Shopify Inc.

Thank you for standing by. This is the conference operator. Welcome to the Shopify Inc. 3rd 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 1 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 our earnings call this morning. 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 take your questions. We will make forward-looking statements on our call today that are based on assumptions and therefore subject to the 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 as well as in our filings with U.S. and Canadian regulators. Note that the adjusted financial measures we speak to today are non-GAAP measures. which are not a substitute for gap 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. Shopify delivered a strong third quarter, as the need for modern commerce tools that keep merchants ready for anything and everything is only expanding. The uptake of our newer offerings alongside the growth of our established ones indicates just how eager merchants are for better ways of doing business in this new world where the lines between online and offline are increasingly blurred and commerce everywhere is possible. Over time, our growing suite of capabilities, channels, and partners has fueled our merchant success and encouraged more entrepreneurs to reach for their independence. In the space of just 16 months, our merchants' cumulative GMV has doubled. going from $200 billion in June 2020 to crossing $400 billion at the beginning of October. We are incredibly proud of what we have helped our merchants to accomplish in this short time span. Shopify always has and always will work to make commerce easier for everyone by building what merchants need now and what they will need in the future. Today, I'll run through some of the hard problems we're solving and how Shopify is keeping merchants ahead of the curve. First, merchants need to be where their buyers are. This past quarter, more buyers were in stores as brick and mortar reclaimed some of its share of retail. With Shopify's all new point of sale software supporting in-store retail like no one else, merchants can transition seamlessly between online and offline selling to give their customers an omnichannel shopping experience that's simple and that's convenient. And now that point of sale pro is available on Android devices, more merchants around the world can benefit from our most advanced point of sale features. This past quarter, GMV through our point of sale once again expanded its share of our overall GMV. The launch of our integrated point of sale hardware in Germany and New Zealand in Q3 contributed to this momentum. With point of sale supporting the irreplaceable in-person channel, it keeps our physical main streets and town squares vibrant. Digital town squares and main streets can be enriched in much the same way by embedding commerce into more services. This allows merchants the ability to offer their buyers an organic shopping experience wherever they are. With this, we solve two more merchant problems, brand ownership and building direct relationships with customers. Social commerce can play an important role here. While adoption of social commerce is still early, it is growing fast for Shopify because we have been and continue to be at the forefront of multichannel selling. In Q3, we expanded our relationship with TikTok introducing organic product discovery and shopping tabs where products are linked directly to a merchant's online store for checkout. Since announcing our partnership with TikTok in October last year, merchants have embraced selling on this channel. And just last week, we launched our Spotify sales channel integration, allowing artists, entrepreneurs to sync their product catalogs and showcase their products directly on their Spotify profile. As a platform, Shopify enables merchants to connect with buyers through social and search in a number of different ways. While this most commonly happens via traditional ads placed, more merchants are finding value using a Shopify integrated marketing app or integration that takes buyers direct to checkout. In fact, GMV generated through these valuable integrations for social grew more than tenfold from the same quarter last year and doubled digits sequentially. thousands more merchants integrated with our facebook instagram and google channels in q3 positioning themselves to be discovered by billions of potential buyers we saw the share of gmv from these channels expand its contribution to overall gmv quarter over quarter by several basis points increasing sales conversion is a central problem businesses encounter that shopify is well positioned to solve shop pay our accelerated checkout has been our primary tool for merchants to increase conversion and it is now available to U.S. merchants on Facebook and Instagram, whether they're on Shopify or not. We're seeing early traction with the number of buyers checking out with Shopify on Facebook and Instagram growing, and orders ramping up on these services for Shopify and non-Shopify merchants. We remain on track to add Shopify payments as the processor for all Shopify merchant transactions on Facebook properties by year end. We expect this integration with Google, where Shopify and non-Shopify merchants alike will be able to offer ShopPay at checkout, to be completed in the fourth quarter. ShopPay is also the accelerated checkout for our digital shopping assistant, Shop, which helps merchants strengthen their relationships with buyers, with the goal of extending buyer LTV. As of Q3, we have brought the innovation of Shop and its latest features to all the same 17 countries as Shopify payments, including fast and easy checkout through Shop Pay and Shop Pay installments, both of which have proven to increase sales conversion and checkout speed, as well as order tracking, merchant and product recommendations, and a growing number of curated shopping lists. Both the number of shop registered and monthly active users, which includes both buyers that have opted into Shop Pay, as well as users of the app, surpassed all previous quarters in Q3. And by the end of September, ShopPay had facilitated more than $35 billion in cumulative GMV since its launch in 2017. ShopPay installments, our buy now, pay later product, also leverages the power of ShopPay, so merchants can offer their buyers a flexible and convenient way to make purchases. ShopPay installments, which has proven to boost repeat purchases among first-time customers by 23%, is clearly resonating with buyers. In Q3, the number of repeat buyers quadrupled and the growth of GMV transacted via Shopify installments accelerated over the previous quarter, following the product's release to all US merchants in June. One of the hardest problems entrepreneurs face as they scale is selling internationally. That's why we're supercharging our merchants' cross-border commerce capabilities with the launch of Shopify Markets. With 28% of traffic to merchant stores from international buyers, global commerce is a major opportunity for our merchants to grow their business. Shopify Markets removes complexity for our merchants, letting them easily sell to buyers around the world from a single store. Merchants are showing strong interest in Shopify Markets during this early access period, with tens of thousands of merchants joining our waitlist They're getting incredibly positive feedback on Shopify Balance from merchants who say they're saving on fees and now have separation between personal and business finances. They're getting faster access to their money, saving time, and earning cash back and other rewards, all of which goes directly back into their business. To access innovations like Shopify Balance, Shop Pay installments, and Shopify Market's local pricing, currency, and payment features, merchants need to be using Shopify Payments. As more merchants including Shopify Plus and retail merchants are adopting Shopify payments, penetration continues up into the right, accounting for nearly half the GMB transacted in Q3. While no longer new, Shopify Capital is no doubt among the innovations merchants cherish on Shopify. Shopify Capital had another record funding quarter as we help merchants buy inventory and get ready for BFCM Increasing the amount of finance to merchants 56% year over year and cumulatively funding $2.7 billion since its launch in 2016. Another established merchant solution that makes growing a business easier and more affordable for our merchants is Shopify shipping, which we expanded to the UK in Q3. Shopify is also making commerce easier for larger brands through Shopify Plus. We're equipping high volume merchants with the ability to move fast and tell their own unique brand stories through the flexibility of our platform, all for a lower cost of ownership. In Q3, more merchants join Shopify Plus with a healthy balance of brands upgrading from standard plans and coming new to the platform. Some exciting international brands that launched in the quarter included French beauty retailer L'Occitane, Swiss computer manufacturer Logitech, Japanese minimalist retailer Muji, Dutch fashion label Scotch and Soda, and Healthy Life, the health and wellness business by the giant Australian retailer Woolworths. Celebrities and creators are also joining Shopify to share their passion and own their brands. Superstar actress Jennifer Aniston launched her sustainable hair care brand, LolaVie, and basketball star Jimmy Butler launched his Big Face coffee brand through a creator program, which helps creators match their influence with ownership. Some other notable brands that launched in Q3 were shapewear trailblazer Spanx, casual apparel brand Dockers, apparel and accessory brand Frank and Oak, children's equipment manufacturer Evenflow, home storage company Tupperware, unsubscribed by lifestyle clothing brand American Eagle, luxury fashion house Kenneth Cole, and more CPG brands from Nestle and General Mills. Retailers looking to modernize their operations by leveraging the customization capabilities and the flexibility of our platform, Go to Shopify Plus. Case in point is centrally-owned florist network FTD. Since its days as a telegraph delivery company for flowers in the early 1900s, FTD has successfully evolved with the retail landscape and is now again modernizing its retail technology with Shopify Plus to provide intuitive and streamlined shopping experiences. We're excited to work with FTD to help them and their extensive partner network bring beautiful flowers and memories to their customers. As Shopify builds the essential internet infrastructure for commerce, we have made it easier and more attractive for our talented partner ecosystem to support our merchants by building on and for Shopify. Earlier this month, we launched our global ERP program with ERP heavyweights such as Microsoft, Oracle NetSuite, and Brightpearl building integrations into the Shopify app store. By integrating these apps, our more complex merchants can seamlessly connect their workflows, saving them time and money, and giving them direct control over their data. Another good example is Roku, which is working to launch the first ever TV streaming advertising app on the Shopify app store, expected in time for the holiday shopping season, making it easier for small businesses to afford advertising on TV. Our partner ecosystem also helped more merchants start their journey on Shopify with over 43,000 partners referring at least one merchant over the past 12 months. As our merchants gear up for the busy holiday shopping season, Shopify and our partners are ready to help them capture opportunities to build their brands and sell their products to buyers wherever those interactions may happen. As part of our commitment to empower our merchants, we extended our far-reaching support for our merchants in August, opening our second brick-and-mortar space in New York City. in addition to reopening our LA space in October. These spaces help address another problem common for entrepreneurs. It's lonely work. By giving them a one-stop destination to access community, education, support, and creative spaces, merchants can level up their knowledge, network, and their business. Before I hand it over to Amy, if my long list this morning of the many challenges faced by our merchants makes entrepreneurship sound hard, that's because it is. It will always be hard. That's the nature of entrepreneurship. But the good news is that all of these features I just laid out are all the areas where we're making things not just easier, but better. This is how we make commerce better for everyone.