Shopify Inc.

Good morning and thank you for joining Shopify's second quarter 2026 conference call. I'm Shane Kleinstein, 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. Thank you for joining us. We'll also speak to adjusted financial measures and other non-GAAP measures, which are not a substitute for GAAP financial measures. Reconciliations between the two are provided in our press release. 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.

Good morning and thanks everyone for joining us today. We've got another exceptional quarter to talk about here at Shopify. Here's what that looks like in the numbers. GMV was up 32% to $116 billion with broad growth across our merchant sizes, geographies, and sales channels. Our revenue was up 34% to $3.6 billion, and our free cash flow margin was 18%. That's a growth rate of 30% or more across every metric. And this marks our fifth straight quarter of GMV growth above 30%. Now, of all the numbers, our GMV is the one worth repeating. Our merchants processed $116 billion this quarter. This is commerce at an extraordinary scale flowing through the platform. And it also tells us that our merchants are thriving. Okay, now for the story behind those numbers. Since day one, our operating principle has been simple and consistent. Shopify creates what most merchants need most of the time. And for everything else, we empower our incredible ecosystem of partners. Now, I know you've all heard that before, but here's why it matters now. The principle that got us here also explains why we're able to deliver durable growth quarter after quarter, and it perfectly captures how we are building to win in this new era of commerce. Let me explain. First, our addressable market of most merchants is now a very large pool. Because we made it easier to start, there are now simply more merchants to serve, and the breadth of our capabilities has expanded so that merchants of all sizes now run on Shopify. Second, the range of those most of the time merchant needs is expanding quickly. They need access to new and emerging surface areas. They need best-in-class tools that will allow them to keep pace with the rate of change in commerce. And they need it all in one place. Added complexity only reinforces the demand for a simple, unified platform that they can rely on. And that is Shopify. And here's the third critical piece. Our open ecosystem model is uniquely well suited to this agentic era. We have always focused on most merchant needs while making the platform extensible for everything else. We build the primitives, we open them up, and we let the best developers and the best companies in the world build on top of us. In the last year, we kicked that model into a whole new gear. Some of the largest technology companies in the world like OpenAI, Google, Meta, and Microsoft have chosen to partner with us to open more front doors for commerce. Every new surface area they build is another place our merchants can sell all because they're on Shopify. And on top of this, thousands of developers all over the world are embedding commerce into their own applications using the same primitives we built. Thank you. Now, whether commerce is handled by humans or agents, whether stores are built by people or AI, Shopify runs underneath it all. For 20 years, we've built the commerce operating system that takes merchants from first sale to full scale by using our partner ecosystem as an extension of our platform. That is our muscle memory. And this model will continue to serve us even better in this new agentic era of commerce. So let's talk more about Shopify's infrastructure, specifically what we've been building and why it matters so much. We have a very strong conviction that commerce experiences will soon be built in to everywhere people are spending their time. And that is why our latest product drop was called the Everywhere Edition. We are building now so our merchants are ready for the future. So let's talk about that infrastructure that unlocks commerce everywhere. First, our catalog, which you can think of as the authoritative source of truth for AI product discovery of the world's best products and best brands. For nearly two years, we've been investing in the search index ensuring over a billion products and 20 years of commerce experience is distilled for agents. It structures merchants' product data so every and any AI partner can access it directly, giving agents the ability to discover, understand, and recommend our merchants' products. And let me say this, Catalog will be one of Shopify's most important assets for years to come. And here's why. We're seeing that AI searches powered by Catalog converted twice the rate of those using scraped data. That is because with Catalog, merchants' products show up complete, accurate, and with the right context when someone is ready to buy. Put simply, Catalog is the discovery engine for the future, and Shopify built it and owns it. Next, let's talk about the Universal Commerce Protocol or UCP. We introduced UCP at the start of 2026 and already industry players across the commerce stack and beyond are converging on this unified protocol with dozens of retailers and platforms adopting it to date. And because we co-built the protocol, partners look to us to make sure it evolves in ways that represent the full diversity of commerce. So first we built the infrastructure to unlock commerce everywhere, and then we opened it up for everyone. Every Shopify merchant is UCP ready. Agents and builders can access the product data, create carts, and even check out using the protocol. Everything flows through Shopify, so their checkout logic and fulfillment rules are perfectly preserved. Their products are also automatically listed in catalog. And every builder can now access UCP and the catalog API across millions of merchants so they can build commerce experiences with the same infrastructure as our major AI partners. Plus, we built our catalog the way only Shopify could, integrated with shop sign-in so agents can recognize returning buyers and surface personalized recommendations based on their purchase history. No other catalog API can do this. And we're not just putting merchants in AI channels, we're also showing them how to win in them. In May of this year, we rolled out our new agentic section in the admin, the first cross-channel attribution for agentic selling. Merchants can manage AI channels, they can track performance, and they can get specific recommendations on what to improve, all from a single interface. Now, while the volume of Magenta Commerce is still small relative to our massive GMV, the growth trends are impressive. Both AI-driven traffic and also orders to Shopify stores tripled year over year in the second quarter. New buyer orders are coming in at nearly twice the rate of other channels. And this is not just AI taking share of search. In fact, search remains one of our largest sources of buyer traffic to our merchants, and it's still growing. Traditional search sessions are up 1.3x over the past two years, holding roughly a third of all storefront sessions. That is AI as a complement to search rather than a substitute for it. Okay, now let's talk about agentic building. AI is not just opening up new surface areas for discovery. It is also democratizing code and software development, lowering the barriers to starting a business even further. The way entrepreneurs are pursuing new ideas, the way developers are building software, the way merchants are running their businesses, they're all being rewritten. So naturally, the tools we're arming our merchants with are also evolving at an incredible pace. And Sidekiq is the prime example of this. In the second quarter, daily active merchants using Sidekiq were up 3.6x year on year, and daily sessions were up 4.8x. It handled nearly 34 million conversations, and it was used to create more than 36,000 custom apps, up from 12,000 in Q1. More merchants are using Sidekick and they're using it far more often. That's because it's driving real value. Getting new merchants to their first sale faster and helping established merchants run smarter. Sidekick's personalized guidance for new merchants during onboarding led to an 8% increase in merchants reaching five orders within 15 days. And it's getting more intelligent all the time. It can now access data and take action through extensions to third-party apps like Klaviyo without the merchant ever leaving Sidekick. Now, adoption is widespread across merchants of all sizes, but what's really interesting is how the value evolves as merchants grow. In a merchant's first 30 days, roughly half of their conversations with Sidekick are about store setup, design, and theme configuration. Now, for merchants five years in, that drops to about 8%, while analytics and reporting climbs past 40% as they use Sidekick as their intelligence layer to interrogate their own data and make better decisions. Same product, different job. At the same time, we've built connectors to agents, including Claude, ChatGPT, Perplexity, Manus, Replit, and Vercel with our AI toolkit, so our merchants can build on Shopify however they choose. And these are just a couple of examples. Our integrations across vibe coding platforms like Lovable, AI Chat Agents, and CLI IDEs show Shopify's commitment to meeting builders where they are, however they choose to get there. These tools are a real competitive advantage, and they're exclusively and seamlessly available to Shopify merchants. Interface layers are changing in the agent-first world, but Shopify is still the core commerce infrastructure underneath it all, one where every step of commerce from buying to building, from starting to scaling moves faster and is within reach for more people. Beyond what we as Shopify are doing to move the needle for our merchants, there are early structural changes we are seeing in the market that also strengthen our position even further. First, let's look at the type of merchants benefiting from these AI shifts. Early indications show that AI search has been particularly helpful to some of the smaller brands that form the long tail of commerce. These are brands that also happen to make up the majority of Shopify's merchant base, smaller businesses with specialized products built for a particular customer. We saw that AI search was starting to disproportionately benefit the long tail in 2025. And that trend has continued with 75% of AI attributed orders in the second quarter coming from outside our top 100 categories in Q2. And the explanation is simple. While search engines rank by popularity against a handful of keywords, AI agents make multiple calls into Shopify's catalog, working with richer structured data to match products with the buyer's specific intent rather than just keywords. So when a buyer asks an AI assistant for the best car seat that fits three across a sedan, traditional search focuses on the keyword car seat. An agent, however, understands the actual need, the dimensions, the vehicle type, and the fact that they need three. It searches across all of those constraints at once to find the product that actually works, not just the one that ranks highest. And in this world, relevancy reigns. So specific products made for a specific buyer do particularly well. Same for things like reef safe sunscreen that doesn't leave a white cast or even the best dog harness for a French bulldog. These are real Shopify products that have benefited from the specificity of AI search in the last quarter. And this specificity is leading to better conversion for merchants. Buyer shopping journeys are being compressed as half of all AI referred sessions are landing directly on a product description page. That is 2.5 times more than what we see with traditional search. All of this is a serious tailwind for our merchants and in turn for us at Shopify. Second, as AI makes commerce more fragmented, the value of a best-in-class checkout that can sit underneath any commerce experiences grows exponentially. Our checkout is intentionally designed to look simple. One click, done. But in reality, it is anything but simple. From taxes to discounts, pre-orders to bundles, fulfillment, inventory, validation logic, payments, I could go on. There is a world of complexity that neither the merchant nor the buyer ever has to think about. But if it breaks, everything breaks with it. And every seemingly simple transaction inside a Shopify checkout is made up of countless customized logic flows. The ability to handle that complexity is what Shopify is world-class at. And the stakes only get higher as commerce expands to more service areas and as agents start having a role in the transaction. So the agentic landscape favors Shopify's core merchant base, and it makes our checkout even more valuable. It also significantly increases the importance of trust and identity. An agent acting on a buyer's behalf needs to know who they are, how they wanna pay, and what rules they've set. And through Shop, we've built a buyer network of hundreds of millions of people with identity, preferences, and payments working as one system. ShopApp's native GMV grew over 70% in Q2. And one of my favorite features, Cart Sync, represented over 30% of ShopApp GMV in this quarter. That is the value of known buyers. And ShopPay is where that trust and identity show up in conversion. In June, ShopPay surpassed $400 billion in lifetime accelerated GMV. And as new surfaces grow, ShopPay remains the trusted payment layer that travels with the buyer. So when you zoom out, here's what you see. A new powerful surface area for discovery that disproportionately benefits our core merchant base. A fragmented environment that needs a reliable checkout sitting underneath it all to power it. A world where humans must be able to trust that an agent acting on their behalf knows them and follows the rules they have set. And a greater need all the time for a unified operating system that makes commerce everywhere not just possible, but easy. And this is what Shopify was built for. Now, before I hand it over to Jeff, let me give a couple quick highlights from across the business that fueled our growth in Q2. First, international. International GMV grew 37% in the quarter and we launched Shopify's first local payment method offering in Mexico. And we expanded managed markets beyond the US merchants for the first time, making it available to merchants in Canada and the UK. Now let's talk about offline. Shopify point of sale GMV grew 32% year over year in Q2. And we continue to widen the gap on what set Shopify apart, delivering our fastest ever point of sale experience and deeper unified commerce capabilities. Merchants can now fulfill orders across locations, move inventories more efficiently between stores, complete returns, exchanges, and new purchases within a single checkout. We're seeing particularly strong momentum with large complex retailers who are our fastest growing segment. And this quarter, we welcomed the iconic Canadian retailer Holt Renfrew. We powered the rollout of multiple Canada Goose locations and we expanded our relationship with the furniture retailer, Our House, to include their offline business. In B2B, we expanded native B2B capabilities beyond plus for the first time, giving more merchants the ability to manage wholesale and DTC from the same Shopify admin. That means fewer separate tools, fewer custom workflows, and more of their business running through one unified system. Finally, let's talk about our growth with larger brands. Some of the biggest and some of the most important names in commerce and retail continue to move to Shopify to modernize their next chapter. This quarter alone, brands like Guess, Fred Siegel and Aritzia Company, and Avon all chose Shopify. And Elf Cosmetics, Klairs, Burton, and Suit Supply are all now live on our platform. As I mentioned earlier, we expanded our work with Our House, and this is a perfect example of the power of our unified commerce offering. Our House started with us online, and now they're expanding it to offline, B2B, and Shopify payments. Different customer groups, different channels, different pricing models, and one backend to run it all. Now, here's what else really matters. Once merchants come to Shopify, they stay. Our merchant retention is something we are very, very proud of. Put simply, Shopify is a platform for brands at any stage of their life cycle. And each channel they add makes the others more powerful, embedding merchants deeper in our platform and driving more profitable growth for our company. So let me bring this back to where I started today. Shopify built what most merchants need most of the time. For everything else, we leverage our ecosystem of partners to build with us. 20 years ago, most merchants meant a much smaller group with a much smaller set of needs. But today, we power every size and every shape of commerce business. And as the merchant base has expanded, our focus has remained the same. Absorb that complexity on behalf of merchants so they can continue to focus on what matters most to them, their products and their customers. Every time commerce gets more complex, the value of the Shopify platform increases. Today, an entrepreneur can have an idea in the morning and their first sale by the end of the day, with Shopify's AI tools helping them build their storefront, with catalogs surfacing their products to buyers, and Sidekick already guiding them to the next step. This is an entirely different velocity of entrepreneurship, and it's only gonna continue to accelerate. It doesn't matter whether commerce is built by a person or an agent. It doesn't matter whether the transaction starts on a store, in an app, a chat, or an interface that hasn't even been invented yet. The underlying needs of merchants do not change. Products need to be discovered. Inventory needs to be accurate. Checkout needs to work seamlessly and payments need to move. And the infrastructure underneath it all needs to be fast, reliable, and infinitely scalable. And that's what we do at Shopify. And with that, I'll turn the call over to Jeff.

Thanks, Harley. It was an incredible quarter. Q2 represented a continuation of what we've seen for several quarters now, broad-based growth across the business. Strength in GMB flowed through all of our financial results. We achieved greater than 30% growth in each of GMB, revenue, gross profit, operating income, and free cash flow. Q2 marks the fifth consecutive quarter with constant currency GMV growth of 29% to 30%. A tight band, and importantly, even as our scale has grown and the year-over-year comps have gotten tougher, we have consistently delivered these growth rates. The durability of our growth is driven by one of the most powerful dynamics of our model, our cohorts. Newer cohorts continue to outperform while older ones keep growing. That strength compounds over time as our older cohorts generate multiples of their first year GMB. For example, our Q1 2015 cohort now has a quarterly GMB that's five times its initial size, implying a compound annual growth rate three times that of the overall commerce market's growth rate over the same period. This is the mission of Shopify. We make it easy for anyone with an idea and the courage to start their business. It's why we cast a wide net in bringing merchants to the platform. This approach is a feature, not a bug. Through that wide aperture, we find, nurture, and build for merchants, many of whom go to do millions and then hundreds of millions in GMV. And the ones that scale stay. Over the last five years, merchants who reach one million in annual GMV had a 92% retention. That jumps to 97% and a 10 million annual GMV. A lot of entrepreneurs are serial entrepreneurs, so even if their first business doesn't make it, Shopify still supports their next one. Merchants who build a second shop on Shopify on average earn more than twice the sales per shop compared to first-time founders. That is our cohort strategy at work. We give every entrepreneur a shot, arm them with tools to build, and watch the winners compound their success. Thank you. Thank you. Thank you. GMV drives payments revenue, but also informs our capital offers. Checkout fuels buyer identity, and that identity benefits advertising precision. And every transaction sharpens the data underneath all of it. Last year, we surpassed $1 trillion in cumulative GMV facilitated by our platform. Then, this past quarter, we also passed that threshold for gross payments volume through Shopify payments. That is the data foundation underneath everything I just described. It's less about any single capability, but rather how they weave together and inform and enhance each other. This is the magic of combining the bravery and vision of entrepreneurs with the power and capabilities of the Shopify platform. And when merchants win, so do we. Now let's take a closer look at our second quarter results. Q2 GMV was $116 billion, representing year-over-year growth of 32%. On a content currency basis, GMV grew over 30%, accelerating on top of a very strong 29% prior year comp. Diving deeper into GMV from a few different angles, first by Merchandise. Consistent with trends for several quarters, we've had broad-based growth across merchant sizes. The $25 million and greater band is the fastest growing, albeit off of a smaller base. The $2 to $25 million cohort continues to contribute the most incremental GMV, and we are still growing this base, with the majority of the growth coming from existing shops graduating up into this band. Moving to regions, North America GMV grew 28%, and Europe grew 34% on a constant currency basis. The contribution to GMV growth from new merchants and same-store sales remained relatively balanced and in line with multi-quarter trends. Finally, turning to channels, offline GMV was up 32%, B2B GMV grew 76%, all a continuation of prior quarter strong trends. Now, looking at revenue. Q2 revenue grew 34%, or 33% on a constant currency basis, clearly surpassing expectations. Merchant Solutions revenue grew 37%, driven primarily by the strength in GMB and increased payments penetration, which grew three points year over year, reaching 68% of our global GMB. We see clear runway in payments penetration, both domestically and abroad. This past quarter, we launched Shopify payments in the UAE, bringing to 40 the number of countries where we have payments available. Penetration in Europe increased by more than 350 basis points year over year, even as many of the countries we serve launched only last year. We also continue to add more and more local and regional payment methods, including, for example, our additions this past quarter in Mexico. As of Q2, we also now dynamically surface the most relevant payment methods for buyers. Doing this helps eliminate reasons for buyers to ever abandon their checkout, creating better conversion. ShopPay GMB grew 53% year over year. In Q2, we made more local payment methods available to consumers within ShopPay. This continues our two-part strategy of adding more local payment methods to Shopify payments and then making more of those available within ShopPay. More choice and payment method availability means fewer drop-offs to guest checkout and helps drive ShopPay usage. ShopPay also allows buyers to choose to finance their purchases and ShopPay installments continues to gain share. Each of these makes ShopPay a better consumer experience and a more complete wallet with additional ways to pay, helping drive consumer adoption. Subscription solutions revenue grew 22%. The largest contributor to the growth was monthly subscriptions for our standard plans, as we saw a strong quarter of merchant net ads in standard. We also saw relatively equivalent size dollar growth in plus subscriptions and variable platform fees, which were driven by the higher GMV. Q2 MRR grew 19% year over year, with continued growth across each of standard, plus, and point of sale plans. Plus, MRR represented 34% of MRR, also growing 19% year over year. Bringing these all together, our revenue beat in the second quarter stemmed from three key areas where we outperformed. Broad-based GMV outperformance, higher-than-expected payments penetration, and strength in other merchant solutions, primarily from our partner rev shares and financial services. Now turning to our profitability. Merchant Solutions' gross profit grew 39%, with gross margin up slightly from last year. Margin pressure from increased payments volume was more than offset by growth in higher margin revenue streams. Also, to my earlier comments regarding local payment methods, our payments gross margins are generally higher in international markets due to the greater prevalence of debit transactions and lower interchange fees. Subscription solutions gross profit grew 19%, with gross margins just under 80%, in line with our subscription solutions gross margins in Q1. As a reminder, the vast majority of AI costs related to merchant use of Sidekiq appear in subscription solutions gross profit. We were able to hold gross margins at a relatively consistent level quarter over quarter while Sidekiq usage scaled, which reflects some cost efficiencies in support, as well as our ability to continue providing merchants unique AI solutions like Sidekiq while diligently managing cost. We are big believers in Sidekiq and the value that it can deliver to merchants. We believe these types of investments in our platform will translate into more merchants joining the platform and those merchants having even greater success. That translates to more gross profit for us, but more importantly, it is helping our merchants accelerate their businesses. Now looking at operating expenses, which were 34% of revenue, a nearly four point improvement from Q2 last year. This reflects continued leverage as we grew gross profit dollars faster than our expenses, primarily by maintaining our discipline and headcount. Sales and marketing, R&D, and G&A as a percentage of revenue each improved year over year. This operating leverage provides a financial flexibility to continue to invest in our platform, including in our internal AI capabilities. We've moved from a place of just reflexive use of AI to a place of AI leverage. Our AI philosophy is straightforward. Maximum leverage paired with thoughtful cost management. We use the best model for the job. Frontier intelligence where it matters, less expensive models where it doesn't. We believe widespread adoption of AI tooling already is and will continue to yield benefits in the quality of our output. Looking more closely at our OPEX, sales and marketing in Q2 was less than 14% of revenue, approximately 160 basis point improvement year over year, even as we funded additional dollars into our merchant acquisition efforts. On R&D, the majority of our internal AI spend is allocated here, so you've seen a modest uptick in year-over-year growth. Overall, we've driven substantial leverage in R&D as a percentage of total revenue and will continue to be disciplined in managing this spend. Transaction loans and losses came in at 3.9% of revenue. It will scale with volumes in our payments, capital, and credit products. Capital was a larger driver this quarter, while loss rates and payments and credit are both at normalized levels. Each of these products continues to grow well, and we are constantly improving our measurement and forecasting to keep loss rates low as adoption grows. And finally, our Q2 free cashflow margin was just over 18%, exceeding our outlook. This represents roughly one and a half points of year over year margin expansion after excluding the benefit of the accounting change to merchant cash advances that we mentioned last quarter. This free cashflow margin expansion was primarily the flow through of our operating margin expansion, partially offset by about a point of increased taxes compared to last year. With that, let's move to our Q3 outlook. We expect Q3 revenue growth in the low 30s year over year. The expected sources of growth are consistent with the drivers that we saw in Q2, broad based across geographies, merchant sizes, and channels. We do not expect any significant FX impact. We expect our gross profit dollars to grow in the mid to high 20s. The differential in the revenue versus gross profit growth rates is driven by the same factors as the second quarter. continued mix shift between the growth rates of merchant solutions and subscription solutions, and the continued strength of payments. We expect operating expenses in Q3 to be 33 to 34% of revenue, reflecting continued leverage and meaningful improvement compared to the 37% we delivered in Q3 of last year. We expect our Q3 free cashflow margin to be in the high teens to low 20s, inclusive of less than a point of tailwind from the accounting change in merchant cash advances. Bringing it all together, when I look ahead, our runway is long. Even though Shopify represents over 14% of the US e-commerce market, our merchants take a disproportionate share of the growth. According to eMarketer, since the start of 2025, Shopify merchants have captured nearly half of all incremental e-commerce dollars in the US. Early results internationally mirror that trajectory, albeit earlier in their maturation. That's had room in both the US and globally. Absent any other growth drivers, these are already strong, structural, and persistent tailwinds in a base case. And as we enter this agentic era, any acceleration in e-commerce growth or disproportionate value to the long tail of commerce is upside to our underlying growth story. With that, I'll turn the call back over to Shane for your questions.