Shopify Inc.

Good morning, and thank you for joining Shopify's second quarter 2025 conference call. I'm Carrie Gillard, 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. 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 U.S. and Canadian regulators. We 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. And finally, we report in U.S. dollars, so all amounts discussed today are in U.S. dollars unless otherwise indicated. With that, I will turn the call over to Harley.

Thanks, Carrie, and good morning, everyone. Now, before we get into the numbers, I want to do something a little bit different today. I want to start by looking back at Shopify's last few earnings calls. 18 months ago, I said that we would power up our offline and our B2B on-ramps, creating a truly unified commerce platform. Well, fast forward to today, our offline GMV is up 29% year-over-year, our B2B GMV is up 101%, and we're bringing the biggest brands on the planet to the platform through our unified commerce offering. Twelve months ago, I said we would continue to deliver both growth and profitability. And this past quarter, we delivered $2.7 billion of revenue, up 31% year-over-year, and our free cash flow margin was 16%. And finally, six months ago, we committed to expanding our reach across all geographies, and particularly in Europe. Well, our international GMV for this most recent quarter was up 42% year-over-year, accelerating from Q1, driven largely by outperformance in Europe. Now, the strong results you see today come from seeds we planted years ago. Past investments are now paying off, and the ones we are making today will drive results for years to come. So if you take one thing away from this call, let it be this. Shopify delivers. We do what we say we're going to do. That consistency, follow-through, and durable growth, that is Shopify's MO. Now, I want to call this out at the top of this call because we've had a lot of wins this quarter, which we'll get into next. But this quarter-to-quarter consistency is really what matters. This is how generational companies are built, and this is what you're seeing from Shopify. Okay, now let's get into the wins and the progress we made in Q2 specifically. As I mentioned earlier, we delivered Q2 revenue of $2.7 billion, up 31% year-over-year, and free cash-to-margin was 16%. GMV was up 31%, accelerating from Q1. And this strong GMV result was driven by continued outperformance in Europe, as well as momentum in our largest market, the U.S. This is the outcome of a clear strategy executed really well. Agility and ease of use are now prerequisites for any modern commerce company. And that's why we've become a strategic advantage to all businesses in today's unpredictable market. In this quarter, we signed up some iconic global brands, including Starbucks, Canada Goose, and Burton Snowboards. And I love getting to speak to this diversity of brands choosing Shopify because it really reflects the flexibility of the platform. The world's biggest coffee chain, the biggest name in luxury outerwear, and the most iconic brand in snowboarding, they're all migrating to Shopify because we give them agility, innovation, speed, and exceptional value. Now, speaking of innovation, let's talk about product. Shopify's superpower is that we always are at the center of where commerce is happening. We've consistently proven to be experts in anticipating where consumers will be showing up next and building accordingly. That means our merchants are better prepared to stay a step ahead. Now, I'll give you a few examples. We were ahead of the curve with social commerce, building early integrations for Instagram and YouTube. We saw the opportunity for commerce to meet culture, so we built a Spotify integration. And more recently, we predicted the rise of shopping in the metaverse with a Roblox integration that's already growing quickly. So, of course, Shopify has been building infrastructure to power agentic commerce. As AI platforms become the new way people discover products, consumers are not just searching, they're having conversations with agents to find what they need. But powering seamless shopping across millions of brands is a massive technical challenge. and that's where Shopify comes in. We've built a suite of products that make it easy for AI platforms to bring shopping to their agents, from discovery to checkout, and our merchants are front and center. Now let's start with discovery. We launched Catalog in Q2 to give AI partners and shopping apps real-time access to millions of products from across our global merchant network, all through a single connection available as an API or an MCP server. Shopify catalog simplifies the process for apps and AI agents to search and pull product data so the results are clear, accurate, and up-to-date. Shopify is uniquely positioned to build this because the brands consumers love and want more of are all on Shopify. And every day, more of the world's favorite brands are joining, making our catalog the richest and the most dynamic anywhere. Now, let's also talk about Universal Cart, which literally launched yesterday in early access. Universal Cart holds items from multiple stores all in one spot so that shoppers can easily track all their items they want to buy within the chat. And when it comes time to purchase, we've built a new and improved version checkout kit. And it's already being used by Microsoft Copilot, a huge player in the AI space. Checkout Kit lets partners embed the merchant's checkout right in their agent. Now, we're also giving partners the power to theme the Checkout Kit so it matches their application's look and feel, creating this seamless experience. And they don't have to worry about payments, taxes, or regulations. We take care of all the complexity for them. Let me bring this to life for you. When a shopper asks an agent for the best travel bag, it instantly searches Shopify's catalog and shows the top products, live prices, descriptions, and inventory. The shopper adds their choice to the cart. They don't have to check out right away. They can keep shopping. Everything they want is pulled into a single cart. And when they're ready, the shopper completes their checkout without ever having to leave the chat. Now this unlocks a whole new kind of commerce. For partners, we've made it easier than ever to integrate commerce without having to build the hard parts. For our merchants, we're making sure they stay at the forefront of wherever commerce is happening. And for shoppers, we're powering conversation-driven product recommendations from all of their favorite brands. This is yet another example of how Shopify is always leading the way. Now let's talk about our most exciting AI product offering for our merchants, Sidekiq. Sidekiq's unique ability for data analysis continues to shine through, helping merchants address their toughest business challenges. For example, a merchant in the kids' clothing category recently shared with me that Sidekiq delivers the kind of actionable insights they used to spend hours searching for. Questions like, how can I optimize my inventory to avoid sellouts and boost cash flow? Or, why am I seeing more customer churn from subscriptions in the last three months? Or even, help me compare results from our last three BFCM campaigns and suggest improvements for the next one. They are all answered, explained, and visualized in seconds. So instead of wrestling with spreadsheets or digging through endless tabs, merchants on Shopify get instant clarity of what's working, what's not working, and where to focus next, all without having to leave Shopify. Here's another example. A skincare merchant recently told us that in real time, Sidekick helped them pinpoint exactly where they were experiencing customer churn down to the cohort, city, and even purchase behavior in seconds. Insights like these used to take hours or days to uncover if they were found at all. Sidekick is doing exactly what we set out for it to do. Merchants are leaning in and leveraging the power of Sidekiq for data analysis and performance insights, freeing them up to focus on strategic business decisions and helping them make sure those decisions are right for their business. And of course, as I've talked about on previous calls, that's on top of all the other ways Sidekiq helps merchants, like writing product descriptions, generating logos and images, streamlining workflows, and customizing their storefronts, and so much more. And this quarter, we also launch an AI store builder that can create a custom online store in seconds, literally in seconds from a single phrase. Now, all you need is an idea and a description of the product you want to sell, like stylish at leisure apparel for women, and Shopify will do the rest. We are continuing to make the barrier to entry lower than it's ever been in history, and we are not done. Okay, that was a lot on AI. As you can tell, we're really excited about the velocity of innovation happening at Shopify. Now, let's turn our attention to payments. On our last call, we discussed the expansion of our payments product into more countries, 16 so far this year alone, nearly doubling the markets where it's accessible. Many of these new markets are in Europe and are already seeing solid adoption, contributing to our global payments penetration of 64% in Q2, up from 61% last year. At Shopify Editions in May, we also rolled out multi-entity support in Shopify payments. Now, this means that merchants can now sell from multiple business entities all within a single shop, which is particularly valuable for our higher volume global merchants. No more juggling separate stores for each country or channel. This streamlines operations, it cuts costs, and it removes barriers to global growth. And I've heard directly from some of our biggest global brands that the multi-entity unlock is a breakthrough. And for those of you that have followed us for a while, you know that this was a pain point we had not yet solved. Until now. Now, as you know, we are laser-focused on building the future of commerce, especially as cross-border transactions become more important. This quarter, we introduced a new USDC stablecoin option, giving merchants and buyers more choice and security, especially for international payments. We partner with Coinbase to bring the core features of commerce, like authorized capture, void, and refunds to crypto payments. So in plain terms, these are the steps that make card payments safe and flexible. Now, with smart contracts and blockchain, stable coin payments can work the same way. And with a built-in off-ramp to local currency, merchants can accept USDC without dealing with new crypto friction. Payment preferences are changing fast, and Shopify is making sure our merchants are ready for what is next. Now, a quick note on ShopPay. Over the past two and a half years, the user base has more than doubled as more buyers and merchants make it their go-to checkout. That momentum is showing up in the numbers. In fact, in Q2, ShopPay GME increased by 65% to $27 billion. ShopPay is quickly becoming the standard for fast, secure, seamless payments trusted by millions of consumers and merchants, including leading brands like Michael Kors, the latest to sign up for ShopPay Commerce Component. Honestly, most of you listening have probably used ShopPay at least once in this past week alone. That is how deep the reach is. Now let's turn to the Shop app, the all-in-one shopping destination for the brands that buyers are passionate about. The Shop app saw 140% year-over-year growth in native GMV, fueled by high-impact shopping events, including Shop Week, where sales more than doubled compared to last year's event. And sign-ins through Shop increased by 46% thanks to improved availability and a much smoother user experience. AI-powered enhancements to shop search and the home feed ensure buyers see the right products at the right time, driving higher engagement and conversion. And unlike traditional marketplaces, shop puts brands front and center, fostering genuine customer relationships without the burden of marketplace fees. With tools like Shop Minis, Shop Cash, and Sign In with Shop, we're helping merchants engage, convert, and retain buyers seamlessly from personalized recommendations and wishlists to in-app checkout and real-time order tracking and buyer rewards. And our collaborations with brands like Glossier, Summer Fridays, and J Balvin are strengthening Shop's position in beauty and entertainment, pushing the boundaries of customer engagement. So mark my words, Shop is the future of direct-to-consumer shopping, and we're just getting started. Now, let me speak briefly on advertising because I know you'll ask. Shopify campaigns is opening up new ways for merchants to reach buyers and grow. We are scaling risk-free advertising across shop, online stores, meta, and Google, giving merchants efficient access to new audiences. And the earlier results are really promising. Brands like Carraway, Liquid IV, Kizik are seeing real impact. And as we continue to unlock more inventory and refine our recommendation algorithms, campaigns are getting more personalized and more effective. And there is a ton of excitement at Shopify on what we are building and look forward to sharing more about this on future calls. Okay, now let's shift our focus to some other key growth drivers and how we're executing. First up, point of sale or our offline business. Q2 was another strong quarter for Shopify point of sale with offline GMV up 29%. We launched a newly redesigned version of our POS app, making it faster and simpler for in-store staff and enhancing the connection between in-store and online. Retail staff are already benefiting from the new version with a more intuitive experience, faster checkouts, and shorter training time. This new release of our retail platform includes a suite of features that merchants requested. Things like cash rounding, more granular staff permissions, more ways to build cart customizations, and store credit for instant customer retention. Direct API access now allows our developers and partners to customize Shopify point of sale workflows more efficiently. And it's these continuous enhancements that are further solidifying Shopify's reputation as a leader in a retail point of sale software. Shopify point of sale was named as a leader in retail point of sale software by IDC, and a new EY report shows it's driving real revenue growth for merchants. And the results speak for themselves. Our investments are paying off, and merchants on Shopify are reaping the benefits. Q2 saw more great brands join Shopify in part for offline offering, from swimwear to furniture to car accessories. And I said at the start, a special newly inked deal that's very close to my heart, the iconic Canadian brand Canada Goose is making the switch. On a personal note, I've been in talks with the CEO, Danny, for a long time. And incredibly, the deal actually closed on Canada Day this year, which made it feel extra special. After years of building and refining our unified commerce platform, they have chosen to move to Shopify to power both their online business and about 50 physical stores beginning in 2026. This win is a clear signal that the leading brands trust Shopify to deliver what modern commerce demands. The progress in retail is evident, and we are confident that we are still in the early stages of what we will achieve. Moving on to international, we keep talking about our international business because the opportunity is so massive and our team and merchants are knocking it out of the park. Our international regions are contributing more to our growth each quarter, becoming a vital part of Shopify's mission to support entrepreneurs worldwide. In Q2, Europe led the way with strong GMV growth from both new merchants joining the platform as well as our existing merchants continuing to outperform their respective e-commerce markets. You have heard us talk about getting more of our products into more countries, and so far in 2025, we have made really great progress. Shopify Capital is now available in Germany and the Netherlands, providing more merchants with access to growth funding. We also launched ShopPay installments into Canada, allowing more merchants to offer flexible payment options, which contributed to the strong 38% increase we saw in Q2 for our ShopPay installment GMV. At the core of our growth is our commitment to enabling merchants to sell seamlessly across borders, shown by Q2 cross-border GMV at 15% of total GMV, while also winning at home. With recent rollouts like multi-entity support and multi-currency payouts, we are making this a reality. These features are now available for plus and enterprise merchants in most countries where Shopify payments operate. This is big because by simplifying operations to one single shop, they avoid extra fees and the need for duplicate apps or integrations. And that's why organizations like Fiskars Group, one of Europe's oldest companies and the owner of brands like Wedgwood and Waterford, recently chose Shopify to migrate five of their distinct e-commerce businesses from multiple brands into a single one on Shopify. It is a clear signal that Shopify is the platform for global growth. We got here in a very intentional and thoughtful way. The wins we see today are a direct result of the grand work we've laid in international expansion, especially in Europe, from product development to marketing over the past few years. Our aim is to keep this momentum going and unlock even more growth opportunities in the years ahead. Okay, now onto one of my favorite parts of the call. You all know that I love talking about winning larger merchants. Our upmarket strategy is continuing to deliver results. On top of the brands I mentioned earlier, Starbucks, Burton, and Canada Goose, we also sign brands like luxury skincare company owned by Unilever, Tatcha, the high-end home appliance manufacturer, Miele, Amazon's daily deal site, Woot, the leading fitness and nutrition brand, Beachbody, and one of the world's largest diamond retailers, Signet Jewelers. Now, there's another brand I want to highlight, and not because you'll know them, but actually because you probably don't know them. We just signed on the global leader in mining, drilling services, Bort Longyear. Now, a few years ago, we wouldn't have imagined talking about drilling services and Shopify in the same breath. But that's how far we've come. Our roster keeps getting stronger, winning the brands people love across every major vertical and bringing on more names from industries you might not expect. Amongst these are the biggest brands you've never heard of. They're not household names to consumers, but they dominate their verticals. And they're choosing Shopify for our scalability, for our speed, flexibility, and the tools they need to grow. And this diversity makes us even more resilient and fuels our growth, expanding our addressable market and the ways we power commerce. No matter how the market shifts, Shopify is built to thrive. We're expanding our reach, we're deepening our offerings, and we're laying the groundwork for long-term success from entrepreneur to enterprise. When you look at our Q2 results and when you look at what we've achieved each quarter before, one thing should be clear. The Shopify playbook delivers. We've built a product that helps every kind of merchant in every market win. We've built a business model that means when our merchants win, we do too. And we've built a roadmap that's focused on the future of commerce so our merchants are always a step ahead. Shopify is executing consistently. We're building the right products consistently. We're growing in the right places consistently. And we're investing for the long term consistently. Our business model is durable. Our opportunity is vast. And our focus is unwavering. And with that, I'm going to turn the call over to Jeff for a deeper dive into the numbers and trends that we're seeing.

Thanks, Harley. Q2 was an exceptional quarter, and it represents a manifestation of the excellent product building, product market fit, and go-to-market momentum that our teams set in motion many quarters ago. We're delivering in the areas that matter most for our long-term success, helping merchants grow and reach more buyers, expanding the diversity of our merchant base, and innovating continuously to provide products that help merchants run and scale their businesses. A few items to highlight before we dive into the numbers. First, the U.S. delivered standout results in Q2. Year-over-year growth rates for both GMV and revenue accelerated in Q2 versus Q1. We saw growth across all major verticals and merchant segments. Second, our international regions, particularly Europe, are thriving. In most countries in Europe, our merchants' GMV growth continues to outpace the overall e-commerce market by an average of four to five times, if not greater, and even accelerated in Q2 from already strong trends. This success underscores the effectiveness of our strategic investments in product expansion and localization over the past few years. Merchant GMB accelerated across all sizes and GMB bands in Q2, highlighting broad-based momentum throughout our platform. Notably, merchants above $50 million in annual GMB and those under $2 million in annual GMB showed particular acceleration in the quarter. Lastly, our products are growing and expanding, creating more opportunities to support our merchants, drive growth, and unlock new verticals. Growth is coming from every angle, offline, B2B, capital, tax, and more. These areas are gaining real traction, and while still on the earlier side of their growth curves, the potential remains incredibly compelling. With that context around some key observations and trends this quarter, let's turn to our Q2 financial results. All growth rates mentioned are year-over-year, unless specifically stated otherwise. GMV in Q2 was $88 billion, up 31% or 29% on a constant currency basis. This GMV outperformance was driven by strength in North America, with particular strength among plus merchants, and continued strength in Europe, with GMV up 49%, 42% on a constant currency basis. In both North America and Europe, we saw broad-based growth, led by our existing merchants, as well as growth from adding new merchants, with it tilting towards more same-store sales growth this past quarter. Offline was up 29%, driven primarily by larger retailers joining the platform. And finally, while we had anticipated some benefit from FX in our outlook, the tail end turned out to be stronger than expected as the quarter unfolded. As we continue to expand our platform's capabilities, add new products, and build for where commerce is heading, Shopify is becoming even more compelling to a wider range of businesses than ever before. This growth opportunity is reflected in the strength we're seeing across a diverse set of categories. In Q2, apparel and accessories, our largest and most established category, continued to perform well. At the same time, we're seeing strong momentum in health and beauty, home and garden, and food and beverage. We're also experiencing rapid growth in emerging segments such as pet supplies, furniture, and arts and entertainment. Revenue for the second quarter was up 31%, driven by the exceptional GMB growth across geographies. Our merchants are succeeding. These results exceeded expectations driven by the outperformance in North America and Europe. And importantly, we had factored into our guidance some potential impact from tariffs, which did not materialize. Looking at the two components of revenue. Merchant solutions revenue increased 37%, with a strength in GMB driving the significant majority of the growth. To a lesser extent, we also saw increased penetration of Shopify payments, which reached 64% for the quarter. Several factors powered the quarter's higher GPV penetration, including continued adoption of payments by more merchants around the world and the strong performance of those merchants. the expanded partnerships with PayPal and Klarna, and the availability of payments in more countries. These items were partially offset by our ongoing strong performance in Europe, which accounted for a larger share of GMV, but has a lower gross payments volume penetration compared to North America. Over time, this should become less of an impact for payments penetration as we continue launching payments in more countries. Subscription solutions revenue grew 17%, primarily driven by a larger percentage of subscriptions coming from higher price plans and, to a lesser extent, higher variable platform fees. As we have mentioned previously, in 2025, we expect subscription solutions growth to be impacted by the headwinds from extended paid trials, which affect our year-over-year growth rates. Q2 MRR was up 9% year-over-year, led by growth in our PLUS plans, which represented 35% of MRR for the quarter. The shift back to three-month trials for standard plans had a larger impact on Q2 than Q1, as these changes were rolled out to North America and our largest markets in Europe at the end of Q1, meaning that throughout most of Q2, new merchants were still within their initial three-month trial period. As a reminder, in Q2 of last year, MRR benefited from the move from a three-month to a one-month paid trial, which drove MRR higher and makes for a tougher comparison this year. As a result, MRR growth for standard merchants this quarter showed only a slight increase. As we examine the data that we have regarding the efficacy of these trials, we believe that they are working well. By giving merchants more time to explore Shopify, we increase the likelihood that they launch their businesses with a better understanding of the full capabilities of our platform and how we can help them succeed, reaching key GMB milestones earlier and enhancing their probabilities of long-term success. Gross profit grew 25%, coming in ahead of expectations driven by the outperformance in revenue. Gross profit for subscription solutions grew 15%, slightly less than the 17% revenue growth for subscription solutions. This slightly lower growth rate vis-a-vis the revenue growth rate was from higher hosting costs needed to support higher volumes and geographic expansion, and secondly, the impact of the change back to three-month paid trials. While subscription solutions gross margin declined year over year, it remained above our five-year historical median of 80%, plus or minus a couple hundred basis points in any given quarter. We do not anticipate this trend changing in the near term. Gross margin for subscription solutions for the quarter was 81.6%. Gross profit for merchant solutions grew 32%, with gross margin coming in at 37.9% compared to 39.1% in Q2 of 2024. The decrease was primarily driven by the same factors that we have seen the past two quarters, including the impact from the expanded partnership with PayPal, where the year-over-year comparison differential will persist through Q3, and lower non-cash revenues from certain partnerships, which carry a high gross margin. This brings our overall Q2 gross margin to 48.6% compared to 51.1% in the prior year. Operating expenses were $1 billion for the quarter, or 38% of revenue, which is down from 39% in Q2 of last year on a gap basis, or down from 42% when you exclude from the year-over-year comparison the reversal of a $55 million legal accrual from Q2 of last year. The 400 basis points year-over-year improvement demonstrates our continued efforts to drive operational efficiencies, all while supporting our 31% top line revenue growth. Our disciplined approach to headcount continues to drive strong operating leverage. Our return-based strategy and marketing remains unchanged. We continue to execute with discipline, using data, testing, and the power of our internally built models to adjust our investments quickly and efficiently based on clear return metrics and payback periods. Transaction loans and losses, the smallest of the operating expense categories in our income statement, was 3% of revenues. The year-over-year increase stems from higher volumes in our payments and capital businesses. Our capital business continues to grow, supported by recent product innovations that enhanced our suite of credit offerings and expanded our geographic reach, including launching capital in Germany and the Netherlands. We've introduced new tools that give merchants more choice in how they manage and select loan options, providing greater flexibility to meet their financing needs. Note that loss rates have remained consistent with prior quarters. This is about the successful, thoughtful expansion of capital. Operating income for the quarter was $291 million, or 11% of revenue. This 11% compares to a 9% operating income margin last year and yields a 56% year-over-year growth rate when excluding the impact of last year's legal accrual of $55 million, which was a one-time lift to last year's Q2 profit. Stock-based compensation for Q2 was $120 million, and capital expenditures were $6 million for the quarter. Q2 free cash flow was $422 million, or 16% of revenue. Our commitment to operating discipline gives us the ability to achieve our desired free cash flow margins, even as we periodically face gross profit pressure, such as those discussed earlier regarding PayPal and the paid trials. Quarter after quarter, we continue to deliver balanced growth and profitability with investments that support long-term growth in key areas like our core platform, international expansion, enterprise, and offline. This disciplined approach works. We have driven 11 consecutive quarters of positive free cash flow, eight of which have been in the double digits. We're building for the long term, delivering results today while making Shopify stronger and more durable for the years ahead. Now, shifting to the broader macroeconomic environment and tariff implications before discussing our Q3 outlook. Through Q2 and into early August, our merchant base has remained resilient. Merchants are adapting to changes in the economic landscape and continue to perform well, supported by the flexibility and capabilities of our platform. This resilience highlights the strength of our commerce solutions in helping merchants navigate challenges and pursue new opportunities. As our merchants grow and evolve, our platform continues to support their success and scalability in a dynamic market, just as it always has. Last quarter, I shared some observations about our merchants and our business in the context of the trade environment. Fast forward to today, and those same observations hold. We haven't seen any drops in U.S. demand, whether inbound, outbound, or local. In fact, the U.S. accelerated in Q2, as I mentioned previously. Cross-border GMB remained consistent at 15% of our total GMB in Q2. One change that we have seen is that many of our merchants have raised prices. We are tracking that in relation to overall inflation levels in the U.S. The U.S. government's recent announcements regarding the de minimis exemption for other countries beyond China is still in the very early stages. Importantly, only approximately 4% of our GMB globally is currently shipped under de minimis exemptions. And we've not seen any significant changes in our GMB levels related to merchants that shipped products under the de minimis exemptions for China since those rules were changed back in May. We'll continue monitoring these trends closely, staying focused on supporting our merchants in an evolving environment. Turning to our outlook for the third quarter, Merchant GMV remains strong and continues to reinforce our confidence in outperforming the broader market. This momentum has carried into Q3, with core trends across our merchant base remaining stable. We expect Q3 revenue growth in the mid to high 20s year over year, driven by the same factors that supported our strong results in the first half, led by continued growth in merchant solutions. While we anticipate some FX tailwinds, they are expected to be similar to what we experienced in Q2.