Shopify Q1 2025 Earnings Report

Shopify EPS Results

• Actual EPS: N/A
• Consensus EPS: $0.26
• Beat/Miss: N/A
• One Year Ago EPS: $0.20

Shopify Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $2.33 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Shopify Announcement Details

• Quarter: Q1 2025
• Date: 5/8/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, May 8, 2025
• Conference Call Time: 8:30AM ET

Shopify (NYSE:SHOP) is a commerce platform and eCommerce infrastructure provider connecting small businesses with a large and growing global marketplace. The company was formed in 2004 in Ottawa, Canada as Jaded Pixel Technologies but changed its name to Shopify Inc in 2011. The name change was part of a rebranding strategy that helped accelerate the business and drive it to $5.5 billion in sales in 2022.

As of October 2022, the company boasted “millions” of merchants in 175 countries with more than $543 billion in economic activity generated since launch. In terms of scale, Shopify employs more than 10,000 individuals and is among the top 20 publicly traded companies in Canada.

Shopify was founded by Tobi Lütke. Mr. Lütke had been working on a website for a snowboard store but quickly realized the software was more valuable than just selling snowboards so his team switched gears. The platform was launched in 2006 and it quickly gained momentum. Mr. Lütke is a member of the board of directors and the company’s CEO, a position he has held since 2008.

Shopify is a commerce company but, more importantly, it is an eCommerce commerce company that can assist small businesses with all aspects of their operations. The company is in business to provide an eCommerce platform for small businesses globally. Its platform enables merchants to market, manage, and sell their products through a variety of sales channels that include but are not limited to eCommerce. Channels include the company’s core Shopify.com website as well as brick & mortar locations, pop-ups, social media, and buy-now buttons.

Because branding is such an important part of a business's success the company goes to great lengths to assist its merchants in that regard. The Shopify.com website includes several tools to help with branding that include a business name generator and a logo maker as well as a website builder and a full range of marketing products. Marketing products help merchants with email marketing and Facebook ads as well as automation of the same.

Among the many benefits of using Shopify is acceleration. Businesses that use the website to its fullest are able to accelerate their growth and reach milestones years ahead of their competitors. Brands that use Shopify.com include Heinz, Tupperware, and Netflix. According to data from BuiltWith, the Shopify platform was host to more than 1.58 million websites in 2021 and the figure is growing. Data from W3Techs suggest that more than 4.0% of the top 10 million websites are using Shopify.

 

Shopify Q1 2025 Earnings Call Transcript

Key Takeaways

• In Q1 FY25, Shopify reported 27% revenue growth, 23% GMV growth and a 15% free cash flow margin, with standout increases in offline GMV (+23%) and triple-digit B2B GMV growth (+109%).
• Shopify rolled out multiple cross-border enhancements including managed markets for duties, checkout duties calculation at 0.5%, upcoming duty-inclusive pricing, AI-driven TariffGuide.ai, local filters in the Shop app, DDP shipping labels and an expanded 3PL fulfillment network.
• Shopify Payments now operates in 39 countries with 64% merchant penetration and introduced multicurrency payouts in 20 European markets, while Shop Pay GMV rose 57% to over $22 billion in Q1.
• An integrated AI strategy fuels internal efficiency through reflexive AI use and MCP servers, and powers merchant tools like Sidekick—which doubled its monthly users after a full rearchitecture—for deeper reasoning and multilingual support.
• Shopify underscores its agility and operational discipline to help merchants navigate macro and trade uncertainties, signing enterprise clients such as VF Corp, Follett and Caring Beauty and driving 36% GMV growth in Europe.

Presentation

[Carrie Gillard, Head - IR at Shopify]

Good morning, and thank you for joining Shopify's first quarter twenty twenty five conference call. I am Carey Gillard, Head 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.

[Carrie Gillard, Head - IR at Shopify]

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 The US and Canadian regulators. We'll 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 US dollars, so all amounts discussed today are in US dollars unless otherwise indicated.

[Carrie Gillard, Head - IR at Shopify]

With that, I will turn the call over to Harley.

[Harley Finkelstein, President at Shopify]

Thanks, Carrie, and thanks to everyone for being here today. Let's start with the obvious. Today's market is uncertain. As the platform that powers global commerce, we're, of course, monitoring for potential slowdowns, but our data through April shows little evidence of that. It's still early to assess the full impact of the current trade environment.

[Harley Finkelstein, President at Shopify]

However, q one saw our trend for consistent quarterly growth continue, and more on that in a minute. First, I wanna say this. Shopify is built for agility, and in many ways, these days are just like any other. We're here to help merchants of all sizes absorb change rapidly and at scale. This strategy does not change as the landscape underneath us continues to shift.

[Harley Finkelstein, President at Shopify]

So as we sit here today, we cannot predict what administrations around the world will do. But what Shopify can do is continue to be the guardians of our merchants. We show up, we build, we ship, and we make commerce better for everyone from entrepreneurs to the largest of enterprises. Now it is not hyperbole to say that businesses do better on Shopify. It is a fact.

[Harley Finkelstein, President at Shopify]

Since 02/2015, growth rates for 38 out of 39 of our quarterly merchant cohorts have outperformed the overall ecommerce market. I wanna repeat that. 38 of 39 quarterly Shopify cohorts have outpaced the market when it comes to growth. Think about that in relation to small and medium sized businesses that are the backbone of every economy. We help them scale as they leverage more of our products and services over time to drive consistent performance and growth.

[Harley Finkelstein, President at Shopify]

Simply put, businesses on Shopify are more resilient than businesses that are not on Shopify. That merchant resiliency combined with our operational excellence will continue to set us apart as we navigate market uncertainties ahead. I need to remind everyone of this. This is where Shopify's agility really comes into play. We've built a business model that allows us to adapt very quickly and pull the right levers to manage through challenges.

[Harley Finkelstein, President at Shopify]

Those levers mean we can prioritize tools and support needed for merchants to thrive in any environment. We power adaptation at lightning speed, whether that means seizing new opportunities for growth or responding to changes like we're seeing today. Again, those building on Shopify are better prepared than those who are not. And with that, the q one numbers speak for themselves, so I'll keep it brief. Coming off of a very strong 2024, in q one of twenty twenty five, revenue was up 27% and free cash flow margin hit 15%.

[Harley Finkelstein, President at Shopify]

We saw real strength in key growth areas with offline GMV increasing twenty three percent and b two b GMV delivering another triple digit quarter of growth, up a 9% from last year. International GMV grew 31% and cross border held steady at 15% of GMV. And we saw continued growth across our merchants GMV from entrepreneur through enterprise, balanced across both existing and new merchants to deliver a seventh consecutive quarter of GMV growth above 20%. This is what we mean when we say our business model is built for this. Our formula for growth remains the same.

[Harley Finkelstein, President at Shopify]

Operational discipline plus a real commitment to innovation. Look at our free cash flow profitability. Look at our operational efficiencies. We can be both disciplined and innovative. This is the operating model you have come to expect from us and should continue to expect to see from us moving forward.

[Harley Finkelstein, President at Shopify]

Okay. Now with that out of the way, let's dive into what we've built to help our merchants adapt. We've shipped a lot, and we focused on areas that we can have a more immediate impact. Cross border trade, making it easier to buy local, duties calculations, and shipping. It is incredible what our team has done in just a few short months, and this is just the beginning.

[Harley Finkelstein, President at Shopify]

Starting with cross border trade. We've enhanced our managed markets products, giving US merchants more options with our merchant of record service for collecting and remitting duties and taxes while managing other markets independently. This means if new duties are announced, most merchants can achieve compliance within hours. Next, let's talk about making it easier to buy locally. On the shop app, we introduced a feature that allows buyers to filter products by country.

[Harley Finkelstein, President at Shopify]

This promotes local businesses and enhances the shopping experience that's generated hundreds of thousands of unique sessions since its rollout alone. Moving on to duties calculation. In February, we made our duties calculation available at checkout for all merchants and reduced its price to just 50 basis points. Moving on to duties calculation. In February, we made our duties calculation available at checkout for all merchants and reduced its price to just point 5%, making one of the most affordable options in the market.

[Harley Finkelstein, President at Shopify]

By the March, the number of shops actively using this feature nearly doubled since January. And later this month, we'll introduce duty inclusive pricing, allowing merchants to set international prices that include duties in the product price. This ensures transparent pricing from the start and helps customers avoid surprise fees at checkout. And just this past week, we launched TariffGuide.ai. This AI driven tool provides duty rates based on just a product description and the country of origin.

[Harley Finkelstein, President at Shopify]

Sourcing the right products from the right country can mean the difference between a 0% and a 15% duty rate or higher, And TariffGuide.ai allows merchants to do this in minutes, not days. Finally, shipping and fulfillment. We are simplifying international shipping for merchants by enabling them to purchase prepaid shipping labels known as delivered duty paid or DDP directly from our platform and expect to onboard several carriers soon. Additionally, we've expanded our network of 3PL providers through the Shopify Fulfillment Network app, enabling merchants to access more local warehouses for order fulfillment. Utilizing local warehouses speeds up fulfillment times, reduces shipping costs, and simplifies returns for buyers in those markets.

[Harley Finkelstein, President at Shopify]

What all this should tell you is that Shopify moves at a pace unlike anybody else, truly. Our reaction time to uncertainty is unmatched with the best engineers on the planet ready to tackle whatever lies ahead. Our obsession with unlocking every opportunity and filling every important gap in the system to give our merchants the best chance of success is one of our superpowers. Shopify is a different company moving rapidly towards what is next. We rolled out the shop app filter in less than a week and the duties calculation to check would update over a weekend.

[Harley Finkelstein, President at Shopify]

Literally, the weekend after the tariff changes were announced, the team got to work. And by Sunday evening, we were testing it for production. This is who we are, a company that obsesses over our merchants by thriving on change and living at the cutting edge. This is why our merchants consistently outperform the market, and this is why they trust us. Now before handing over to Jeff, I wanna touch on some other products that are foundational to our long term success.

[Harley Finkelstein, President at Shopify]

Let's quickly take a closer look at how we're continuing to capitalize on these opportunities, starting with payments. Shopify payments continues to be our largest product offering and a key driver. We made great progress in q one with payments GMV penetration hitting 64%. We launched Shopify payments in 16 new markets, Mexico, Lithuania, Poland, Norway, Latvia, Hungary, Estonia, Malta, Croatia, Greece, Slovenia, Cyprus, Bulgaria, Liechtenstein, Luxembourg, and Gibraltar. Now I know that's a lot of names, but that's the point.

[Harley Finkelstein, President at Shopify]

At the end of twenty twenty four and after a decade of offering payments, it was in 23 countries. With our q one expansion, we nearly doubled that, bringing the total to 39 countries now supported by Shopify Payments. This is important because having a key product like Payments available in more markets simplifies the onboarding process. It offers merchants a streamlined payment solution that reduces fees and enhances security. Plus, features like Shop Pay improve conversion rates and provide greater convenience for buyers.

[Harley Finkelstein, President at Shopify]

Adding more products in more markets remains a key driver of our international growth. And with these country launches, even more merchants can process payments seamlessly in their home countries, which is crucial as tariffs and economic factors may complicate cross border trade. But we did not stop there. We also launched multicurrency payouts in 20 countries across Europe, allowing merchants to receive payments in their preferred currencies, essential for operating globally and minimizing the impact of fluctuating exchange Now as we look at the success of Shopify Payments, it is clear how foundational it is to our shop products, the buyer facing side of Shopify that is all about making shopping simpler. One of the biggest advantages to our merchants is access to Shop Pay.

[Harley Finkelstein, President at Shopify]

And in q one, Shop Pay GMV was up 57% from last year, processing over $22,000,000,000 in GMV. Within our core pillars of shop, the Shop Pay component continues to be a key product offering that is working to drive upmarket enterprise level growth opportunities. Businesses like mattress company Purple, lifestyle brand Johnny Was, fashion icon Lily Pulitzer, and footwear giant Birkenstock are among the latest to integrate this solution into their sites. Just this week alone, we signed up to expand more Tapestry brands on to utilize this component as well. Now they started with just coachoutlet.com, but because it worked so well, they are now rolling it out to online shops for Coach, Kate Spade, and for the Kate Spade outlet.

[Harley Finkelstein, President at Shopify]

This is more than just a passing trend. It is becoming an increasingly compelling pathway for large merchants to come to Shopify. This is where our journey may start with these larger brands, but we are confident as we demonstrate success, we will unlock more opportunities to add even more of our powerful tools and solutions over time, enhancing their growth and capabilities on our platform. Moving on to the other pillars within Shop. The Shop app continued its momentum in q one, hitting over 94% year over year growth in native GMV, an impressive acceleration from 84% growth last quarter, especially considering the seasonality of q four.

[Harley Finkelstein, President at Shopify]

Shop Pay installments launched in early access to Canada, marking another important milestone in our global expansion with more countries on the horizon for later this year. Okay. Let's talk quickly about AI. AI is at the core of how we operate and is transforming our work processes. For those who have not seen it, I encourage you to check out Toby's recent company wide email on AI that has now been shared publicly.

[Harley Finkelstein, President at Shopify]

At Shopify, we take AI seriously. In fact, it's becoming second nature to how we work. By fostering a culture of reflexive AI usage, our teams default to using AI first, reflexive being the key term here. This also means that before requesting additional headcount or resources, teams are required to start with assessing how they can meet their goals using AI first. This approach is sparking some really fascinating explorations and discussions around the company, challenging the way we think, the way we operate, and pushing us to look ahead as we redefine our decision making processes.

[Harley Finkelstein, President at Shopify]

In the past couple of weeks, we built a dozen MCP servers that make Shopify's work legible and accessible. And now anyone within Shopify can ask questions, find resources, and leverage those tools for greater efficiency. This reflexive use of AI goes well beyond internal improvements. It supercharges our team's capabilities and drives operational efficiencies, keeping us agile. And as we continue to innovate, AI will remain a cornerstone of how we deliver value across the board.

[Harley Finkelstein, President at Shopify]

On the merchant facing side of AI, in q one, key developments for Sidekick included a complete rearchitecture of the AI engine for deeper reasoning capabilities, enhancing processing of larger business datasets and accessibility in all supported languages, allowing every Shopify merchant to use Sidekick in their preferred language. And these changes, well, they're working. In fact, our monthly average users of Sidekick continue to climb more than doubling since the start of 2025. Now this is still really early days, but the progress we are making is already yielding some really strong results for merchants, both large and small. Sidekick is yet another reason that merchants on Shopify will have an unfair advantage for whatever lies ahead.

[Harley Finkelstein, President at Shopify]

Okay. Switching gears a little. Let's talk about the progress we are making in some of our key growth drivers, starting with international. We see the opportunity to capture market share in every European market as well as in Asia and Latin America. In q one, we saw Europe's GMV growth 36% year over year, which clearly shows that we are gaining traction and expanding our presence in this key region, led by The UK, Netherlands, and Germany.

[Harley Finkelstein, President at Shopify]

Now I already mentioned some of the product features we are rolling out to merchants to navigate the current landscape, but we also continue to strengthen our foundation for international specific features with improvements to AI powered translations and new privacy compliance functionality. Now these enhancements to the product combined with our continued investments in marketing are helping to further grow our reach and market penetration in these really important countries. In our offline business, GMV was up 23% this quarter, thanks to the continued strong growth from our mid market and multi location merchants. We are also bringing on more established brands onto the platform, like FAO Schwarz, Just Cozy, and the iconic Japanese watch company, Grand Seiko. Now while this flexibility is really important, our true value goes beyond simply enabling these offline features.

[Harley Finkelstein, President at Shopify]

It lies in building trust and partnerships through our merchants' unified commerce journey online, offline, and everywhere in between. And a perfect example of this is our recent partnership with Aloe, the athletic apparel brand that's absolutely crushing it. Now they wanted to implement same day delivery, so they approached us with this idea, and we obviously were on board to make it happen. By integrating with partners like Uber and DoorDash, Allo can now offer quick same day delivery options, allowing customers near the retail stores to receive their gear really, really fast. This is exactly how we support our merchants in staying ahead of the game and seizing every opportunity to grow.

[Harley Finkelstein, President at Shopify]

No matter what you want to do in your retail business, we default to yes on Shopify. Our efforts to move upmarket are paying off, fueled by strong growth from high volume brands like Viori, along with more recent additions like BarkBox, Brilliant Earth, and Toys R Us. This evolving landscape paired with our powerful go to market strategy creates a significant opportunity for us to attract even more brands to Shopify. Our platform is designed to handle changes, like navigating tariffs quickly and efficiently, making us the go to choice for merchants of all sizes facing today's challenges. Agility and ease of use are now prerequisites for any modern commerce team, and Shopify is positioned not just as a tool, but as a strategic advantage in an unpredictable market.

[Harley Finkelstein, President at Shopify]

And that is why more global brands are choosing us. They value our ability to move swiftly to deliver incredible value and to provide scalable infrastructure, especially right now. We are in constant conversations with leadership teams and CEOs who recognize the global economy is fluid, and they're seeking solutions that enhance their agility. Across various industries, there's this renewed focus on cutting costs by eliminating inefficiencies and modernizing technology, and that is where Shopify really shines. Many legacy platforms are struggling.

[Harley Finkelstein, President at Shopify]

They're slow and restrictive, lacking consistent investment, unable to efficiently handle basic tasks like pricing updates or loyalty changes, and custom built systems often prove just as brittle under pressure. As businesses face these challenges, Shopify is becoming the preferred choice for those looking to thrive at scale. The diversity of businesses we are signing from computer and gaming giants to household appliance brands, sporting goods, and iconic fashion labels demonstrates the strength and resilience of our merchant base and the power of our platform. Additionally, in q one, one of the largest apparel and footwear conglomerates, VF Corp, signed up to bring eight of their well known brands to Shopify, including Dickies, Ultra Running, Kipling, and Icebreaker. And two of their brands, Jansport and Eastpac, have already launched, and we cannot wait to bring the others onto our platform.

[Harley Finkelstein, President at Shopify]

And in the past two weeks alone, even after the tariff announcements, brands continue to sign. And one of those is Follett Higher Education Group, the multibillion dollar company managing campus bookstores at over 1,000 colleges and universities across North America. And in Europe, we signed Caring Beauty, the beauty brand division of luxury fashion houses like Alexander McQueen, Valencia Aga, and Creed. We are incredibly proud to support to a world renowned group as they unify their customer experience across channels by leveraging Shopify's b to b, b to c, and point of sale solutions. Now this broad spectrum of verticals not only strengthens our platform, but also reduces reliance on any single market, vertical, or customer, allowing us to navigate market fluctuations and seize multiple growth opportunities with confidence.

[Harley Finkelstein, President at Shopify]

We've also seen a really impressive line of brands launching incredible online businesses on Shopify so far this year, including stationary company from Barnes and Noble, Paper Source, luxury fashion brand from LVMH, JW Anderson, luggage and travel business Away, wellness technology company Therabody, auto supply store and manufacturer Kent Automotive, and apparel and accessory retailer, Life is Good. So to close, q one was a testament to the sustainable business model we've built, a model that's founded on supporting our merchants. Their success drives our success. This is who we are, and this is why we exist. Shopify thrives on change.

[Harley Finkelstein, President at Shopify]

It's in our DNA, and it has positioned us uniquely to overcome obstacles and adapt to new climates. It is quite simple. Our success boils down to three key principles, and I can assure you that our priorities will remain just as clear in the future as they are right now. First, everything we do is merchant first. Their needs drive every product enhancement and every decision we make.

[Harley Finkelstein, President at Shopify]

Second, we've demonstrated an incredible ability to pivot when merchants need us most, adapting swiftly to challenges. Our resilience, in turn, ensures our merchants remain resilient too. And third, our operating discipline provides the flexibility we need to deliver unmatched value while balancing profitability and long term growth. This is a very durable business model, and it is also how the very best companies are built by staying grounded in our purpose and committed to our mission. And we look forward to sharing our journey with you in the quarters to come.

[Harley Finkelstein, President at Shopify]

And with that, I'll turn the call over to Jeff.

[Jeff Hoffmeister, CFO at Shopify]

Thanks, Harley. Another very strong quarter for us. Q one marks our eighth straight quarter of delivering pro form a revenue growth of 25% or greater, seventh consecutive quarter of GMV growth rate exceeding 20%, and seventh consecutive quarter of double digit free cash flow margins. Before I dive into the q one results, I want to build on Harley's comments regarding our key principles and link them to the growth framework that I laid out at our investor day and the strong GMV results that we've been posting. At that time, we talked about growing our merchant base, expanding the breadth of merchants we serve, and helping our merchants grow by giving them the tools they need to connect with and convert more buyers and run and grow their businesses, all of which are underpinned by continuous innovation.

[Jeff Hoffmeister, CFO at Shopify]

Our consistent GMV performance demonstrates that we are delivering on all of these vectors. If you recall from our Investor Day, I highlighted that we have seen our US e commerce GMV grow approximately two times overall US e commerce quarter in, quarter out. That trend has continued and strengthened, in fact, exceeding two x each of the past five quarters. Another demonstration of our success is that every quarterly cohort other than one over the past ten years has outpaced US e commerce since joining Shopify. Within Europe, we are outperforming the market by an even wider margin at even higher multiples of e commerce growth.

[Jeff Hoffmeister, CFO at Shopify]

We've seen robust greater than 30% GMV growth now for eight consecutive quarters, with that strength being broad based across countries and merchant sizes. We are executing exceptionally well, and our Q1 results reflect that. With that backdrop, let's discuss Q1 results, then some perspectives on tariffs, and finally our Q2 outlook. All growth rates mentioned are year over year unless specifically stated otherwise. GMV in Q1 was $74,800,000,000 up 23%.

[Jeff Hoffmeister, CFO at Shopify]

This strong Q1 GMV was driven by same store sales growth of our existing merchants, growth in our merchant base globally, continued strength in Europe, which grew 36% from both strong same store sales growth and new merchant acquisition, with same store sales growth being a larger contributor this quarter. And finally, offline growth of 23%, driven primarily by larger retailers joining the platform. As we build a wider array of commerce solutions, our platform has become more attractive to merchants across various industries. Apparel and accessories remains our largest category, and that continues to perform well. But we are also experiencing strong growth in health and beauty, home and garden, and food and beverage.

[Jeff Hoffmeister, CFO at Shopify]

Additionally, smaller yet rapidly growing categories like animals and pet supplies and arts and entertainment showed particularly strong growth rates in Q1. Revenue for the first quarter was up 27%. Looking at the two components of revenue, q one merchant solutions revenue increased 29%, driven by the same factors as q four, including continued strength in GMV and increased penetration of Shopify payments, which reached 64% for the quarter. Several factors powered the quarter's higher GPV penetration, including the strong performance of those merchants utilizing Shopify payments, an increasing percentage of which are Shopify Plus, more merchants across the globe adopting payments, and expansion of payments both into more countries and through the partnerships with PayPal and Klarna. These items were partially offset by the continued strength of our business in Europe, which was a larger percentage of GMV, but where we have a lower GPV penetration than North America, which should become less of a headwind to payments penetration going forward given the launch of payments in more countries in Europe.

[Jeff Hoffmeister, CFO at Shopify]

Subscription solutions revenue grew 21%, with the three largest drivers being an increase in the number of merchants on our platform and, to a lesser degree, the benefit from the Plus pricing change and higher variable platform fees. As a reminder, the changes to Plus pricing took effect in February for new merchants and a few months later for existing merchants. Given that the significant majority of the existing Plus merchants chose to lock in three year contracts at their existing rates, something that highlights the exceptional value we offer and the trust our merchants have in us. The majority of the benefit in q one came from new Plus merchants. Q one twenty twenty five, therefore, benefited from two months of year over year comparability tailwinds.

[Jeff Hoffmeister, CFO at Shopify]

As I mentioned on our last call, we expect our subscription solutions growth to normalize to a rate lower than merchant solutions in 2025, given the benefits from the plus pricing changes tapering off and the lengthening of the paid trials. Q1 MRR was up 21% year over year with continued growth in each of standard, plus and offline, with all three categories seeing an increase in the number of merchants. Plus plans represented 34% of MRR for the quarter. As I mentioned during our last call, in Q4 of last year, we started shifting to a three month paid trial in certain markets, moving away from our predominantly one month trials. The adjustment in trial lengths will make the quarter over quarter and year over year MRR comparisons tougher for you to assess from the outside, and these comparability issues will persist throughout 2025.

[Jeff Hoffmeister, CFO at Shopify]

But it is important to point out that we continue to see the benefits of moving to the longer trial period. Some comparability issues aside, the trend is a good thing. Our testing has indicated that giving merchants a little more time to experiment with our platform increases the likelihood that they are setting themselves up for greater GMV success over the longer term. This point became clear through the testing that we did regarding how quickly merchants from various trial lengths achieved certain GMV milestones. As a reminder, paid trials are just one of our merchant acquisition tools.

[Jeff Hoffmeister, CFO at Shopify]

Gross profit was up 22%. Gross profit for subscription solutions grew 19%, slightly less than the 21% revenue growth for subscription solutions. The lower rate was driven primarily by higher cloud and infrastructure hosting cost needed to support higher volumes and geographic expansion. Although we are investing more in AI, it is not a significant factor in this increase. Over the past five years, the gross margin for subscription solutions has centered around 80%, plus or minus a couple hundred basis points in any given quarter, and we do not anticipate that trend changing in the near term.

[Jeff Hoffmeister, CFO at Shopify]

Gross profit for merchant solutions grew 24%, with gross margin coming in at 38.6% compared to 40.1% in q one of twenty twenty four. The decrease was primarily driven by the same factors that we saw in q four, including lower noncash revenues from certain partnerships, which carry a high gross margin, and the impact from the expanded partnership with PayPal. Partially offsetting these headwinds was strong growth in our FX and tax products. This brings our overall Q1 gross margin to 49.5% compared to 51.4% in the prior year. Operating expenses were $966,000,000 for the quarter, or 41% of revenue, in line with our guidance.

[Jeff Hoffmeister, CFO at Shopify]

This 41% compares to 47% in Q1 twenty twenty four and sixty percent in Q1 twenty twenty three. We continue to make significant strides in building a lean, flexible, highly efficient team. Our continued discipline on headcount across all three of R and D, sales and marketing, and G and A continues to yield strong operating leverage, all while helping us move even faster on product development, aided by our increasing use of AI. In marketing, we continue to lean in on our returns based approach, executing the plan and leveraging the signals and data insights we have to quickly flex up and down our investments based on specific return metrics and payback periods. This strategy has not changed, and we believe it is continuing to serve us well.

[Jeff Hoffmeister, CFO at Shopify]

Our platform has all the capabilities to grow with and accelerate merchant success. Marketing helps us get those merchants on our platform, allowing us to then grow with them for years to come. Transaction loans and losses, the smallest of the operating expense categories on our income statement, was 3% of revenues, consistent with '1 last year. This stability is largely due to higher volumes in our growing capital business. We continue to grow our capital business and have recently introduced several product innovations that give merchants more choice for how they manage their loans and how they choose among various loan options.

[Jeff Hoffmeister, CFO at Shopify]

Operating income for the quarter was 203,000,000 or 9% of revenue compared to 5% in q one of last year. Stock based compensation for Q1 was $123,000,000 and capital expenditures were $4,000,000 for the quarter. Q1 free cash flow was $363,000,000 or 15% of revenue, in line with our outlook. The strength of our business enables us to achieve these attractive free cash flow margins while still, importantly, investing in the future. To be clear, while we will continue to drive efficiency, we are ultimately still a growth company.

[Jeff Hoffmeister, CFO at Shopify]

We will continue to prioritize investing in key areas like our core platform, international, b to b, enterprise, and offline as opposed to driving for higher free cash flow margins in the near term. It's simply the right thing to do with the immense opportunities we see ahead, but delivers a profitability level that we are proud of and believe we can maintain without compromising future growth. A quick comment regarding a small but important acquisition that we closed in q one. In March, we closed the acquisition of Vantage Discovery, which helps accelerate the development of AI powered multi vector search across our search APIs, shop, and storefront search offerings. This acquisition is one piece of a broader strategy to ensure that our merchants are able to continue meeting buyers regardless of where they're shopping or discovering great products.

[Jeff Hoffmeister, CFO at Shopify]

Given the dynamic macro and trade environment, I'd like to share some observations about our merchants and our business before we turn to our q two financial outlook. Starting with cross border. Cross border GMV made up 15% of total GMV in q one, consistent with previous quarters. Approximately half of that involves US trade, balanced between inbound and outbound, while the rest is largely interregional within Europe. Cross border levels have remained consistent throughout April and May to date.

[Jeff Hoffmeister, CFO at Shopify]

Turning to de minimis. The recent expiration of the de minimis exemption for goods from China is not expected to have a meaningful impact on Shopify in the near term, as only 1% of our overall GMV is related to imports from China that were subject to the exemption. That said, this expired less than a week ago, and we will continue to monitor its impact on our business. The quality and diversity of our merchant base and the buyers they serve are also two key things to keep in mind and which help ensure resilience in the face of potential economic shifts. We support millions of businesses across various industries and verticals, addressing every corner of commerce.

[Jeff Hoffmeister, CFO at Shopify]

This diverse merchant base gives us a solid foundation to navigate changing market conditions, providing unique stability to our business. Certain sectors or segments will require more time to address their supply chains in this environment, but many others, also represented on Shopify, can move more quickly, mitigating some of the impact to Shopify from these disruptions. Merchants' pivots in response to trade concerns are wide ranging, including decisions on inventory strategies, pricing changes, and sourcing selections. Consider pricing as one example. While some merchants have raised prices, we haven't seen broad based price increases yet.

[Jeff Hoffmeister, CFO at Shopify]

However, there remains a mix of strategies at play to navigate tariffs beyond just pricing. Merchants are considering when to change sourcing countries, when to buy inventory, or even adjusting product mix in their catalogs. From an end buyer perspective, in 2024, we had over 875,000,000 unique online shoppers, spanning a broad range of income levels and brand loyalties. While all merchants proudly serve consumers across all income brackets, their buyer base skews towards higher income consumers with more than half of their buyers in The US having incomes exceeding a hundred thousand dollars. We believe this helps insulate our merchants from some of the potential swings in pricing or other market factors as higher income consumers tend to be less price sensitive.

[Jeff Hoffmeister, CFO at Shopify]

We acknowledge the uncertainty ahead and are actively monitoring our data to help us support our merchants and adapt to whatever changes may arise. Keeping all this in mind, let's now turn to outlook. Our GMV data shows continued strength through April and early May, reinforcing our confidence in outperforming the market. Our expectations for the second quarter of twenty twenty five factor in the strength of our Q1 and what we are seeing quarter to date for Q2. First on revenue.

[Jeff Hoffmeister, CFO at Shopify]

We expect Q2 revenue growth in the mid twenties year over year driven by many of the same factors that supported our strong revenue growth in Q1. This outlook takes into consideration our best estimates of our performance in the context of today's trade and macroeconomic environment with potential headwinds largely offset by FX tailwinds. We expect q two gross profit dollars to grow in the high teens driven by a mix shift with more contribution expected from merchant solutions, primarily from payments, followed by subscription solutions. The ongoing strength of our lower margin payment product and the accounting impact from PayPal, combined with the impact from changes to the paid trial links are key factors in this growth. These dynamics in terms of gross profit dollar mix shifts are likely to persist resulting in gross profit dollar growth at a rate lower than revenue growth.

[Jeff Hoffmeister, CFO at Shopify]

We anticipate that our Q2 operating expenses will be 39% to 40% of revenues, which represents a 200 to 300 basis points improvement over Q2 last year, when excluding the reversal of the $55,000,000 legal accrual from the prior year. The factors contributing to our expense leverage in Q1 are expected to persist into Q2 as we stay vigilant on headcount, reflectively use AI to multiply our effectiveness, and concurrently invest in high return areas like marketing. On a dollar basis, operating expenses are increasing both year over year and quarter over quarter, primarily driven by expectations around higher marketing spend that I just discussed. Moving to stock based compensation. Q2 SBC is expected to be $120,000,000 Finally, on free cash flow.

[Jeff Hoffmeister, CFO at Shopify]

For Q2, we expect our free cash flow margin to be in the mid teens, similar to Q1 of twenty twenty five, as we continue to focus on driving growth, not optimizing for near term margin. We believe that the free cash flow margin profile that we have achieved over the past several quarters strikes the right balance between profitability and investments in building the best products for our merchants today and into the future. Simply too many compelling growth opportunities ahead. To close, we are delivering growth across multiple products, multiple geographies, and multiple merchant sizes and types, all while being disciplined on expenses but thoughtfully investing for Shopify's continued growth. The more the environment changes, the clearer it becomes to businesses of all sizes that they need a platform that can adapt, scale, and pivot.

[Jeff Hoffmeister, CFO at Shopify]

Shopify is that platform. And with that, I'll turn the call back over to Carrie.

[Carrie Gillard, Head - IR at Shopify]

Thanks, Jeff. We will now take your questions. Please use the raise hand feature in Zoom to ask your question. If you're dialing in by phone, you will need to press 9 to join the queue and 6 to unmute yourself. We ask that you limit yourself to one question so we can try to get to as many questions as possible.

[Carrie Gillard, Head - IR at Shopify]

Our first question comes from Samad Samana at Jefferies.

[Samad Samana, Managing Director at Jefferies Financial Group]

Hi. Good morning, and thanks for taking my question, and congrats on a really strong quarter. It's been a tough environment. Maybe Jeff or Harley, for either one of you, one of the things that we're trying to figure out is not just where, what's, like, GMV mixes for merchants, but maybe where merchants are sourcing the inventory that they're ultimately selling. And I appreciate all the disclosures that you gave, But how are you do you have any ability to map where they're currently sourcing from and how much through tariff exposure that they have?

[Samad Samana, Managing Director at Jefferies Financial Group]

And have you factored that into like, how are you balancing maybe potential demand destruction versus average order value going up? And I know that's a it's not a precise question, but to the extent that you could help illuminate that for us, it would be very helpful. Thank you so much.

[Harley Finkelstein, President at Shopify]

Yeah. Maybe I'll start, and then Jeff, can can add if he has something. Look, I think it's still very early and we're learning as much as I mean, because of our visibility, we're learning a ton. What I can tell you is that we have merchants everywhere of all sizes across pretty much every geography and pretty much every vertical. Mean, is the benefit of the Shopify business model.

[Harley Finkelstein, President at Shopify]

There's no you know, our merchant base is not concentrated in one area. So in terms of where they make their products, exposure really does vary by merchants. Some are impacted more than others, but net net, we're not seeing any meaningful impact on GMV. And and again, it's still pretty early. One thing I I would add also is if you think about the buyer perspective, in 2024, we had about 875,000,000 unique buyers purchased from a Shopify store.

[Harley Finkelstein, President at Shopify]

And while it does span a broad range of income levels and and certainly brand loyalties, because I think our our merchants, you know, serve customers across every income bracket, More than half of the buyers in The U. S. Have incomes exceeding $100,000 to our merchants. And I think the scale and that diversity does help insulate our merchants and us by extension. We'll continue to monitor that, but so far, we're not seeing anything, any meaningful impact to Jim B.

[Jeff Hoffmeister, CFO at Shopify]

Yeah. And Samad, the only thing I would add, you alluded to is that incorporated into our views on guidance. It definitely is. I put some comments in the prepared remarks around how we're thinking about both overall consumer spend as well as some impact from FX, that's all factored in there. So, and as I also mentioned, we've seen strength through April.

[Jeff Hoffmeister, CFO at Shopify]

We've seen strength in early May. So it's a continuation of all the things that we saw in Q1, which was a very good quarter, and we feel good as we think about the consistency of performance. When you look at what we've laid out for Q2 and think about what we did in Q1 as well as we've done over the last couple of years in terms of the consistent revenue growth in the margins and the GMV deliverance, we put all that into perspective.

[Carrie Gillard, Head - IR at Shopify]

Thank you for your question. Our next question will come from Martin Toner at ATV.

[Martin Toner, Managing Director - Institutional Research, Growth & Innovation at ATB Capital Markets]

Thank you very much. Is it possible for you guys to give us some more commentary around what has happened with your China specific merchants in early May?

[Jeff Hoffmeister, CFO at Shopify]

Yeah. I I don't as it relates to we we alluded to both, and I mentioned just a moment ago that both April and May have been strong in terms of what we've seen in GMV performance. It's obviously a dynamic environment. It's still too early to tell, I think, terms of where this is all going to play out, both in terms of the quantum and the timing of the tariffs. But again, I would say that we've we're roughly month into the escalation of tariffs and we continue to see strength in GMV.

[Jeff Hoffmeister, CFO at Shopify]

But as we look at the guidance we gave in Q2, it obviously assumes continued strong performance. In terms of exact detail in China, we don't have anything more to give on that at the moment.

[Carrie Gillard, Head - IR at Shopify]

Thank you, Martin. Our next question comes from Rob Wildhack at Autonomous.

[Robert Wildhack, Equity Research Analyst - Director at Autonomous Research]

Hey, guys. A question on a new merchant acquisition. Harley, you highlighted a bunch of new features, tariff related and other. I imagine those serve to further differentiate Shopify and the value prop. Against that though, I could also see a scenario where, you know, given all the uncertainty out there, merchants are reluctant to make any big switch in their systems or their infrastructure.

[Robert Wildhack, Equity Research Analyst - Director at Autonomous Research]

So how is the new merchant pipeline playing out, both in SMB and enterprise? And how has that changed at all over the last couple of months?

[Harley Finkelstein, President at Shopify]

Yeah. I mean, SMB has been has been consistently very strong. We've we haven't seen any any changes there. In fact, I I would actually argue with you on the on the larger merchant side. Actually, I think a lot of what we're seeing at least is that many legacy commerce platforms are actually being exposed as pretty slow and pretty restrictive.

[Harley Finkelstein, President at Shopify]

You know, some of these older legacy platforms that that large retailers are on, they can't even handle basic tasks like price updates or, I heard something this week about loyalty changes being difficult or adjusting inventory on sort of a more, you know, on a more rapid basis. And it's not just legacy systems, actually. We're also hearing from is that larger retailers and brands with custom built or in house platforms are realizing that those platforms are just as brittle and slow as, you know, especially right now. So as a result, I think, actually, brands are moving to Shopify. Larger brands are moving to Shopify at even higher clip.

[Harley Finkelstein, President at Shopify]

And and I think, you know, partially it's because they want they wanna simplify complexity. They wanna improve execution speed, reduce friction, but they also are looking for lower cost of ownership. One of the things that I think we have become well you know, a reputation I think Shopify has that is well deserved is that we our merchants are more resilient. We mentioned sort of 38 or 39, you know, of of the merchant cohort since the IPO ten years ago have performed better than the the broader ecommerce market. But also as a responsibility, you know, we are building tools that's incredible clip whether you know, I think as soon as any toxic tariffs came out, we we created a buy local filter over a weekend in the shop app.

[Harley Finkelstein, President at Shopify]

Manage markets is is is is is evolved incredibly. Duties calculations, pricing transparency. So I think this actually, you know, one of the things we're seeing is that a lot of these larger, more legacy systems are using this opportunity to reevaluate whether or not they have the right commerce partner long term. Again, not just because of flexibility, but also because of total cost for ownership. And that's been really great.

[Harley Finkelstein, President at Shopify]

As I mentioned, we've had some incredible, some of the most iconic retailers and brands in the planet coming to Shopify the last quarter, and that pipeline has not slowed down at all.

[Carrie Gillard, Head - IR at Shopify]

Thank you for your question. Our next question comes from Bob and Shaw at Deutsche Bank.

[Bhavin Shah, Director - Software Equity Research at Deutsche Bank]

Thanks for taking my question. Jeff Farley, you guys both alluded to on the call several times about your ability to lean into AI internally. And given this additional emphasis that you guys put on this starting this year, how is this impacting your kind of views on overall expenses relative to the prior commentary that you guys talked about on free cash flow margins? And then Jeff, how willing are you to maybe adjust your marketing spend if you do see changes in merchant or consumer behavior?

[Harley Finkelstein, President at Shopify]

Maybe I'll start just on the sort of AI internally, and then Jeff can talk a bit about on the financial impacts and and and, and opportunities there. You know, I I think all of you by now have hopefully saw saw Toby's note. AI is being built into the culture and and frankly built in the DNA of how we operate. It is now a reflex that is expected of our 8,000 people that work with us. So we're really leaning into this.

[Harley Finkelstein, President at Shopify]

You know, even just in the last couple of weeks, we've built roughly a dozen MCP servers that pretty much make every single corner of Shopify's work legible, which means that everyone at Shopify now has more access to more information at a much more rapid clip. Obviously, the Vantage, team coming in who are rock stars in AI are gonna help take our search capabilities to the next level. So we we we don't just necessarily talk about AI from the superpowers we can give with Sidekick and Magic to our merchants to make them far more effective. But even in terms of how we use it internally to make Shopify more effective in doing our day to day work, we think Shopify is best positioned to leverage that.

[Jeff Hoffmeister, CFO at Shopify]

Yeah. And as it relates to the implication on margins, obviously AI will be one of the tailwinds as Harley just alluded to that can multiply the effectiveness of the team, but it also dovetails into your question. Think, Bhavan, as you're trying to think about how does that in terms of marketing opportunities, changes in this dynamic market, how does that all play out? I would say nothing's changed in our views on free cash flow margins and the power of this business. We like the free cash flow margins that we've achieved.

[Jeff Hoffmeister, CFO at Shopify]

We think this margin profile strikes the right balance of profitability and investing as we've alluded to. And we've obviously been really thoughtful and disciplined in terms of how we've gotten to this point. So we will continue to exercise that discipline, but I would also say that the discipline allows us can lead us to both cut back if the spending returns aren't there. For example, if some of the things on the marketing front change as a function of the of the market overall, but also lean into it, of course, which is the right thing to do if you see compelling opportunities, which are going to get great merchants on our platform and bring all the long term value that they would bring. So I I just I think I fundamentally believe the best companies are built on focusing on the long term and seizing these opportunities.

[Jeff Hoffmeister, CFO at Shopify]

So, again, we worked hard to get here. We take that very seriously. We we have guardrails on the marketing spend, we also think about guardrails on the profitability. But I think we are very good at finding early signal and adapting. And Arlie alluded to that in his comments.

[Jeff Hoffmeister, CFO at Shopify]

I think that's something we do exceptionally well. So we're going to remain focused on our merchants, getting great mark merchants on the platform, and nothing again, nothing's changed in our philosophy here.

[Harley Finkelstein, President at Shopify]

Yeah. Let me just sort of underline that point because I think it is a uniquely Shopify thing. This is an area where we have real flexibility given these sort of return based returns based approach to marketing. I think we are uniquely positioned with incredible visibility and signal to what's working, what's not. In some parts of our growth engine, we can actually get a sense of of of changes to CAC, within a week.

[Harley Finkelstein, President at Shopify]

And on the LTV side, the same type of thing. So that means we can flex up and flex down our spend based on solid data views that we can get back at this incredibly fast rate. And I think that that ability to allow us to sort of play with those levers, if we see opportunities to gain market share, we'll take them. If we see things are changing, we can pull back as well. So, you know, as it relates to q two, you know, more of that, we're we're able to really view what's changing at a very, very fast clip and then make very good decisions on either side, whether, again, things are going, one way or the other.

[Harley Finkelstein, President at Shopify]

I think that that is a real advantage to Shopify's growth and and and our funnel and our business model.

[Carrie Gillard, Head - IR at Shopify]

Thanks for your question. Our next question will come from Michael Morton at MoffettNathanson.

[Michael Morton, Senior Research Analyst at Moffettnathanson LLC]

Good morning. Maybe a quick one for Jeff and a bigger picture one for Harley that I've asked before. Jeff, with the, three month trials and the slight step up in marketing spend, Just if you could maybe dig a little deeper on who you're targeting, with that, like, a certain type of merchant, a certain certain product, a certain geography, that would be great. And then for Harley, I've asked this before, but we're we're seeing it develop more, actually, a lot of a lot of search conversation this week in the news. And Shopify has some really interesting partnerships with the LLMs.

[Michael Morton, Senior Research Analyst at Moffettnathanson LLC]

I was wondering if you're seeing any change yet in traffic generation sources for your merchant base, and then if maybe a slight shift of the center of gravity of the legacy ecosystem that goes like feeds people from Google search to Amazon, maybe pointing more consumers to DTC websites? Thank you.

[Jeff Hoffmeister, CFO at Shopify]

So I thanks for your question, Michael. I'll start with your question on marketing, then I'll hand it over to Harley. There's no specific in terms of our marketing spend on merchant ads, again, the the and I alluded to this in my comments earlier, the the merchant acquisition engine is working very well. It's executing exactly as we would be hoping, and that ties back into the marketing spend. But there's been no change in the marketing philosophy in terms of the segments we're trying to target.

[Jeff Hoffmeister, CFO at Shopify]

Obviously, the majority of our spend as we've talked about before is performance based marketing. It's supporting both the areas of growth as well as all the areas that traditionally have been strongholds for us. It's so there's spend in The US, there's spend in Europe. I alluded in my comments how well I think it's working in Europe as a function of both the product market fit we have and how the marketing's dovetailing to that. It's supporting point of sale, it's supporting SMB, it's supporting enterprise, It's supporting all the various elements.

[Jeff Hoffmeister, CFO at Shopify]

So I I can't well, I'd I'd say there's no specific segment where we feel like, hey, we really need to focus on this one at the expense of others. It's discipline, return based marketing to support all the great things we're doing. But so we really think as we think about the S curves, the growth curves of all of our solutions, they're performing well and we're supporting them.

[Harley Finkelstein, President at Shopify]

Yeah, let me just talk quickly about AI. And I think the question really is around AI shopping. The first thing is, I just kind of want to say this because I don't think I get a chance to say this very often. I think Shopify is widely recognized as one of the best companies globally for fostering, like, very long term, very beneficial world partnerships. You've seen that obviously with what we do with payments or some of the stuff we're doing with buy now pay later or cross border.

[Harley Finkelstein, President at Shopify]

So you can you know, one of the things we think about is that wherever commerce is taking place, Shopify will be there. And obviously, one of the things we are seeing is that, you know, that more and more searches are starting, on on places beyond you know, somebody just a search engine. That's a huge opportunity, whereby more consumers are gonna be searching for great products. And for us to qualify and then requalify to be the core retail operating system for the millions of stores that use us and many millions of more in the future, we have to make sure they show up everywhere where commerce is happening. So, obviously, we've talked about some of the partnerships in the past.

[Harley Finkelstein, President at Shopify]

You've seen what we've done with Perplexity and OpenAI. We will continue doing that. We're not going to front run our our product roadmap when it comes to, when it comes to anything, frankly. But we do think though that AI shopping in particular is a huge opportunity and you can expect that Shopify will be wherever consumers are looking to find incredible products.

[Carrie Gillard, Head - IR at Shopify]

Thanks for your question. Our next question will come from Keith Weiss at Morgan Stanley.

[Keith Weiss, Equity Analyst at Morgan Stanley]

Excellent, thank you guys for taking the question. And really appreciate the way you guys are kind of coming at this period of uncertainty and period of stress and highlighting the quality of Shopify and how and and what we've seen historically is is the high quality companies tend to pull away from the pack in periods of stress. And I think you guys are doing a really good job of showing why Shopify is that high quality company and why you have the ability to pull away and gain market share even in in times when the macros are perhaps not a tailwind to you guys. So kudos on that. That that is great positioning.

[Keith Weiss, Equity Analyst at Morgan Stanley]

On the other side of the equation, though, gross margins is a key metric that software investors definitely look to. Degradation in gross margins tends to freak out investors, to use the technical term. So can you maybe talk to us a little bit about the durability of these or sort of how long these gross margin pressures are going to persist, particularly maybe enumerate what's happening with the PayPal accounting change. Any sense you could give us of like what the top line, the revenue impact was there versus what the gross margin impact is? And just fundamentally, when will we see overall gross margins start to stabilize or will we see overall gross margins start to stabilize sometime in the not too distant future?

[Jeff Hoffmeister, CFO at Shopify]

Yeah, Keith, thanks for your question and thanks for your opening comments. We definitely think about flight to quality and the opportunity for us to continue to differentiate ourselves from the pack here. On your gross margin question, let me break it into the two pieces of one, what we're seeing on the subscription solution side, and then two, on the merchant solution side and dovetail into some of your other pieces there. I alluded in my comments earlier on the subscription solution side, we've been pretty stable here in terms of how we think about it. It's been 80% plus or minus a couple hundred basis points, generally higher rather than lower than that 80 basis points.

[Jeff Hoffmeister, CFO at Shopify]

But you look back several years now and it's been pretty consistent. And I mentioned in my comments earlier that we don't see that changing. So that's something from that vantage point, which I think we continue to execute on really well. As it relates to the gross profit levels or gross margin levels on merchant solutions, PayPal is a piece of it. We have not quantified it.

[Jeff Hoffmeister, CFO at Shopify]

Payments is one of the things, of course, that it continues to be a larger and larger percentage of revenues. That has some headwinds on gross margin. To the extent that larger merchant GMVs, larger GMV merchants come on platform, of course, that will have some headwinds to it. Payments though is obviously a good thing, because it brings along a lot of other products that generally fall in the slipstream of what we're doing on that front. And we talked about the strength of tax and capital and cross border and all those things.

[Jeff Hoffmeister, CFO at Shopify]

So we did have a little bit of impact from the fall off of the non cash revenue. As you know, we have some partnerships where there's non cash revenue attached to those. One of those did roll off in Q4. That would be a, I guess, a one time or just Q4 to Q1 adjustment. So the margins going forward are going to be a mix, obviously, of everything we have going on within merchant solutions.

[Jeff Hoffmeister, CFO at Shopify]

Again, we called out tax, capital continues to grow well, Shopify FX continues to grow really well. Those are all margin accretive. So I think we're in this period of time. You go back two years, there's a lot of good products we introduced. They're continuing to ramp.

[Jeff Hoffmeister, CFO at Shopify]

They're ramping really well. Just given the size of the overall business, It just takes a while for them to have a meaningful impact, time to move the needle, only just given the size of payments, given the size of everything else. So we feel really good about where we are in terms of delivering the gross profit dollars. The paid trial change because the last thing I would say, the temporary piece for this year for sure is going to be subscription solutions. Last couple of years, we've had a little bit of a of an uplift as it relates to the pricing change.

[Jeff Hoffmeister, CFO at Shopify]

The paid trial change is really going to be a headwind for subscription solutions growth this year, but going into next year that will not be an issue. And again, while there's some MRR comparability issues, there's no net merchant ad issues at all. That's going really well.

[Carrie Gillard, Head - IR at Shopify]

Thank you for your question. Our next question will come from Tim Chiodo at UBS.

[Tim Chiodo, Managing Director at UBS Group]

Great. Thank you for taking the question. I want to touch a little bit on the Shopify point of sale in store business. You mentioned some of the larger brands coming onto the platform. I was hoping we could tackle it from two angles.

[Tim Chiodo, Managing Director at UBS Group]

First is competitive differentiation, whether it's inventory functionality or multi location or maybe you could expand upon that, particularly as it's relative to Clover, Square, Lightspeed, and maybe some of the other the legacy providers, the micros, etcetera. And then the second piece is around the distribution side. So Clover utilizes ISOs and bank partners and has direct sales. Square recently signed its first ISO in The US, and they're hiring salespeople. Maybe you could just compare and contrast the distribution, efforts behind the point of sale offering for Shopify.

[Harley Finkelstein, President at Shopify]

Thanks for the question. It's it's a great question. So first of all, I think point of sale, think about this as like this incredible multiyear growth initiative for us. I think the results for the quarter show that we're making really great traction. I mean, q one offline GMV was 23% in the quarter.

[Harley Finkelstein, President at Shopify]

And and, again, getting these brands like just Cozy, FAO Schwarz, Grand Seiko. We're getting a lot of these, you know, much larger multi location ones I mentioned on the enterprise side, working with these companies like Follett right now that has, you know, a thousand stores across campus, every university campus in America. So I think you'll continue to see a lot of momentum, with these large complex multi location merchants. And and part of the competitive advantage is is just the fact that the fee I mean, the feature set is amazing. You have tap to pay expansion, having, you know, ship to store capabilities.

[Harley Finkelstein, President at Shopify]

I mean, the amount of features that we're rolling out for point of sale by itself just in the last, you know, two quarters is more than any the other companies you mentioned roll out in in in multiple years. So just the the velocity of product expansion is incredible. In terms of the go to market, there's a couple things we are doing here. So, obviously, we're looking at new geographies, new verticals, new segments, but it's not just necessarily us go to market on our own. We also have incredible SIs we're working with.

[Harley Finkelstein, President at Shopify]

In some I've mentioned this on previous calls, we're working with, frankly, the largest SIs in the planet that are bringing us to market as well. And then then I think probably the larger piece of of why we're winning, when it comes to point of sale and and and retail is that I don't think the future of retail is going to be online versus offline, where where these incredible businesses think about, you know, different segments, channel conflict. They want a single place where they can view the entirety of all their business online and offline and potentially through AI and on social media platforms. And so this idea of Shopify being this unified commerce system that allows you to sell across every single channel and as more channels, you know, come to play again, you know, we talked about AI a little on this call. That wasn't around two years ago.

[Harley Finkelstein, President at Shopify]

Now it is. The fact that you can default have that with Shopify, we think is an incredible opportunity. The other thing is, like, you know, Allo came to us a couple weeks ago and said they actually wanna offer same day delivery on their checkout, like their physical checkout. And so, you know, we we we worked with Uber and DoorDash to get that going for them within a matter of weeks. That velocity, that confidence that these large and legacy brands are giving to us because they know that we can be a long term partner is allowing us to win this market.

[Harley Finkelstein, President at Shopify]

So, you know, I I I know the companies you mentioned, but I think from a product perspective and from an integration perspective with unified commerce, we'll continue to win business.

[Carrie Gillard, Head - IR at Shopify]

Thank you. Our last question will come from Dominic Ball at Redburn Atlantic.

[Dominic Ball, VP - Equity Research at Redburn Atlantic]

Hey, everyone. Hey, Harley. Maybe a question for yourself. You sort of touched on it earlier. How does Shopify view the emergence of AI agents in terms of do you guys see this as an opportunity or more of a threat?

[Dominic Ball, VP - Equity Research at Redburn Atlantic]

Because on one hand, they could facilitate, you know, direct checkout with their own platforms. But on the other hand, this may also unlock sort of a new sales channel for Shopify merchants, very similar to sort of what happened with social media commerce. And then one last, if purchases are done automatically through AI agents, does this reduce the value proposition of Shop Pay as well? So how are you guys thinking about this dynamic? Yeah.

[Harley Finkelstein, President at Shopify]

We we think it's a great opportunity. Look, the more channels that exist in the world, the more complexity it is for for merchants and brands. That's where the value of Shopify really shines. So if there's a new surface area, whether it's through AI agents or through just simply LLMs and and and AI wrappers that that consumer goes to to look for a new pair of sneakers or a new, you know, cosmetic or a piece of furniture. They wanna have access to the most interesting products from the most important brands, and those are all on Shopify.

[Harley Finkelstein, President at Shopify]

So for us, we think that all of these new areas where commerce is happening is a great thing. It allows Shopify to increase its value, and we're working with pretty much every single company that that, you you have in mind, to ensure that we are we are surfacing Shopify products, Shopify merchants products when people are searching for it. So we think it's a huge opportunity. One thing I will say also just before we end because I I think it's important and and I know we're getting to to closing time here. You know, I I hope on this call, presumably, all of you picked up the tone of Jeff in my comments.

[Harley Finkelstein, President at Shopify]

We believe that that Shopify is performing quarter after quarter, both in terms of top line momentum, but also managing expenses and delivering profitability. But one thing I do wanna say, just given the nature of the questions on this call that I wanna reiterate, hopefully, of you already know this, but we're about to cross the ten year mark since our IPO. And and one thing that I think you've most of you have come to understand, if not all of you, is that Shopify was absolutely built for times Times where things seem uncertain or unclear. This is when we we thrive, whether it was 02/2008, whether it was the pandemic, or or right now.

[Harley Finkelstein, President at Shopify]

Shopify was absolutely built with for agility. And and I think these days for us are just like anything else. And, you know, our objective in these times is to shoulder complexity so our merchants don't have to. It's how we build so much trust, it's why I think our merchants are are so damn resilient. But for us as a company, we operate very well in these environments, and we have the right levers to adjust on a dime.

[Harley Finkelstein, President at Shopify]

But we can also seize huge opportunities if and when they arise and grow our business. So I think it's precisely in times like this that we can demonstrate that those building on Shopify are simply better prepared than those that are not. And and with that, just wanna thank you all for joining the call. And, and for us, we'll get back to building the future of commerce. So thank you.

[Carrie Gillard, Head - IR at Shopify]

With that, this concludes our first quarter twenty twenty five conference call. Thank you.

Participants

Executives

• Carrie Gillard, Head - IR
• Harley Finkelstein, President
• Jeff Hoffmeister, CFO

Analysts

• Samad Samana, Managing Director at Jefferies Financial Group
• Martin Toner, Managing Director - Institutional Research, Growth & Innovation at ATB Capital Markets
• Robert Wildhack, Equity Research Analyst - Director at Autonomous Research
• Bhavin Shah, Director - Software Equity Research at Deutsche Bank
• Michael Morton, Senior Research Analyst at Moffettnathanson LLC
• Keith Weiss, Equity Analyst at Morgan Stanley
• Tim Chiodo, Managing Director at UBS Group
• Dominic Ball, VP - Equity Research at Redburn Atlantic