payment method. There's been new local shipping methods that we've integrated with Shopify point of sale is now available in more countries.

[Harley Finkelstein, President at Shopify]

So from a product perspective, we're making Shopify available to more places and integrating it. Obviously, to your point about some of the agencies and partners that comes with it as well, we've made a ton of headway in terms of growing international merchant base. And as we speak, 50% of our merchant base are currently now outside of North America. And we continue we'll continue to work on that. We think that's an area where we have huge opportunity.

[Harley Finkelstein, President at Shopify]

I mentioned on the call that if you look at U. S. E commerce, we're just over around 12% now of market share. But if you look at global retail, we're less than 1%. We have so much room for us to grow on a global scale across not just online, but also offline.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

Yeah. Brad, the only point I'd add to that in a in a lot of prior calls, we've talked specifically about a bunch of the countries in Europe, most narrowly Western Europe. All this strength there continues. Whether it's Great Britain, Germany, Italy, France, The Netherlands, Denmark, all those continue to perform very, very well. And what we're seeing in terms of I made allusion to this on the call terms of the balance between same store sales growth and new merchant acquisition.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

When you look at the growth rates we're getting for same store sales growth, we continue to grow at a multiple versus what's growing in the e commerce growth rates in each of those countries. So we think we're doing a really good job on the product market fit.

[Carrie Gillard, IR at Shopify]

Thanks, Brad. Our next question comes from Gabriela Borges at Goldman Sachs.

[Gabriela Borges, Analyst at Goldman Sachs]

Hey. Good morning. Thank you. Harley, I wanted to follow-up on your comments on the momentum in the enterprise at NRF. Maybe talk a little bit about any other internal indicators you have or anecdotes on momentum and enterprise being a change in trend rather than just a continuation of a trend.

[Gabriela Borges, Analyst at Goldman Sachs]

And anything that you'd highlight on the product roadmap that you're excited about from a milestone stand standpoint that can help you lift and shift some of this enterprise share of a given how sticky we know the the incumbents can sometimes be?

[Harley Finkelstein, President at Shopify]

Thank you. Thanks, Gabriel. It's a it's a great question. Look. What I mean by it what I mean by that is companies like David's Bridle, for example, or Hunter Douglas or Warner Music or Crocs.

[Harley Finkelstein, President at Shopify]

These are brands that have all signed in the quarter, but these are brands that historically did not come to Shopify. They effectively either had some sort of in house system that they built themselves with a massive engineering team, or they were sort of locked into some legacy commerce software platform, even though they didn't want to stay there, things were sort of duct taped. And what we're seeing now is that especially as new management comes in and all of them are looking for innovation, they're looking for total cost of ownership to be at a reasonable rate. Shopify is where they're walking towards. And then once they see brands like Westwing or BarkBox or Reebok launch, and those are some of the brands that launched in the past quarter, launched at this record speed where it doesn't take twelve to eighteen months to launch, where it takes three months to launch, it's becoming incredibly compelling.

[Harley Finkelstein, President at Shopify]

But I think at the high level, the enterprise is migrating to Shopify. I think one of the great things we did was we created a bunch of options for them. If they want headless, we have hydrogen. If they want one size fits all, we have Plus. If they want something that's specific component, we have CCS.

[Harley Finkelstein, President at Shopify]

And now the fact that we're seeing some of these commerce component merchants migrate to our full suites, we think is really, we're really optimistic about that. When you layer on top of that all these ISVs and these large agency partners, the WPPs, the El Catertons, the EIs, the IBMs, the Oracles of the world who are now building practices around delivering Shopify to their existing large enterprise customers. It's really working. So, you know, just to pick one thing that I'm really excited about, I think it's a combination of incredible product that is absolutely ready for prime time and a very strong go to market team that really understands how to win the enterprise. And and I'm now on the board of NRF, and so I get an inside peek of how, you know, what people are saying on that board and and what people are saying at the show.

[Harley Finkelstein, President at Shopify]

And and the amount, you know, if you just have to sort of work cloud, Shopify and Shopify enterprise and RF, I think it'd be one of the largest cloud. So I think, you know, it's they're coming to us because of exceptional value. They're they like our product. They like the fact they can sell everywhere. And as we add new things like b two b, for example, or point of sale that allows, you know, up to a thousand physical retail locations, it's really all coming together in this incredible way.

[Carrie Gillard, IR at Shopify]

Thank you for your question. Our next question comes from Mark Zugodowicz at Benchmark.

[Mark Zgutowicz, Equity Research Analyst at The Benchmark Company LLC]

Thanks, Gary. Harley and Jeff, just glancing at your cohort analysis in your 10 ks and noticing that the 23 cohort accelerated in terms of its contribution to GMV accelerated quite a bit into 24 relative to what you saw from the 22 cohort. So two questions related to that, sort of what you attribute that acceleration to and sort of what that might imply in terms of the '24 cohort into this year? Thanks.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

Yes. We definitely spend a lot of time, Mark, internally thinking about our merchant ads from a cohort view and how those evolve over time. And obviously, as they stay on the platform, take more and more of our solutions and therefore accelerate our success, that is something we definitely spend a lot of time thinking about. I don't think there's a whole lot to your question. I don't think there's a whole lot to read into what that means for 'twenty four.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

I think 'twenty three, as you know, was you go back roughly two years, there was a lot of things that we started to introduce. We'd had capital out there for a long time. We really got tax up and running B2B, point of sale, the initiatives on enterprise. I think that's about the time when you can arguably say we got good product mark well, even better product market fit in Europe. So I think part of what you've seen over the last couple of years is a ramping of a lot of those things that we have in other merchant solutions.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

So while I don't want to necessarily predict what that means for the 24 cohort, I do think that what we've done is a great job of really expanding the things which our merchants can use to be more and more successful. Whatever geography they're in, whether they're starting on the online side or the offline side, point of sale, however they want to do it. So, it's obviously an encouraging trend from our vantage point. I just don't have any specific metrics to give to you, but I applaud you looking at it because that's definitely something that we think about as well.

[Carrie Gillard, IR at Shopify]

Thank you. Our next question comes from Paul Treiber at RBC Capital.

[Paul Treiber, Director & Research Analyst at RBC Capital Markets]

Yeah. Thanks so much, and good morning. Just a question in regards to AI and the use of AI internally. You know, over the last year or so, you made significant investments. Where are you seeing it operationally having the most impact?

[Paul Treiber, Director & Research Analyst at RBC Capital Markets]

And then what has been the main intuitive productivity gains that you've seen?

[Harley Finkelstein, President at Shopify]

Yeah. I got a question about that earlier that I don't think I was able to address. So let me do that right now. I actually think Shopify will very much be one of the major net beneficiaries in this new AI era. I think we are widely recognized as one of the best companies that foster long term partnership.

[Harley Finkelstein, President at Shopify]

And so when it comes to partnership and AI, whether it's perplexity, where we're now powering their search results with incredible product across the Shopify product catalog or OpenAI, where we're using, we have a direct set of their APIs to help us internally. We are really leveraging it as best as we can. Now we think about it in sort of two ways. The first is from a merchant perspective, how can we make our merchants way more successful, get them to do things faster, more effectively? So things like Sidekiq or the media editor or Shopify inbox, semantic search, Sidekiq, these are things that now you that every merchant should want when they're not just getting started, but also scaling their business.

[Harley Finkelstein, President at Shopify]

And those are things that are only available from Shopify. So we're trying to make some of the more mundane tasks far more easy to do and get them to focus on things that only they can only the merchants can do. And I think that's an important aspect of what Shopify will bring. You'll see more of that happening, obviously, from a talent perspective, having Mikael as our new CTO. I mean, his reputation is leading many more people to come to Shopify from the AI and ML industries.

[Harley Finkelstein, President at Shopify]

And we think we can keep adding some really good, more talent here even while keeping our overall headcount stable. Internally, however, this is where it gets really interesting because not only can we use it to make our developers more effective, but also if you think about our support organization, now we can ensure that our support team is actually having very high quality conversations with merchants, whereas a lot of the low quality conversations, things like configuring a domain or a CNAME or, you know, a username and password issue that can be handled really elegantly by AI. So whether it's how we use it internally or how we help our merchants become more successful, we are uniquely positioned, I think, to harness the power of AI, and this will unlock unprecedented capabilities for our merchants, but also for Shopify.

[Carrie Gillard, IR at Shopify]

And our final question will come from Colin Sebastian at Baird.

[Colin Sebastian, Senior Research Analyst at Baird]

Thanks. Good morning, and appreciate the opportunity. I guess, Harley, you highlighted the increasing use of Shopify products, Shop App, Shop Pay, etcetera. I mean, what's maybe the ultimate vision here for the buyer facing platform? You're seeing a lot of traction.

[Colin Sebastian, Senior Research Analyst at Baird]

It seems like there are lots of opportunities to add functionality like combined shopping carts, things like that, and and maybe investing in a in a larger base of of shoppers using the app. And, and then, Jeff, any comments on sort of capital allocation plans for the year ahead? I mean, you're generating a lot of cash and have a have a nice cash balance, so you have a lot of flexibility there. Thank you.

[Harley Finkelstein, President at Shopify]

Look, as I mentioned, Shop App Q4 NanoJVM was up like 84%. So I think we're making an even more compelling destination for buyers to find their favorite brands on their mobile devices. The way we think about Shop is it's the buyer facing side of Shopify. And the goal is really to make shopping simpler and much more enjoyable. And clearly, it's becoming something that consumers recognize more and more.

[Harley Finkelstein, President at Shopify]

I hear all the time that there are consumers who will only check out if they see the Shop Pay purple button there. We're going to continue to invest in it. The goal though is Shopify to become the gold standard for commerce on the Internet. And I think that a Shop's comprehensive suite of products increase and get better and better, it'll drive trust, it'll drive more security across the all of commerce. And remember, I mean, Shop is an owned channel for merchants that helps them drive traffic the way they want.

[Harley Finkelstein, President at Shopify]

And that is only something you can get if you're on Shopify. So you'll see continued deep investment in things like personalization. You'll see really high quality new brands, new high quality brands come to the Shop app as well, but also, you know, unleashing these new ways for merchants to engage with authentic connections with their customers. And again, it's something that, that you can only get if you're on if you're using Shopify.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

Yeah. Yeah. And then, Conor, on the capital allocation comment, that's definitely something that we discuss internally actively, and we recognize the importance of being good stewards of capital. And I, that said, I also still believe right now that it makes sense to have a healthy cash cushion, and we examine our cash balance both on a percentage of various benchmarks as well as the absolute amount overall. And of course, we think about capital allocation both in terms of the daily decisions regarding everything on R and D spend to marketing to obviously the topic behind your question, which is there a return of capital coming.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

Keep in mind that we have the convert outstanding, which matures later this year. It's a little bit under $1,000,000,000 We have done as you've seen in some of our last calls, the last year, we've done, depending on how you count them, roughly 6 tuck in acquisitions, acquihires. Those have all been relatively small, but those are an important source of AI talent and other talent for us. And so that's things it's something which we want to continue to do and make strategic investments in our partners. We don't to be clear, we don't have any plans for any big acquisitions.

[Jeff Hoffmeister, Chief Financial Officer at Shopify]

These have been very tactical, thoughtful AI hires. And we want to continually be thoughtful and proactive and judicious on thinking about the cash. But as we recognize how important that is, but I don't have any things to announce today as it relates to return to capital. So but let me Harley, let me turn it back to you.

[Harley Finkelstein, President at Shopify]

Yeah. Let me just sort of take a second before we close off here. First of all, thanks for everyone for joining the call. I just wanted to mention a few things. You know, since inception, I think most of you that have been following the story have seen us be incredibly laser focused on making our merchants as successful as possible.

[Harley Finkelstein, President at Shopify]

And I just want to remind everyone that the beauty of our business model is that when we do that well, the financial results follow. And our story is quite simple. It's mission, it's rock solid execution and it's durable growth. And as Jeff said, Q4 twenty twenty four was a remarkable example of that. Sixth consecutive quarter of GMV growth over 20%, sixth consecutive quarter of double digit free cash flow margins.

[Harley Finkelstein, President at Shopify]

And it was actually our seventh quarter of 25% or better revenue growth. So I think you can see that we are indeed a growth company, but we also operate with this incredible operational discipline. And you're also seeing us take more market share in this amazing industry that continues to grow. But the best part of Shopify is that we're not just taking a larger piece of the pie. We get to grow the pie itself.

[Harley Finkelstein, President at Shopify]

And quarter after quarter, we are delivering, I think, some of the strongest results in all of software. And I think 2024 was pretty emblematic of that. And we have this great confidence we can deliver on that. So I just want to say this is the best version of Shopify that I've seen in fifteen years since well, since Toby hired me, and and you can expect us to keep improving each and every year ahead. So thank you all for joining the call, and, now we go back to building for our merchants.

[Harley Finkelstein, President at Shopify]

Thank you.

[Carrie Gillard, IR at Shopify]

With that, this concludes our fourth quarter twenty twenty four conference call. Thanks for joining us.

Participants

Executives

• Carrie Gillard, IR
• Harley Finkelstein, President
• Jeff Hoffmeister, Chief Financial Officer

Analysts

• Andrew Bauch, Director - Equity Research at Wells Fargo
• Jeff Cantwell, Senior Analyst at Seaport Research Partners
• Craig Maurer, Managing Director at Financial Technology Partners
• Mark Mahaney, Senior Managing Director at Evercore ISI
• Bradley Sills, Managing Director at Bank of America Merrill Lynch
• Gabriela Borges, Analyst at Goldman Sachs
• Mark Zgutowicz, Equity Research Analyst at The Benchmark Company LLC
• Paul Treiber, Director & Research Analyst at RBC Capital Markets
• Colin Sebastian, Senior Research Analyst at Baird