Shopify Inc.

Thank you for standing by. This is the conference operator. Welcome to the Shopify first quarter 2021 financial results conference call. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Katie Kata, Director of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. We are glad you can join us for Shopify's first quarter 2021 conference call. We are joined this morning by Toby Lutka, Shopify's CEO, Harley Finkelstein, Shopify's President, and Amy Shapiro, 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 can cause actual results that 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 morning as well as in our filings with US and Canadian regulators. Note that the adjusted financial measures we speak to today are non-GAAP measures, which are not a substitute for GAAP financial measures. Reconciliations between the two can be found in our earnings 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 turn the call over to Harley.

Thanks, Katie, and good morning. It's been more than a year since the global pandemic began, which triggered e-commerce to grow at a rate that has transformed the traditional retail model. Shopify's continued focus on bringing the best tools to our merchants to help them thrive in this environment drove our strong performance in the first quarter. Our GMV growth accelerated year over year as merchants across cohorts and geographies thrived on our platform, backed by robust consumer spending. And more entrepreneurs launched businesses on Shopify, trusting us with their livelihoods as they turn their ideas into reality. We continue to reduce friction from our merchants so they can find new buyers, build strong customer relationships, and more easily manage the increasing complexity of their back office operations as they scale. Discovering new buyers is a top pain point for businesses. Multi-channel selling, which is one of our core value propositions, is becoming more critical as the cost of customer acquisition climbs and the lines blur between online and offline commerce. Our sales and marketing channels help merchants to show up where future buyers are spending time. We are ushering in a new era of social commerce and helping more brands and consumers engage in the digital main street. The number of shops actively selling on Facebook shops has more than quadrupled since Q1 a year ago, as well as the GMB through Facebook. While still small, the launch of Facebook shops in May of last year is clearly starting to make a difference here. In Q1, we expanded our marketing partnership with TikTok internationally. to an additional 14 countries in North America, EMEA, and APAC. So far, we've seen good traction in the adoption of TikTok in the US since we launched the integration last October. And we recently expanded our Pinterest channel into 27 additional markets, opening discoverability and sales opportunities worldwide. More merchants are leveraging the value of Shopify Point of Sale, a true omnichannel solution, as the number of locations using our Point of Sale Pro increased substantially over the first three months of this year. Businesses new to Shopify, as well as existing merchants, started using Shopify Point of Sale, enabling them to expand their buyer's universe, seamlessly bridge their online and offline operations, and make shopping more convenient for their buyers, with features like curbside pickup, which is offered through our Point of Sale Probe product. Driving targeted discovery and rediscovery is key for merchants trying to grow their business. Shop, our online shopping assistant, offers both these benefits. We found that a mobile reorder is 11% more likely when orders are tracked in shop. This may be helped by the fact that the average buyer status checks their order in the app multiple times, vastly expanding the number of touch points for brands to connect with their customers. And we've increased potential touch points even further by adding discovery filters for local shops, Black-owned businesses, Asian-owned businesses, women-owned businesses in March, and most recently over Earth Week, merchants practicing and promoting sustainable commerce. shop is one example of how we are removing the friction from commerce and helping merchants build relationships with their customers directly in q1 we introduced in-app buy buttons so buyers don't have to leave the app to purchase the products that are recommended to them along with our accelerated wallet shop pay our buy now pay later product shop installments and end-to-end order tracking these features help merchants increase the lifetime value of their customers Our efforts to make commerce better extend beyond our merchant stores to surfaces outside of Shopify, such as the integration of Shop Pay as a checkout option with merchant selling on Facebook Shops and Instagram Checkout. Merchants in the US are in the early stages of onboarding to this feature, and buyers have already started to use Shop Pay on Facebook and Instagram to checkout. In Q1, Shop had more than 107 million registered users, including both buyers that have opted into ShopPay as well as users of the app, of which more than 24 million were monthly active users. At the end of March, ShopPay had facilitated over $24 billion in cumulative GMV since its launch in 2017. Ahead of general availability in the coming months, merchants' adoption of ShopPay installments accelerated with the rollout of one-click onboarding in Q1. We give entrepreneurs the resources traditionally reserved for big business. Shopify scale enables us to negotiate on behalf of our smaller merchants as we do with Shopify shipping. Since its launch five years ago, Shopify shipping has really come into its own for self-shippers with over half our eligible merchants in the US and Canada now using it. Revenue growth from Shopify shipping accelerated in the first quarter with label volume at nearly the same level as in Q4. We are excited to bring Shopify shipping to other parts of the world for merchants who aren't yet big enough to need to outsource fulfillment. For those who are, we are building the Shopify fulfillment network, so merchants with greater volumes can trust their fulfillments will be handled with the same care as if they were doing it themselves. While this building process is not fast or easy, we are making good progress. More merchants join our fulfillment network in Q1, and we fulfilled similar volumes as in Q4 while maintaining the same high service levels. We are happy with this result given the strong holiday shopping period that drove fulfillment to record levels last quarter. Once merchants start making sales, capital is a natural follow-on to continue their momentum. Shopify is creating better and faster access to capital through Shopify Capital, which has been a lifeline to our merchants during the pandemic and continues to be an important source of accessible funding. In our first quarter of 2021, we funded over $300 million to our merchants, up 90% year over year, and we are seeing larger merchants take on larger advances. This record level of funding brought us to an incredible $2 billion in cumulative capital funded since the launch of Shopify Capital in 2016. It took four years to fund the first billion and just a quarter of that time to fund the second. Small businesses are underserved and overwhelmed by today's financial services. We know this because many of our merchants tell us they feel left out of today's banking system, and many of them use their personal accounts to run their business. Through Shopify Balance, we are breaking down the barriers to entrepreneurship by providing critical business banking tools for the unbanked. Without stepping foot into a bank, a merchant can get immediate access to a no fee account to hold their funds and a card that will give them fast access to their cash. They also get monthly cash back rewards and insights into their cash flow to help them manage their money more effectively, all from directly inside the Shopify platform. More merchants join our early access program in Q1, and we plan to roll out Shopify balance to all eligible merchants in the US over the coming months. Shopify Plus had another fantastic quarter, signing on a record number of high volume brands looking to adapt to the fast changing retail landscape. In Q1, more Shopify merchants on standard plans graduated to Shopify Plus to continue scaling their business. And our focus on bringing Shopify Plus international is gaining traction, as Q1 saw a record number of brands from outside North America join Shopify Plus. Brands that launched in Shopify Plus this past quarter include Japanese sports brand Mizuno, Unilever's Indian DTC store, The U Shop, and Lego. So far, we've seen a great start to our efforts internationally, and our momentum in North America is as strong as ever. Kraft Heinz launched Kraft Heinz Direct, a channel that sells directly to local retailers, convenience stores, and restaurant partners following the launch last year of Heinz to Home. Chrissy Teigen launched Cravings, a culinary store featuring recipes and products that inspire people to get comfortable in the kitchen and have fun cooking. WWE set up shop for their star wrestlers and the most recognizable sub brands. Tinder set up shop for their fans, selling Tinder made apparel and accessories. General Mills has made it easy to buy Czech cereal recipe kits directly. And finally Fabricville here in Canada is capitalizing on the Renaissance of sewing by making their full array of fabrics and patterns available over their newly launched online store. Department stores are brands as well, having built a special place in the hearts of shoppers for decades. And in one case for nearly 200 years, I'm excited to share that Lord & Taylor, America's first department store founded in 1826 has now launched on Shopify. Like so many merchants, speed to market, ease of use, integration capabilities, total cost of ownership, innovation, and shop pay were big reasons why Lord & Taylor selected Shopify. It is exciting to see their value proposition evolve into an excellent mobile and social experience for their shoppers to find what they're looking for on a future oriented platform on which to build experiences that haven't even been thought of yet. With the sustained shift to digital, the need for innovation has accelerated as more businesses come online and seek right fit solutions for their commerce needs. Shopify's partner ecosystem plays a critical role here, influencing the success of our merchants and Shopify. In Q1, the number of partners sending business to us continued to expand as over 45,000 partners referred at least one merchant to Shopify over the last 12 months, up 73% year-over-year. The range of services our partners provide to our merchants, from building apps and beautiful stores to marketing and accounting, helped our merchants drive massive volumes of economic activity in 2020. Last year, our merchants generated over $307 billion in business activity, benefiting local economies around the world. This includes our partner ecosystem, which made over $12 billion in revenue. To put this into perspective, Shopify made $2.9 billion in 2020, highlighting the amplified effect that we've had on local communities and the global economy. We believe that entrepreneurship is a powerful path to help people reach for economic independence. And that is why Shopify partnered with National Geographic to produce the documentary film, Own the Room, which premiered on Disney Plus in March. I encourage all of you to watch it, especially with your children, as it's an incredible documentary showcasing youth in the relentless pursuit of entrepreneurship. It follows the journey of the next generation of young entrepreneurs from different parts of the world who are taking ownership of their futures by building businesses. Stories like the ones told in Own the Room. make entrepreneurship more relatable and inspire Shopify to continue making entrepreneurship easier for future generations. This in a nutshell is why Shopify exists. We are here to make it easier for anyone with an idea and ambition to launch a business. Entrepreneurship is thriving and trends like omnichannel shopping and direct to consumer selling offer even greater opportunities. But entrepreneurship is still harder than it needs to be. And by building a future-proof retail operating system, we are more committed than ever to loving the playing field for entrepreneurs and making commerce better for everyone. Shopify is truly becoming the world's entrepreneurship company. There's an inspirational story for as many merchants as there are on Shopify. We are sharing one today that illustrates just how profound an impact we can have when we put technology in the hands of everyone. Here's Sanujit Hange of Two Brothers Farm in India. As we know, India is battling the worst of this global pandemic right now. We are telling the soundly story to bring some hope in a very difficult time. Here it is.