According to the Zhītōng Finance APP, on November 13th, they held the 2024 third quarter financial report conference call.$Shopify (SHOP.US)$CEO Harley Finkelstein stated at the Shopify conference call for the third quarter of 2024 that, as mentioned every quarter, Shopify is a company focused on long-term growth. The consistent performance quarter after quarter proves that the strategy is achieving incredibly positive results.

The third quarter is another amazing quarter. GMV grew by 24% in the third quarter of 2024, marking the fifth consecutive quarter of GMV growth exceeding 20%, with revenue increasing by 26% year-on-year,free cash flowThe profit margin increased to 19%. These are not just numbers, they further prove that Shopify is a leader in the industry, seizing opportunities to promote growth while achieving growth and profit margins.

Therefore, before we begin, let me say one thing. If you can gain some inspiration from this call, it should be in the following three points:

Firstly, both the subscription and business solutions businesses are growing, and Shopify is capturing a larger share in this vast and expanding market.

Secondly, Shopify is increasingly becoming the preferred platform for entrepreneurs and all business activities. It is well-prepared to achieve broad growth in various merchant segments, regions, channels, and products.

Thirdly, as merchants do better, Shopify will also do better, with a business model that puts merchants first and is driven by a high-speed product innovation engine, making challenges simple and making everything possible.

Chief Financial Officer Jeff Hoffmeister stated that looking ahead to the fourth quarter, it is worth noting that the fourth quarter is the season with the highest sales volume in the year, as it includes crucial holiday sales periods, including Black Friday and Cyber Monday. Sales trends in the fourth quarter are expected to be similar to previous fourth quarters, starting with revenue.

It is expected that the year-on-year growth rate of revenue in the fourth quarter will reach around 25-29%, which is consistent with the factors that have supported strong revenue growth so far this year. These factors include the continued strong assumption of GMV for merchants. The year-on-year growth rate of gross profit in the fourth quarter is expected to be similar to the third quarter. It is worth mentioning that, as in previous years, due to the fourth quarter being the peak season for holiday sales, the proportion of revenue from payment businesses is relatively high.

[Analyst Q&A Section]

Q(Brian Peterson): Thank you for taking our questions and congratulations on the company's outstanding performance. I would like to know how GMV compared to your expectations. Any comments on the linear growth for this quarter and preliminary thoughts on the fourth quarter?

A(Jeff Hoffmeister): Thank you for your question, I am happy to answer it. GMV is related to some advantages in Europe, and the strong performance in Europe is a key factor in the outstanding performance. I mentioned the Netherlands in my recent introduction, not only in past conference calls, I have also talked about Germany, France, Italy, and Spain multiple times. For us, the performance across the whole of Europe has been very good, which is also one of the key factors for the outstanding GMV performance.

Clearly, Harley and I have discussed this point. We have seen significant advantages in the Plus area. We have been successful in the B2B area. In addition to the traditional core areas of strength, we have been successful in many different aspects. Looking at the linear development throughout the quarter, especially in the latter part, we have seen some advantages in Europe. Nevertheless, considering the overall situation of this quarter, and the strong momentum in Europe and the USA, I cannot predict any specific trends, I can only say, we are very satisfied with everything we are doing for merchants at the moment.

Q(Colin Sebastian): The concentration in the e-commerce industry is gradually increasing towards fewer platforms including Shopify. I would like to know your thoughts on industry development or changes. What does this consolidation mean for your group of merchants, and what impact will it eventually have on product plans such as the Shop App? Thank you.

A(Harley Finkelstein): I will answer this question. When it comes to large brands and retailers, I think two things are happening. Firstly, they are all looking for a unified commerce system rather than seeking individual, single-channel products, I have used the analogy of browsers and browser tabs before. What we are seeing is that these large companies, especially those with high GMV, want to reduce these tabs from eight to one. Having a cross-channel unified, future-oriented modern retail operating system like Shopify is very attractive. Secondly, historically, when it comes to larger brands, our focus is indeed on Shopify Plus.

For large brands, our previous approach was one-size-fits-all. But now, we have enterprise-level products: Shopify Plus and Commerce Components. Especially Commerce Components are very eye-catching. I also mentioned this in the prepared speech, we now see some brands calling us, and three weeks later they have installed Shop Pay on their accounting systems, or some brands, such as On Running, one of my favorite brands, have adopted Shopify's checkout as a Commerce Component they now use, these are all ways for enterprises to start getting in touch with or introducing Shopify.

In fact, the pricing between us and large enterprise brands is very transparent, which makes them very clear about what they are getting. When you combine these things together, I think you will see many consumer-loved brands, especially large brands, coming to Shopify, and they come faster and in greater numbers. I believe this trend will continue, especially now that our marketing engine has truly started. I think when you combine an outstanding enterprise-level product with the right unified pricing, strong marketing power, and effort, you will get these results.

Q(D.J. Hynes): Good morning, congratulations on the brilliant performance you achieved this quarter. Harley, could you talk from a product perspective about the key points you focus on to drive more B2B applications, especially on the enterprise side?

A(Harley Finkelstein): Yes, we've recently launched several. For example, you will see us talking more about B2B around Editions. I think just in the third quarter, we've launched 3-4 major new features, such as supporting product bundling in draft orders. Now, we've improved conversion, tracking, and tax functions. Now, Shopify Flow templates have new automation features, which means if you are a merchant, you can assign salespeople to specific B2B customers. The result is that companies like Dermalogica, Therabody, Life Fitness, Daily Harvest, and others are also coming to us.

So, I think we are rapidly narrowing these gaps. I also believe that historically, we have indeed focused on existing direct-to-consumer brands on Shopify, which also have strong B2B or wholesale businesses. Now, we are starting to see merchants specializing in B2B wholesale come to Shopify to purchase our B2B products. Ultimately, in some cases, we also see them starting to venture into direct-to-consumer businesses.

Returning to my previous comments about this unified commerce system, the charm of Shopify is that you only need to enter a specific channel, and once you enter this ecosystem, you will start to see it as part of your entire retail operation system. But in terms of your viewpoint, these gaps are quickly narrowing. We believe that B2B is a huge market, with a TAM of $14 billion. Since last year, our B2B GMV has doubled. We think this is a great opportunity, and we are able to quickly narrow these future gaps.

Q(Todd Coupland): Thank you, good morning everyone. After the U.S. election, I would like to talk about the impact on Chinese merchants. Could you discuss, from your estimates, how much GMV comes from China, and whether Trump's tariffs will affect merchants? Do you have anything to help them? Thank you very much.

A(Harley Finkelstein): Yes, maybe I can start. We have been operating for more than twenty years, through multiple administrations. We cannot predict what each presidential administration will do, but what we can do is provide tools needed for our merchants and Shopify users to compete in any environment. For example, during COVID, everyone had to move online, and we provided assistance to them.

In difficult economic times, we are able to provide truly transparent and competitive prices. Therefore, our job is to support merchants. Specifically in China, this is not a very big area for Shopify. But as I said, our job is to provide tools, services, and support to merchants no matter what difficulties they encounter and help them overcome them smoothly. Over the past 20 years, we have proven this.

A (Jeff Hoffmeister): I would like to add that we have not heard any news from Trump or Kamala, and we believe this will not affect the overall situation of new business establishment and entrepreneurship. Therefore, we remain very optimistic about all merchants and all entrepreneurs who want to start new businesses. This clearly will not change due to government changes.

Q (Michael Morton): I know it's early to say this now, but we have seen some of the biggest changes in search experiences over the years, coupled with the development of artificial intelligence, and for the first time in decades, new search startups have emerged. I'm curious to know how you are considering changes in e-commerce experiences and consumer funnel models with the changes in search. What changes does this imply for the experience of some of your merchants?

A (Harley Finkelstein): Thank you for your question. That's a good question. I think I talked a bit on the phone about how we use artificial intelligence internally, to be honest, almost every department internally is using AI in some way to increase efficiency and productivity, supporting engineering, sales, finance, etc. I also mentioned that from a merchant's perspective, we are trying to build tools and AI throughout Shopify's entire product to make their work easier if they can focus on the most important things.

I mentioned suggested replies and Shopify Inbox, which may seem insignificant, but it is significant because it means that merchants can focus more time on what they need to focus on, like building their products. However, in terms of how consumers find merchants or products, AI and search will change, but it's clear that the whole process and discovery process have been changing for many years. That's why we integrated with platforms like YouTube, and more recently with Roblox, TikTok, or Instagram.

We believe that the future of commerce is everywhere. In order to qualify as the most important retail partners for millions of stores on Shopify, we must show up wherever consumers are looking for new products. So, I can't disclose specific details of our partnerships with some of these companies, but I can say, rest assured, when consumers change their buying preferences, discovery preferences, search preferences, looking for great products from great brands, Shopify will ensure that our merchants can do this. That's why, even with smaller integrations like Shopify and Spotify.

Why? Because some merchants who are also musicians have a large fan base and their artist profiles also have a large following. Now, you can display Shopify products on artist profiles, meaning for this subset of merchants, they can have a new area to expand their business. The same goes for artificial intelligence and search.

So, we've always been talking about how Shopify is a central retail operating system, where there may be five or eight channels for conducting business activities. Over time, these channels will continue to expand. Not every channel is suitable for every merchant, but our idea is that when new channels emerge, you can easily activate and manage them directly from Shopify, which is our commitment to merchants.

Q(Siti Panigrahi): Thank you for accepting my question. I just want to understand a part of the business, mainly in terms of marketing. What is your market penetration strategy? What trends do you see in introducing enterprise clients? Is it total replacement? Are they looking to gradually replace existing solutions?

A(Harley Finkelstein): In some cases, their goal is clearly total replacement. In other cases, they are looking to collaborate with us on checkout, Shop Pay, or a specific business component. But what I want to say is that the market entry execution is comprehensive. We have done very well in this replacement aspect. Shopify is no longer just for small businesses in North America, but now for businesses of various scales around the world. When you have these incredible brands, these iconic brands like Reebok, On Running, Victoria's Secret and other world-renowned brands, we start to have more momentum.

We are also planning a very important ecosystem, in which we have won the favor of competitors, partners, and some large SIs. But we also realize that in this world, it is very important to receive the highest awards from IDC and Gartner, which is what we are working on. We have also increased marketing efforts to support this market promotion. Therefore, combining the best sales team with the best marketing assets is indeed very effective.

I think the reason for our success is that modern companies and brands need a modern unified e-commerce architecture. I believe that the speed at which we can launch products for them, the unified commitment, the quantity of innovation, and the idea of being able to migrate these 40,000 SKUs in less than five minutes is not something most companies can do.

In fact, no company can do this. We are constantly innovating to make this even better. We are replacing the world's largest enterprise commerce companies, and this momentum is continuing. Most importantly, we are winning these deals. They are not leaving. They are with us. They also become references for other excellent brands. Therefore, this is a very important part of the business. Now, when it comes to enterprise commerce on Shopify, everyone can find something that suits them.

Q(Andrew Boone): Jeff, I would like to ask about guidance-related matters. You mentioned that future free cash flow profit margins will be very similar to the same period last year, can you talk about the implications of this? What are you investing in, or how should we view this issue, as the number of employees seems to remain stable? Thank you very much.

A (Jeff Hoffmeister): Yes, when it comes to my comments on future profit rates similar to cash flow, one thing I want to do is to look at the performance of free cash flow profit rates in every quarter of last year and this year from one perspective.free cash flowprofit margin of free cash flow for the fourth quarter of this year is expected to reach the level of the same period last year. I believe we have achieved a very good level, especially in the past two years, we have achieved a stable free cash flow profitability.

As I mentioned on the conference call, I believe we have achieved a good balance now, it feels like a good free cash flow profit margin, where we can get incremental dollars to invest back into the business and continue to do everything we want to do to sustain long-term growth. So, this does not mean that we will slow down in any way or form what we are working hard on to continue leveraging how we use artificial intelligence, automation, and the employee count Andrew mentioned.

We discussed at the Investor Day, I think not even a year has passed. We talked about our internal proprietary systems, GST, Shopify OS, and some systems we have built to improve efficiency on Investor Day, which have guided the team in the right direction, making everything we do very effective.

Therefore, we will continue to carry out all this work, but we also see the current opportunity, as Harley and I both mentioned in our comments, to really ensure incremental funds are put into revenue growth and support this momentum, as well as all the enduring growth factors we talked about in POS, enterprise, and international business. So, we are not in a hurry to increase the free cash flow profit margin, but are focused on the continued growth of the business. That's the best explanation I can give you.

Q(Mark Zgutowicz): Jeff, you mentioned in the past two quarters that your enterprise products may start to contribute in the first half of next year? Can you quantify or determine the scale of contributions in the first half of next year? Thank you.

A(Jeff Hoffmeister): I don't have actual numbers to give you, or this is our view on revenue growth. I would like to follow up on some of the comments Harley just made, that's what we see in enterprise and marketing, and how this has come about. It's clear we've put some marketing dollars to support business development, which helps drive growth momentum, and we've also done some other work. What I want to say is, in terms of overall sales cycles, we've discussed this issue, as you know, looking at things in the business area, sometimes to get through a sales cycle, it may take 6 months, 9 months, 12 months.

Sometimes it also takes the same amount of time in implementation, not because our technology can't be faster. We've also encountered some situations, as Harley mentioned in the last conference call, how we quickly started and ran these implementations. But on the whole, if you say the sales cycle is 6 months, 9 months, 12 months, the implementation cycle is 6 months, 9 months, 12 months, you can add these two together and say we've really been driving the business for about two years.

And now we are at 18 months, or a combination of 9 months and 9 months, with many businesses already on our platform and starting to work with us in the past 18 months. I think we are still in the early stages. So, this will be a phenomenon in 2025, not in 2024, I don't have specific numbers to give you.

Q(Ken Wong): I want to ask how the new features announced by PayPal in September will drive platform development? Can we foresee potential improvements in monetization rates or unit economics over time?

A(Harley Finkelstein): Yes, let me first explain why we are doing this before I start. This is important. I mean, it's optional for us. I mentioned those browser tabs, we want our merchants to be able to conduct all business very easily. So, for example, now after integration, all of your PayPal wallet transactions can be viewed directly from Shopify management. So, when considering these partnerships, what you should consider is that what we are doing is enabling merchants to more efficiently leverage what they are already using. That's why this partnership makes a lot of sense. Optionality is really important to them.

For shopify, the biggest change is actually centered around paypal wallet transactions, where it will confirm total revenue with a higher premium than typical bank card transactions on shopify payments.

A (Jeff Hoffmeister): Yes. This is determined by the level of integration with paypal in these wallet transactions. So, it's really important to ensure that our backend handling with paypal is different. The specific situation that Harley and I mentioned is that consumers choose to use our paypal wallet effectively, pay with the paypal button, and given the integration we've done, the real purpose is to provide merchants with a more comprehensive understanding of all these transactions, so they can see the business they are using from their Shopify admin dashboard.

They can view all transactions comprehensively through orders, payments, reports, deductions, and more. One of the results is the change in revenue recognition for those specific types of transactions that Harley mentioned. Therefore, we will move from net revenue recognition in the past to total revenue recognition. It is important that although profit margins will be affected to a certain extent and revenue growth rates will be increased, this is gross profit, our incremental gross profit. We signed the agreement at the end of September, and paypal wallet transactions are effective by the end of September. Therefore, this will be a phenomenon in 2025.

Q (Trevor Young): Jeff, regarding your mention of a free cash flow profit margin of around 20%, please help us combine this with the comments at the beginning of the year about optimizing internal marketing tools, adjusting expenses across channels to maximize.return on investmentShould we consider, based on these comments, that you may shift towards marketing more next year?

A (Jeff Hoffmeister): I don't think our view on marketing has changed at all, and I don't think our view on free cash flow has changed either. From a marketing standpoint, obviously we spent more time discussing this topic in the last one or two conference calls, but our strategy is still focused on everything we can do in performance marketing and non-performance marketing, to support Shopify's core growth engine and help expand POS, enterprise, B2B, and other businesses. So, from a marketing standpoint, our return on investment has not changed. I think, regarding free cash flow, there are several reasons I mentioned before.

One of the reasons we achieve these free cash flow profit margins is everything we do in strict control of staff numbers, artificial intelligence, automation, and internal systems. So, we will continue to leverage these advantages. We will continue to improve the efficiency of internal operations. I don't think this will affect our thinking about marketing. Our free cash flow profit margins are now at their peak, which is not the case in fact, we are taking proactive decisions on how to consider these profit margins, so we can invest these funds in marketing, whether it's in upgrades in certain areas, perhaps in the R&D team, perhaps in expanding the R&D team, product development, artificial intelligence, and all these aspects. This is not a specific measure for marketing, and it has not given us extra funds to invest in marketing.

Q (Dominic Ball): There is a question about the nature of changes in search discovery and the evolution of short video content. Can you introduce to us the integration status of Shopify and YouTube Shorts? How accepting are merchants? How much development space do you think there will be? Thank you.

A (Harley Finkelstein): When it comes to YouTube, this is not a new partnership for us. We have been working with YouTube and Google for a long time. Our cooperation with YouTube actually started with live sales. We were initially their launch partners for live sales. Then, we realized, or I think we realized in our cooperation with them, the idea of actually creating an alliance program, if their content creators are talking about doing a cooking show, for example, and also want to use a specific product that will eventually be sold, almost all the brands that viewers like and want to buy are on Shopify.

Therefore, this is a very good thing for them, as it allows their creators to further profit through affiliate fees, but it also means that shopify merchants can now find a new sales channel among these creators' YouTube audiences, which we think is always positive.

But from a macro perspective, whether it's YouTube, Roblox as mentioned in my upcoming statement, or other channels, our idea is to ensure that every channel consumers want to buy from can be accessed through shopify. So, you will continue to see us do more of these things. As for the prospects of YouTube, that remains to be seen. It's still early. I guess similar to our other channels, some merchants will find great success there as they discover that their audience, their core audience, aligns very well with this specific affiliate dynamic. In other cases, it may not be as helpful.

But that's the key. The crux of the matter lies in wanting to effectively expose every merchant on shopify to new audiences; otherwise, they might not reach those audiences. Similarly, to do this, you must be on shopify. So, you will continue to see us do more business integrations and these partnerships. In fact, one thing I just want to mention. One thing that Shopify is great at is that we have a reputation for being excellent partners. This not only means technology, nor just business, but it means that when any company of any size or industry considers commerce, Shopify is usually their first inclination, and integration doesn't take months or years. This integration often happens very quickly. So, I am proud of Shopify being an excellent partner company.

Q(Deepak Mathivanan): Harley, you have made a lot of product improvements on the shop app recently, could you provide us with more information about consumer behavior or recurring usage? How should we consider your product strategy in the next two to three years? Thank you very much.

A(Harley Finkelstei): Yes, what I mean is the product strategy remains unchanged, meaning we aim to create new engaging ways for merchants to connect with customers authentically. We also want shop to become merchants' own channel, helping them bring real traffic and sales. These improvements are working. What I mean is, shop is becoming a cultural force. We see some incredible brands, Drake, Mr. Beast, Steve Madden, Feastable, Spanx, all coming to shop to do these incredible things, not just promotions, but also launching products directly on shop. We also believe that the combination of search and artificial intelligence makes store searches more relevant and personalized. This is also very remarkable.

In addition, joint marketing by merchants, collaborating with these major brands to carry out store cash giveaway events, has become very important for some merchants, sometimes even one of their main drivers. So, in terms of our goals, the changes we are making have, in some cases, increased buyer engagement with our new homepage recommendations by 18%. So, I think you will continue to see new improvements in the shop app, but ultimately, our idea is whether we can truly help merchants using it to increase LTV. Whether we can help consumers discover brands they have never encountered before and reconnect with brands they already love. As I mentioned before, the key is that if you want to be involved, if you want to be a part of it, you must use Shopify, and the Shop App will continue to perform well.

Q(Richard Tse): You mentioned that Shopify is a business system, so when we look to the future, can we say that you have the opportunity to surpass and replace existing enterprise systems, such as ERP, CRM, or supply chain, and so on?

A(Harley Finkelstei): In terms of ERP and CRM, we feel very good about working with the best companies. So, many large corporate brands come looking for us, their ERP systems are already integrated across the entire company, and in some cases, a good CRM as well. We make integration very easy. Therefore, ERP and CRM are not our focus. We are a business company. We focus on retail. However, it's crucial that the changes we've made in the past few years enable you to easily connect your existing systems to Shopify, seamlessly back to ERP systems, CRM, and other systems, to be able to function smoothly when you come to Shopify. We've achieved that. But we are a business company. As I mentioned in previous calls, we focus on our primary pursuits. We don't like to venture off course. So, our view is that integrating your favorite ERP system into Shopify is truly easy, but this is not an area we want to get into.

Harley Finkelstein's Summary: I've already said a lot in the conference call, now I just want to mention, for those who have been focusing on Shopify for a long time, you know that we are a company dedicated to merchants. You've heard about our very long-term vision, which we believe can help Shopify succeed. I think, as Jeff described, you will continue to see us seize opportunities, invest rigorously, and further establish our leading position in the business field. As you can see from these performances, this enables us to achieve the strongest performances in the industry quarter after quarter. I want to reiterate once again, this is the best version of Shopify to date. We really love our products, scale, and operations, and we truly believe this empowers us to grow our business, invest in the future. So, I just want to end my speech with this point. Now, for us, what we need to do is help our merchants succeed this holiday season and in the future. Thanks everyone for participating in this conference call. The 2024 Q3 conference call ends here. Thank you for your participation, goodbye.

Editor/ping