Shopify Q1 2024 Earnings Review

$SHOP Q1'24 Results:

Financial Results:

↗️$1,861.0M rev (+23.4% YoY, +23.6% LQ) beat est by 1.1%

↗️adj Rev growth +29.0% YoY, +30.0% LQ)

↗️GM* (51.7%, +2.8%pp YoY)

↗️Operating Margin* (10.8%, +12.9%pp YoY)

↗️Net Margin* (13.8%, +13.0%pp YoY)

↗️EPS* $0.20 beat est by 17.6%

*non-GAAP

Segment Revenue

↗️Subscription solutions $511M rev (+33.8% YoY, 81.4% Gross Margin)🟢

➡️Merchant solutions $1,350M rev (+19.9% YoY, 40.1% Gross Margin)🟡

Key Metrics

➡️GMV $60.86B (+22.8% YoY)🟡

↗️GPV $36.24B (+31.7% YoY, 59.5%% of GMV)🟢

↗️MRR 151B (+30.2% YoY)

↗️Attach Rate 3.06% (+2 bps YoY)

Operating expenses

↗️S&M*/Revenue 18.8% (14.1% LQ)

↗️R&D*/Revenue 14.1% (11.3% LQ)

↗️G&A*/Revenue 5.3% (3.8% LQ)

Dilution

↗️SBC/rev 6%, +1.0%pp QoQ

↘️Basic shares up 0.8% YoY, -0.1%pp QoQ🟢

↘️Diluted shares down -0.3% YoY, -1.3%pp QoQ🟢

Guidance

↘️Q2'24 $2,015.9M guide (+19.0% YoY) missed est by -0.7%🔴

Key points from Shopify’s First Quarter 2024 Earnings Call:

Advertising Platform

Efficiency Improvements: Shopify has made significant strides in its advertising platform by leveraging advanced AI and machine learning models, which have allowed for targeting audiences with unprecedented precision.

Merchant Acquisition: The refined targeting strategies have driven a 130% increase in merchant ads within Shopify’s primary marketing channel from Q4 to Q1 while adhering to strict payback guardrails.

Marketing Strategy: Shopify focuses on building great solutions and driving decisions through data, continually finding and experimenting with new marketing channels to enhance performance.

New Products

Product Rollouts: Shopify has launched over 400 new features and updates in the past two years, demonstrating their commitment to innovation and leadership in commerce technology.

Shopify Magic: Shopify’s AI product suite, termed Shopify Magic, focuses on simplifying business operations and enhancing productivity, proving essential for merchants in managing their businesses efficiently.

Merchant Support: Over half of Shopify's merchant support interactions were assisted or resolved with AI, demonstrating its effectiveness in improving customer service and operational efficiency.

Point of Sale (POS) Enhancements: Shopify's POS system has been upgraded with new functionalities like draft order capabilities and customizable receipts. The POS Pro version has significantly increased its adoption among larger, multi-location merchants.

Shop Pay

The penetration of Shopify Payments continues to increase, reaching 60% GMV penetration. This integrated payment solution remains a core element for merchant operations, offering additional services like capital, installments, and Shop Pay — the latter being noted as the world’s highest converting accelerated checkout solution.

International Expansion

Shopify's international growth continues to outpace North America, with notable strength in Europe where Q1 GMV grew by 38%, marking the third consecutive quarter of GMV growth above 35%.

Less than 30% of Shopify's revenue base last year came from international markets, highlighting significant growth potential. Shopify is focused on tailoring products and tools to meet the unique needs of international merchants.

Efforts include localizing offerings such as shipping brochures tailored for markets like Japan, Spain, and Italy, and expanding the availability of products like the point of sale Go and terminal in Australia.

Customers

Shop Pay is gaining traction, with 150 million buyers opting in, facilitating $14 billion in GMV during Q1—a 56% year-on-year growth.

Enterprise brands like Overstock.com and BarkBox are migrating to Shopify, attracted by its powerful infrastructure and competitive total cost of ownership, which is 36% better than competitors according to a recent study.

The introduction of Commerce Components by Shopify allows enterprise brands like Coach to integrate Shop Pay across their platforms, enhancing the checkout experience.

Future Outlook

Future growth is expected to be driven by further penetration of Shopify Payments, expansion in enterprise and international markets, and enhanced offerings such as Shopify Markets Pro for cross-border sales.

Macroenvironment

Shopify acknowledges challenges such as the strong U.S. Dollar and potential softness in European consumer spending, which are factored into their Q2 outlook.

Despite these challenges, Shopify anticipates continuing to outperform e-commerce growth rates in North America and Europe, supported by its diversified product offerings and international expansion.

Management comments on the earnings call.

New Products:

"In the span of just 2 years, we've rolled out more than 400 new features and updates to our platform, setting a pace that demonstrates our leadership in building for the future." — Harley Finkelstein, President of Shopify.

Shop Pay:

"Shop Pay increased 56%, processing $14,000,000,000 in GMV and accounting for 39% of our gross payments volume as it continues to be the preferred choice for consumers seeking a fast, secure, and hassle-free checkout." — Harley Finkelstein, President of Shopify.

International Expansion:

"Q1 international GMV growth outpaced North America with continued strength in Europe posting Q1 GMV of 38%, marking our 3rd consecutive quarter of GMV growth above 35%." — Harley Finkelstein, President of Shopify.

Customers:

"Brands like consumer packaged good companies Harry's and Pretty Litter, fashion apparel brands like Laura Canada and Intersports, fitness and wellness companies Juice Plus, Balance of Nature and Soul Cycle, home goods retailer Rugs USA, consumer electronics company, Skullcandy, manufacturer of cleaning equipment, Karcher, health and beauty brand, fragrancenet.com, and celebrity brands like Serena Williams' beauty brand Wynn Beauty, Beyonce's hair care brand Sacred, and Dwayne 'The Rock' Johnson's skincare line Papatouille." — Harley Finkelstein, President of Shopify.

Future Outlook:

"We see an excellent opportunity to further our lead in our established products and fuel the strong momentum of our emerging products. Today, we are building an even stronger Shopify." — Harley Finkelstein, President of Shopify.

Macroeconomic Environment:

"We see consumer spend in North America remaining resilient, but we have factored in headwinds related to FX from the strong U.S. Dollar and some softness in European consumer spending in our Q2 outlook." — Jeff Hofmeister, CFO of Shopify.