Thank you for standing by. This is the conference operator. Welcome to the Shopify Inc. First Quarter Financial Results Conference Call. As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask I would now like to turn the conference over to Katie Keita, Director of Investor Relations. Please go ahead.
Thank you, operator, and good morning, everyone. We hope everyone is keeping well during this uncertain time. We are joined this morning by Toby Lutke, Shopify's CEO Harley Finkelstein, our Chief Operating Officer and Amy Shapiro, our CFO. Each of us is dialing in safely from our homes. After some brief prepared remarks by Harley and Amy, we will open it up for your questions.
While much has changed from our call in February, one thing that hasn't is a requirement to point out that we may make forward looking statements on our call today, which are based on assumptions. As such, they are subject to risks and uncertainties that could cause actual results to differ materially from those projected. We undertake no obligation to update these statements except as required by law. You can read about these risks and uncertainties in our press release and in our filings with U. S.
And Canadian regulators. Note that adjusted financial measures we speak to today are non GAAP measures, which are not a substitute for GAAP measures. Reconciliations between the two can be found in our earnings press release. And finally, we report in U. S.
Dollars, so all amounts discussed today are in U. S. Dollars unless we tell you otherwise. With that, I turn the call over to Harley.
Good morning, everyone, and thank you for joining us today. Before moving ahead, I want to express our gratitude on behalf of the entire team at Shopify to the frontline workers who are in the trenches, for medical professionals to food store workers, to those in our partners' warehouses who are keeping the rest of us safe and fed and operational during the COVID-nineteen pandemic. We are incredibly grateful for the tireless service of these heroes. I typically take this time every 3 months to review what we saw in the quarter. Today, I'll keep that commentary to a minimum since January February saw a much different business environment than we have today.
Instead, I'll use most of my remarks this morning to catch up everyone on what we've done, what we've seen in March April. This shock to the economy was so sudden that patterns in March April may not be predictive of the rest of the year. However, we do have reason to believe that some of the patterns that emerge will continue. I'll be covering 3 areas today. Shopify's response to COVID, how our merchants have been faring and the world we think is emergent on the other side of this.
Our highest priority as the COVID situation unfolded was the health and safety of our employees. In late February, we directed the entire Shopify team to cancel non essential travel and by mid March our entire workforce was working from home. We are fortunate to have already been well outfitted for collaboration at a distance, So this shift was minimally disruptive to most employees day to day. Others whose primary work supported our office spaces are contributing in other ways, many supporting initiatives that directly impact our merchants. No one has been furloughed due to COVID.
Our merchants on the other hand have been far more impacted, so we acted quickly. In the early days of the pandemic, our guiding principle was the same as always, put merchants first. We prioritize efforts to give existing merchants the tools they need to survive and help get offline businesses online fast. We launched a continuously updated resource center for merchants with tutorials and links to apply for government provided funding. We rolled out in store and curbside pickup for users of our point of sale product and showed merchants how to set up local delivery options.
We made gift cards available on all of our plans. And with more than $1,000,000 in gift cards sold since making this change, merchants are accessing much needed cash quickly during this disruption. Both of these have triggered more local activity, including various communities setting up online sales to spur local commerce and more than a quarter of our brick and mortar merchants in English speaking geographies are now using in store pickup and local delivery. We made $200,000,000 additional dollars available through Shopify Capital to extend to merchants for whom working capital will make a difference and expanded the availability of capital beyond the U. S.
To the UK and to Canada. We rolled out Shopify email to all our merchants to help them reach out and build trust with their buyers during this uncertain time. We're making this feature available at no charge until October 1st. And we made our standard plans free to new users for 3 months. Brick and mortar only retailers have lost their only channel, The Street.
If these businesses are going to survive, it's mission critical to get online and we're giving them more time to do exactly that. This change is also helpful to anyone finding themselves with more free time or wanting to generate supplemental income. We've seen a notable increase in online store creation, some of which are established retailers. It is still too early and the macro environment too uncertain to make predictions about how successful these new stores will be. But merchants can be assured that we are doing everything we can right now to give them the tools they need to succeed.
Merchants will continue to need our help and we plan to continue our efforts to innovate and develop more impactful ways to support them. After all, small businesses are a vital part of the economic and social fabric of our society and support the livelihoods of many people in our communities. So what are we seeing on the platform and among our merchants? 1st and foremost, we are seeing them find ways to operate under today's constraints through creativity, grit and determination. Their stories have been incredibly inspiring from pivots by tailors and distilleries now making face masks and hand sanitizers to an 84 year old grandmother in Italy who's taken her path to making course online to replace the in person experience she was offering to tourists before the pandemic.
Merchants are eager to mobilize, implementing discount codes at levels usually seen during the holiday shopping season. On Shopify Plus, verticals we've never seen before like food stores are showing up. In April, Heinz signed on to Shopify Plus and launched 7 days later, while chocolate maker Linde launched in just 5 days. This pandemic is forcing all kinds of merchants to rethink how they sell things and Shopify Plus offers larger merchants the ability to move fast while managing costs, especially important at a time when economics are pressured. We are seeing our partners around the world step up in a phenomenal way, even as many of them face hurdles themselves being entrepreneurs and small businesses.
Our partners are getting stores up and running significantly faster with the number of stores created in 3 days or less increasing by 85% between March 13 April 24 relative to the 6 weeks leading up. Our partners are advocating for merchants and offering discounted and free services And they are working hand in hand with other partners to solve problems for both businesses and for their communities. Some of these trends like product pivots are temporary. Others like distance learning and the growth of omni channel commerce are likely to persist. This post COVID world is what we're building for and we have shifted accordingly.
Shopify's worldview has not changed. Our conviction that merchants need to be able to sell to their buyers wherever they may be remains as true today as it was a decade ago. While we're uncertain about what is coming in the months ahead, Shopify is uniquely positioned to help improve the economic lives of our merchants in this difficult environment and in a retail landscape that is accelerating its shift online. In what is easily the greatest humanitarian crisis in a generation with adverse effects that will last for the foreseeable future, it is important that we all keep building towards solutions. All of these shifts make Shopify, which was already a good fit for modern commerce, an even better fit for the world that emerges on the other side of this.
Before I hand off to Amy, we wanted to share an exchange with a merchant that illustrates just how critical it is, especially right now to make commerce better for everyone. In this case, it's a farmer. Here it is.
Hi. Thank you for calling Shopify's retail support.
I just appreciate you guys answering the phone. This is like real time here. Totally. I have a Shopify account I've been working on to launch an online store for selling local vegetables and flowers. We're just barely able to do this in the midst of trying to grow all this stuff.
However, there is interest now of coming to pick up the vegetables on the farm of which we hope to do presales online. Yes, absolutely. I can cry right now because it's a word for Shopify.
I don't think we have a farm. So I don't think we sell anything. I almost didn't set it up because building a website is so hard and Shopify made it so easy. They should know they're really helping people. It's really important.
Thanks, Harley. That was a great reminder of why we all come to work every day. I want to echo our commitment to our merchants. We are 100% behind them and doing everything we can to help them through this tough time. We believe we are well positioned to help merchants now and into the future, as it has become increasingly important for merchants of all sizes to sell online and to have better options for getting their goods to buyers.
We are on that path already and will continue to invest to make commerce better for everyone in 2020 beyond. Shopify's momentum in 2019 continued into our Q1, turning in a strong January February prior to headwinds appearing in March as a result of COVID. I'll start by reviewing Q1 results, highlighting any COVID impact. Revenue grew 47% in our Q1 to $470,000,000 Subscription Solutions revenue increased 34% year over year to $187,600,000 Monthly recurring revenue grew 25% year over year to $55,400,000 primarily driven by new merchants joining the platform. Year over year MRR growth was impacted by several factors, including Shopify's removal of thousands of stores from the platform due to violations of our acceptable use policy, lighter international merchant adds and an uptick in subscription cancellations and merchants downgrading to lower price subscription plans in March, largely due to COVID.
Shopify Plus continued to increase its contribution to MRR, accounting for $15,300,000 or 28 percent compared with 26% of MRR in Q1 of 2019. Strong app and Shopify Plus platform fee revenues contributed to the approximate 9 percentage point difference between the growth of subscription revenue and MRR. Merchant Solutions revenue grew 57 percent to $282,400,000 in Q1 2020 compared to the same period in 2019. Year on year growth was driven primarily by Shopify Payments, followed by growth of other merchant solutions revenue like capital and shipping on the back of strong GMV expansion, which increased 46% year over year to $17,400,000,000 Strong January February merchant sales further boosted by elevated buying in March driven by COVID of food and other essentials and items such as home office and gym equipment contributed to Q1 GMV. This was partially offset by a decrease in brick and mortar sales given closures related to COVID.
$7,300,000,000 of GMV was processed on Shopify Payments in Q1, an increase of 51% versus the comparable quarter last year. Payments penetration of GMV was 42% versus 41% in Q1 2019 as Shopify Plus continued to increase its share of GPV and Shopify Payments continued to expand internationally. Shopify Capital had a notable milestone in Q1, surpassing $1,000,000,000 in cumulative capital advance since we launched this product in 2016, Offering our merchants a fast and convenient way to secure capital, especially in times like these, helps them focus on what really matters, growing their business. Adjusted gross profit dollars, which excludes the impact of stock based compensation expense and related payroll taxes, as well as amortization of acquired intangibles grew 44% over last year's Q1 to $263,800,000 Even after taking into account the acquisition of 6 River Systems, our ramp up of investment in Shopify Fulfillment Network and a greater mix of merchant solutions revenue versus last year. This reflects strong growth from higher margin revenue streams like the variable platform fee from Shopify Plus merchants, efficiencies in hosting costs and improved payment margins.
Adjusted operating loss, which excludes the impact of stock based compensation expense and related payroll taxes as well as amortization of acquired intangibles was $7,300,000 in the Q1 of 2020 compared to adjusted operating income of $300,000 in the Q1 of 2019. The loss in Q1 2020 was the result of our 1st full quarter of operating expenses associated with the 6 River Systems acquisition, significantly more brand spend in the Q1 of 2020 relative to the same period a year ago and a year over year increase in the allowance for potential losses related to Shopify Payments and Shopify Capital due to the potential impact of COVID. Adjusted net income for the quarter was $22,300,000 or $0.19 per share, compared with $7,100,000 or $0.06 per share in last year's Q1. Finally, our cash, cash equivalents and marketable securities balance was $2,360,000,000 on March 31. Because COVID impact presented itself 1st in March with respect to our results, we want to share March April merchant and business insights that drove our immediate merchant response that Harley described and then are expected to have implications on commerce, both short and in some cases long term.
So what have we learned so far? 1st, the shift from offline to online commerce is accelerating. More entrepreneurs than ever before are trying out Shopify with new store creations on our platform growing 62% between March 13 April 24 compared to the 6 weeks prior, supported by brick and mortar merchants moving online and the extension of our free trial on standard plans to 90 days, providing a healthy balance of existing businesses and new entrepreneurs setting up shop. While our free trial extension will likely further pressure MRR growth in our Q2, we expect new business creation to offset this over time. 2nd, consumers are a part of this shift to online and they are broadening their online shopping activities.
The number of consumers making a purchase for the first time from any Shopify merchant grew 8% between March 13 April 24, compared with the previous 6 weeks. Over that same period, the number of consumers purchasing from a Shopify merchant they'd never shopped at before grew by 45% over the 6 weeks leading up. As more consumers shop on more of our merchant stores, we are helping consumers more easily discover new brands and products such as through our Shop app, and we are also enhancing capabilities to get products for merchants to buyers both locally and beyond. 3rd, newer product categories are growing as a part of our mix. We have seen a lift in GMV in the food, beverage and tobacco category, which more than doubled between March 13 April 24 over the prior 6 week period.
Other essential products such as toilet paper and baby products as well as work from home, fitness, entertainment and leisure and hobby products also trended upward reflecting the extended shelter in place directives. While we saw an initial softening in apparel and accessories, this category has recovered since the last week of March. The world we live in today is very different from when we reported our Q4 results on February 12. What has not changed, however, is Shopify's mission to make commerce better for everyone. This North Star has guided our decision making over the years to invest in the right initiatives, such as building resilient platform infrastructure for low friction online shopping experiences from browsing to checkout, adding essential tools and capabilities for merchants like payments and fulfillments and lowering the barrier to starting a business.
This strong foundation has allowed us to move with speed and agility to adapt to current circumstances and empower our merchants to do the same. We have historically worked on the right things to help our merchants succeed and those things are even more important now given COVID. Now it's a matter of turning the dial up or down in various areas based on immediate needs. I'll walk through each of our initial 2020 investment areas and address how we are adjusting our plans. Starting with Shopify's fulfillment network, which remains a top priority.
Now more than ever, timely and affordable fulfillment is important for our merchants and their buyers. We intend to continue developing our fulfillment network over our planned 5 year timeline, focusing on achieving product market fit before entering our scale phase in 2021. Demand continued to ramp in Q1 as Shopify's fulfillment network had its highest number of merchant signings in a quarter since inception, and we fulfilled more volume in the Q1 of 2020 than the Q4 of 2019. During this time, we are working with our warehouse partners to help ensure the safety and health of all warehouse employees. Our partners' warehouse operations managed to improve service levels from Q4 despite the challenging circumstances presented by COVID.
While our transportation partners have also been working diligently to meet agreed upon service levels, they too are pressured, which is impacting the reliability of some deliveries. Some merchants have also seen delays in receiving inventory due to increased complications in cross border and port logistics. As we expand the number of merchants we're on boarding, we are putting in place the systems and tools that will support a much larger operation in the future. 6 River Systems' collaborative warehouse automation technology is helping to boost the speed and reliability of Shopify fulfillment network, releasing several enhancements in Q1 that strengthened its warehouse fulfillment solution. With increased workspace capacity, expanded safety compliance and an improved user interface, Chuck robots are now bigger, stronger and easier to use allowing operators to maximize utilization.
Moving to Shopify Plus. In this pressured environment, large volume merchants are coming to Shopify Plus looking cost effective commerce solutions that work well over multiple channels. So for the remainder of 2020, we are shifting our resources to help more merchants benefit from all of the superpowers that Shopify Plus has to offer in our core geographies and delaying some of our original planned investment in international expansion. We'll also continue to focus on the product, expanding use cases for our work automation tool Shopify Flow, improving business analytics and continuing to develop our wholesale capabilities. And we'll also make some adjustments to our international expansion outside of Shopify Plus As the ongoing global pandemic impacts the livelihoods of billions, the need for a low touch way to exchange goods and services is more apparent than ever.
We plan to pause certain expansion activities to get to true product market fit faster in our focus regions. This includes helping businesses to get up and running as easily on mobile as on desktop and to expand selling opportunities beyond their borders. We are redirecting our investments in the Shopify platform to fast track what merchants need now. The most pressing of these is capital, which is why we expanded to the U. K.
And Canada within weeks of stay at home measures being put in place. Extending working capital rapidly and responsibly can make a life saving difference to a business. And so we worked with partners while taking measures to control losses amidst our expansion. This meant leveraging our dynamic machine learning model and adapting terms, so we are helping as many merchants as possible, while keeping losses at a prudent level. And as we announced in March, we expedited delivery and curbside pickup features on our point of sale product, so merchants could continue operating under social distancing norms.
This is only one example of how POS is pivoting for a period where less commerce is happening in person. And earlier this week, we shipped the all new Shopify POS, our intuitive point of sale software that offers our retail merchants a unified commerce experience, bridging online and offline, helping them to adapt to a retail landscape that we expect will look different than before. Finally, In a matter of days, our marketing team and others spun up an in-depth In a matter of days, our marketing team and others spun up an in-depth COVID response resource center where merchants can get the help they need now. This includes tutorials such as how to start selling gift cards, where to access government backed assistance programs and community forums where merchants can share their experiences and learn from each other. We are not sure what the remainder of 2020 looks like, nobody is.
And while Shopify was a very different company when the last extended financial shock occurred in 2,008, 2009, we took lessons from that period as well as from our early years as a bootstrap startup that have become core to our culture. The first lesson is, we cannot help any merchant anywhere if we are not in good financial health ourselves. As noted, we have already begun to adjust our spend to focus on what is most critical for our merchants at this time. In addition to pausing our brand campaigns, we have reduced other marketing activities, canceling most company events planned for the next several months and leveraging in house creative solutions instead of external resources. We have also actioned initiatives to achieve hosting and other efficiencies.
And there are additional measures we can take in the event of an extended recession that allow us to continue delivering what merchants need in challenging times. The second lesson is that many people whose circumstances have changed will try to build their livelihoods in an altered world and helping them do this is exactly what Shopify was built for. The increased uncertainty in the macroeconomic environment makes it difficult to predict how the near term through 2020 will shape up, which is why we are not providing an outlook for our Q2 or the full year. We will continue to closely monitor the factors impacting our business to make great decisions quickly to help our merchants. We will get through this and we've been working hard to ensure that as many merchants as possible do as well and emerge from it better suited for multi channel commerce.
We have a business model that puts merchants first, a fundamental strength as the world retools for lower touch commerce. We have a healthy debt free balance sheet and a strong cash position and a proven disciplined capital allocation approach to ensure we can operate effectively even through what may be an extended recession. And finally, we have a long established and trusted network of partners working as hard as we are to support merchants now. As Shopify has always been a company of people that thrive on change and embrace hard problems, we are meeting this challenge head on, ready to learn from this collective experience and emerge from it better. With that, I'll turn the call back to Katie.
Thanks, Amy. And we're glad everyone could join us this morning to talk about Shopify. As always, we are asking you to limit yourself to one question so everyone can get a chance to ask a question in the about 30 minutes that we have left. And with that, I will turn it over to the operator to begin polling for questions.
Thank Our first question comes from Brad Zelnick of Credit Suisse. Please go ahead.
Great. Thank you so much for taking the question. Listen, I appreciate the lack of visibility and why you're not providing guidance, but you have a very unique view into what's happening across the economy more broadly. As you think about your own long range plans, what underlying assumptions are you making about the shape of economic recovery from here? And what data points within your business give you the most optimism and conversely the most pessimism?
Thanks.
Hi, Brad. This is Amy. I hope you're well. Let me take that one. So the way that we're sort of looking at this is, there's a set of tailwinds and headwinds.
And right now, those tailwinds are far outweighing the headwinds for Shopify. And let me just kind of review each one of those and then I can go into the economic scenarios that we're looking at. So with respect to the tailwind, we said in the remarks earlier, there has been this accelerated shift from offline to online. Multi channel commerce is increasingly important to reach existing and new buyers and direct to consumer is critically important to our merchants to have that direct relationship and control their own destiny with finding buyers. We expect new norms and trends will benefit Shopify under different economic scenarios.
And there's also what I call the multis will likely help us. We're multi channel, we're multi vertical and we're in multiple geographies. Those are all playing to our benefit. Also, the diversity of our merchant base has been helping and will continue to help. We're not dependent on any one merchant.
And lastly, I think our agility, speed and balance sheet strength are all helping us in this environment. The headwinds are obviously the uncertainty of COVID and how it plays out, how it impacts the economy and unemployment in particular. The impact of businesses and consumer spending is an unknown the further we go out in time. And the degree that offline to online continues to offset those economic headwinds is uncertain. Like most companies, we're looking at both the U shaped recovery and an L shaped recovery.
The U shape is a pretty significant downturn in the economy over the next couple of quarters followed by a fast recovery. In that case, that's really good for most merchants in a recovering economy. We think that plays well broadly. And we expect all of our merchants will benefit from the new purchasing habits and norms that started during these lockdowns. And the L shaped recovery that we're looking at, there's a pretty sharp downturn in the next couple of quarters followed by a much slower recovery well into 2020.
In that case, it probably means that COVID is continuing to raise its ugly head. Online remains incredibly critical to merchants and we expect those merchants who are selling non discretionary items on the platform like food, beverage, health care items will continue to increase as a percentage of our GMV. So, we step back and none of these economic scenarios is great from an overall perspective, but we do think that Shopify's tailwinds will benefit us in any economic scenario. I just want to add that we're well capitalized whether any of these economic scenarios with a strong balance sheet and we will continue to invest in those key areas that will benefit our merchants and help us come out on the other side stronger.
Thanks, Brad.
Our next question comes from Ken Wong of Guggenheim Securities. Please go ahead.
Great. Thanks for all you guys are doing for merchants and thanks for taking my question.
So I wanted to touch on
a point you guys made earlier on just new types of merchants coming into the Plus franchise, also seeing a little bit of merchants downgrading from Plus. Just wondering if that was still a net positive, kind of how you expect that trend to continue? And then any downgrading from the other SKUs like advanced to the primary Shopify SKU or Shopify to basic? Thank you.
Hey, Ken, it's Harley. I'll take that call. So yes, we certainly are seeing new types of merchants verticals. We had sort of mentioned that we're seeing brands that traditionally had not gone direct to consumer. We mentioned Heinz and Linde Chocolates literally go from contract signing to full launch of their direct to consumer store in 7 days 5 days respectively.
We're also seeing the grocery category, again, a vertical that Shopify has not traditionally seen become a real thing. In Canada, we're seeing some of our largest grocery chains like Loblaw's and Farm Boy set up stores on Shopify Plus. So we're excited by that, obviously. We also have changed our focus from sort of focusing on upgrades on Shopify Plus to more helping getting more large merchants online in our core geographies faster. And so we've sort of pivoted our sales team for the time being to focus on getting brand new merchants on.
And then in terms of the downgrade question, certainly we are seeing downgrade are happening, but what's most important is that staying on Shopify and the right size in their businesses. And some of those downgrades have actually already re upgraded back to Plus. And so we expect to see some downgrade and some come up as well as they figure out what they need and try to trim some costs. But generally, we are pleased with what we're seeing. And I have to tell you on a personal level, these are brands that I've been after for years to join Shopify and join Shopify Plus that told me that eventually they'll do it.
They're now doing it. And so in many ways, what the situation is doing is it's accelerating the catalyst for people to move from wholesale businesses to direct to consumer businesses and move from businesses that traditionally were only brick and mortar to being more in a brick and click sort of model. So pleased to see that and we think that will continue.
Thank you, Ken.
Our next question comes from Colin Sebastian of Baird. Please go ahead.
Great. Thanks and good morning and hope you guys are all safe and healthy. Thanks for the details on the puts and takes on the adjustments to the operating plan. Is there any way to help us quantify the overall impact of those on the level of investment spending, for this year? And more specifically on the fulfillment service, I think based on what we've heard from other e commerce platforms and marketplaces, this may be the single biggest pain point for many merchants right now.
And it sounds like there isn't really any change in your timeline for rolling out these services, but is that correct? And how do you see Shopify by filling differently today than you did just a few months ago?
I'll start that one off and the first part about the quantifying the puts and takes. We tried to provide some overview in the earlier remarks and I'll just speak generally to how we're thinking about our spend right now. We've done an extensive analysis of our overall spend. And what we decided is that any spend that is not impactful, productive or relevant in this time period, like our brand spend, that we would suspend that spend those expenditures for the remainder of this year and redeploy that money into more useful and productive areas like the 90 day free trial, which we're seeing great benefits from. As I said, we've seen a 62% increase in store creations on the platform.
So that's largely how we're doing. How that actually comes out quantitatively, we're not going to provide guidance, but you should know that we are we're scrutinizing our spend very heavily and moving it in the direction where it can be impactful. On the fulfillment network, Harley, Toby, I know we think it's increasingly more important in this and COVID validated this direction. I'll let them comment more.
Yes, thanks. Harley here. Yes, so as Amy said, I think that COVID certainly validates the decision to expand into fulfillments. It seems like now more than ever, timely and affordable fulfillment is really important for our merchants and their buyers, especially as some of the incumbent delivery networks are straining under heavy volumes. SSN was already building urgently.
We don't slow down at Shopify, but we will continue to develop our fulfillment over the planned 5 year timeline. We are making really good progress. We are still getting access, but we are expanding the number of onboarded merchants. We've expanded to Canada, so allowing some Canadian merchants. And also some product enhancements have rolled out, so things like merchant onboarding experience is getting better, platform resiliency is getting better.
But I think our decision to move into SFN is feels like the right one now more than ever.
Great. Thanks, Colin.
Our next question comes from Gus Papadarojo of PI Financial. Please go ahead.
Thanks. Thanks for taking my question and congrats on a great quarter. In a recent interview, Toby, you said that the recent crisis is pulling 2030 into 2020 in terms of online commerce. One of the trends I expect to see is that I don't think that e commerce is going to get easier. I think it's going to get harder as stuff like augmented and virtual reality technologies get embedded into the e commerce experience.
Do you think the current situation has made larger established brands reconsider their strategy of hosting their own sites and maybe saying, we don't need to do this anymore. Shopify can do it better than we can. Have you guys seen that at all or not?
Yes. I think that's exactly what we're seeing. I really believe that when it comes to the retail industry, like maybe it's not 10 years, but it's a we've just jumped a lot of years in the future.
And I
think one really important part about this is, I think it's really worth for everyone to try to use software that was released in 2010 without any updating and patches. It's one of those kind of experiences they say, hey, I remember using this and I remember really, really liking this back then. But now it seems they owed and somehow not appropriate anymore to what I expect of this particular category of software. So this is really hard to explain bit rot that exists on the Internet, where people can just sort of intuitively tell that the product is kind of made for the current times or not and if it fits at the current times and uses sort of capabilities that people make assumptions about. One of my chief concerns of Shopify has always been to because Shopify is a software that I first launched in 2006, never make it not fit into the current times.
And that's actually significantly harder job than it might sound. And again, I think like the massive jump ahead right now, everyone now has circa 2020 quality software in a basically 2,030 build. So everyone's software just got 10 years' worth given the requirements and the like needs by the customers. And so everyone has to make up this gap, right? We have to this is why you see Shopify shipping a lot right now.
I have intentionally asked the company very early in this crisis to like delete all our existing plans and re derive them from this new reality. I've asked the company to lower its minimum except the quality bar to shipping because something has to become variable because it's only 24 hours in the day so that we can launch things. And so we are trying to move ahead because there's this massive vacuum that exists in the gap to compare to quality, especially you see this around curbside pickup. And like this is speaking from perspective of, I think, the one company which actually had a 2020 quality solution for the retail space in the market, I don't think anyone really had. So that gap just got significantly bigger for many companies which have already set on fairly outdated software.
And I think this is driving a lot more adoption, right, because I mean Shopify is very good. Like it could be massively better. I certainly spent almost every other meeting I have about some way how we can make it significantly better. But I think all things considered, it works really well. It fits itself really well.
I mean, some of the things in the press release you might have seen are like that. Like based on our particular view in the vertical retail, while 70% of retail sales might have disappeared, the businesses the retailers that were ready with an online channel at the same time, managed to replace up to 94% of their sales through the online channel. Now imagine the vacuums that exists with all the businesses that they're only available to retail, like this is now a huge driver of opportunity for the challenger brands. And it's an imperative that the people who aren't prepared jump into this opportunity. So I think there's all sorts of effects that are going on right now that are quite important to understand.
It's in no way easy to kind of like understand what exactly are the cause and effect here. Like this is an open like a very complex chaotic system right now that in which a lot of people from rural farmers all the way to Fortune 50 companies find utility and the thing we build.
Great. Thank you, guys.
Our next question comes from Richard Tse of National Bank Financial. Please go ahead.
Yes, thank you. I was wondering if you
could give us a sense of your wins that are sort of coming from competitive platforms, particularly when it comes to the larger merchants. This might be more applicable to sort of prior to COVID, but maybe give us some context on that. Thank you.
Hey, Richard. Harley here. The truth is a lot of the in my commentary earlier, I talked about new verticals coming to Shopify. For the most part, they're not actually replatforming. These are net new direct to consumer business models.
So either in the case of Heinz Ketchup, they just never sold Heinz ketchup directly to the consumer before. So these are not necessarily migrations. Now that being said, one of the things that COVID has obviously done is for small companies, but also for large companies is look at their cost base and figure out where are they spending on things that they're not deriving proportional value from. And a lot of the enterprise e commerce platforms certainly are something that people are relooking. Now that being said, because time is of the essence right now and sometimes replatforming does take some time, they may be waiting until things become a little bit more normal before they make those migrations.
But generally, a lot of the new verticals that we're seeing, whether it's CPG brands for the first time going direct to consumer or it's grocery or it's things like liquor companies or tobacco companies that we're seeing. It just were not they just weren't selling before. And so the migrations are not necessarily the thing that's driving this. It's a lot of net new merchants coming to the platform. That said, I do suspect, as Toby pointed out, that a lot of people after this things get a little bit more normal, people will relook whether or not they're getting bang for buck from their existing software providers, particularly the more legacy enterprise players and realizing that 1, it's too expensive and 2, they're not getting the flexibility they require.
Great. Thanks, Richard.
Our next question comes from Deepak Mathivan of Barclays. Please go ahead.
Great. Thanks for taking the question guys. Amy, can you just talk about the
MRR from the free trials, the 90 day free trials in 1Q? There's a lot of moving pieces obviously on MRR, but it feels like this is a trend which will continue into 2Q as well. How should we think about the impact on 2Q? Thank you.
Yes. So, the 90 day free trial, let me just give you a quick overview. It started at the latter part of March and is ongoing. We've not made a decision yet or announced yet when we'll terminate the free trial. We're really excited about the results that we're seeing with new store creations up 62% over the last 6 weeks versus the prior 6 weeks.
I want to emphasize what new store creations means. They are potential merchants that have come to the platform. They're setting up a store. They've given us their billing information, but we are not billing them yet. So we don't count them as a merchant.
We know that in the mix of those new store creations, they're both established businesses and new entrepreneurs. And the reason why we know there's a healthy mix of established businesses is the percentage of those merchants selling in their 1st week on the platform is higher than it has typically been historically. Those new store creations, because they don't count as merchant, we're not billing them, they don't count towards MRR. So as I said in my earlier remarks, MRR in the second quarter will be free trial to materialize in the Q3.
Thank you, Deepak.
Our next question comes from Matt Pfau of William Blair. Please go ahead.
Hey, guys. Thanks for taking my question. Just wanted to ask on the Shop app. It seems like you're starting to dip your toe in the water here with demand generation or demand aggregation. Have you thought more about going into this space, especially as perhaps consumer discretionary spending becomes more challenging over the coming months, it might be something that your merchants would be looking forward to help them out?
Thanks.
I'll take that. So yes, ShopUp is maybe quickly. The why behind ShopUp is like LTV increase, right? Like that's the goal. So we launched it also with a local discovery feature.
This is actually a good example of what I meant earlier when I said that we need to rederive our plans. And also, it's a product like something like the local discovery feature in Sharp is something we launched, partly because we have successfully lowered our minimum acceptor quality part to launch something. So the way this worked is shop is a very valuable piece of software, but I'll explain a little bit the reasoning for why it exists. But a local discovery feature was something that came out of a hack day that we called right after the COVID thing started, where we just asked the entire company, hey, everyone, like make an experiment based on what you think would be helpful right now to our customers. And we launched local discovery features as part of SHOP because not because it's particularly ready, but because it's actually helping right now and it is helping right now.
People are getting sales for it, which is awesome. So that's what this is about. We will run more experiments, but the goal is to deepen relationship with the brands you already are buying from. And that's particularly like that's like our take on this particular product. It is funny what when again, I come from these things from a product with a product mindset, and I like especially to re argue things from first principles.
It is a funny world in which we separated out the particular roles as in the world of retail the way we did. I would like to know to meet the person who would argue that from scratch we should design the world of Intel Commerce in such a way that there are these websites and then you purchase something and then it says like after you enter your entire address and credit card from scratch every time you end up then usually with your funds. You then go to a thank you page, at which point you hope to get an email at some point, in which email maybe then a day or 2 later, there's a tracking code, which point you can paste that in 1 of 6 logistics providers usually getting like very far delayed data about where your package might be, shrouding this entire process in mystery, it will then show up randomly at the door. And if there's anything wrong with it, you then have to like go find one of those e mails again. And you sort of know where I'm getting at, right?
Like it's like this is all poorly tooled and is the only reason why anyone is okay with it is because it's organically grew like this. So, Shop is what we're trying to do is we want an end to end experience that's good where you interact with the brand for any channel you want and then it go the process of getting this product is actually something that's delightful and knowable that you know the packages when it arrives and the process of interacting with the brand, going back and potentially purchasing some more or repurchasing the first papers you just received. It's something that's just kind of a same process. So that's the utility behind Schoppen. So this is why we combined a couple of things and build this.
And this is, of course, there's going to be a good amount of work, which is going to go into it. This is an important project, an ambitious project, but it's also really, really important understanding, I think, for everyone is that the goal is lifetime customer value increase. So hope that helps.
Great. Thank you, Matt.
Our next question comes from Darren Aftahi of ROTH Capital Partners. Please go ahead.
Hey, guys. Thanks for taking my question. Just on the ramp you talked about in store openings and comments around acceleration of April GMV, could you maybe share what the mix of discretionary versus non discretionary categories is? Thanks.
Yes. On the ramp of April GMV, let me just give you some thoughts on that. We did see an increased shift from offline to online and a lot of that was home office, home gym increasing as a percentage of the mix in April. As we said, apparel had softened in March, but it did recover by the end of March. So even into April, apparel was back to its normal levels.
So we saw the combination of all of those things hit in April. And I also just I'll add in just to give you a little bit more information too. The GMV The GMV acceleration that we saw in April due to all those verticals doing well was broad based from a geographic regional perspective
across the globe. Great. Thank you, Darrin.
Our next question comes from Nikhail Faldani of Mackie Research Capital. Please go ahead.
Great. Thanks guys. With all these changes, I was wondering if you could maybe give us some color about how you're thinking about talent acquisition, especially with all the challenges in the VC backed ecosystem in California right now. How are you thinking about maybe going after some of those 10x engineers? Thanks.
Yes. So we are expanding. Again, we have economic models that like any talk to, we want to be very realistic. But again, I think one thing that's absolutely true is that Shopify products fits better into the world that's going to be emergent here after the crisis is over, however long this is going to be than before. Shopify has like always prefers hiring the kinds of people with high potential who can become the 10x engineers, to use your term here, and then we help them get there.
So that was, I think, a core competency of the company. But yes, we have a lot of involved interest. We bring in great people who are believe in the mission, and we are going to like expand. And yes, I have not much else to say, I guess. It's Shopify is limited by the amount of the kinds of people that we need to build this company.
This may get easier to find them now. And that will be, I think, great news for acceleration.
Great. Thanks, Nikhil.
Our next question comes from Josh Beck of KeyBanc. Please go ahead.
Thanks for the question and hope you're all doing well. I just wanted to ask a little bit about the subscription cancellations. You provided some color there. As you went into April, did you see stabilization there? Are there any certain verticals?
Just any other color there you could provide would be much appreciated.
Yes. As we said, we did see cancellations in kind of mid March start to escalate. It was mostly low GMV merchants due to COVID. As we moved into April, subscriptions moved back to more normal levels from what we've seen historically. And also to talk a little bit more about the plus downgrades that we saw in March, those slowed considerably into April.
Very helpful. Thank you.
Great. Thank you, Josh.
Our next question comes from Samad Samana of Jefferies. Please go ahead.
Hi, good morning and thanks for taking my question. Amy, I know you guys don't normally provide this data point outside of the annual filing, but just given the unique circumstances, I think it might be helpful. But how does the revenue growth or GMV growth look like for merchants that have been on the platform for 12 months or longer? I know that was, I think, 21% in 2019. I'm curious how that cohort is looking so far maybe in the April period?
Yes, GMV per merchant, especially those that have been on the platform for a longer period of time has continued to increase year over year. We don't give out the exact percentage other than annually, but we did see those merchants who are successful in the platform continue to grow their GMV.
Great. Thank you.
Our final question comes from Yigal Arunyan of Wedbush Securities. Please go
ahead. Hey, guys. Thanks for fitting me in. I want to ask about Shopify POS and the new launch
and I
guess especially around POS Pro. You guys talked about timing around launches right now and how to help best customers. So first one to just get the thought process behind launching it now while most physical retail is actually shut down and how you see that helping merchants to bring merchants onto the platform, whether that's in physical retail or bringing them on to e commerce. Then any way to help kind of frame the amount of merchants you have that also do have physical? I know it's I think you've highlighted it the 2nd highest sales channel.
But maybe the stores the average stores per merchant or any kind of way to help frame that as the new software rolls out? Thanks. I
mean quickly about the point of sale product. I'm really excited about the new point of sale product. I think it's a great example of like I think even our previous one was basically like an iPad version of a traditional point of sale system, I think, which there's nothing terribly wrong with it. I think there's just that is a local Maxima product category that I think everyone got stuck on, and I think you can make there's a global maxima that's higher if you build something directly for the terminals. We're running a little bit out of time here.
So like I think how can I answer this question the best? I mean, the timing question is probably easy to answer. Like right now is a great time to change your point of sale system because you don't have people in your stores. This is the perfect time to bring an iPad into the place and trying on what your life would be like if having a single retail system that's connected between all the ways you're selling and especially with a new point of sale, now you can run all these cross channel systems like pickup in store and scheduled pickups. And there's going to be a lot more wheel builds.
We have tooling, curbside pickup and a lot more local things. But To turn this a little bit into sort of, I guess, final words here because of the timing. The thing that we've seen more than EBITA go up than anything else is like sales to within 25 kilometers, right? Like this is where you can really see everyone is already familiar with e commerce and really seamlessly got then into like you started using the channel than the sort of more familiar channels that just not being not available. And just industry wide, I think, at least with our from our data from our vantage point, now we have a little bit like our customers might be a little bit more change adaptable customers than sort of the norm, although it should converge upon the mean at this point given the size of Shopify.
I think we need to you really, really, really, really, really need to be in multiple channels and across these merchants. We are not really seeing that big of a dump against consumer confidence spending. Like people are still spending. And I think the industry looks at bad data time partly because there's a lot of existing reporting about looking at like the retail industry by just looking at the offline world and then making assumptions about the e commerce world, I think we need to stop that. I think this is sort of like the situation of trying to look at TV ratings during the rise of streaming and everyone got a little bit confused about how people actually spend their time for a while.
We need to adjust the digitalization on the metrics you look at. And yes, well, thank you for joining. Like you'll see a lot of things shipping from Shopify. Again, we will be at times slightly embarrassed by the things we are shipping. I think that is a sign of strength, doing it because that's exactly what when things should be shipped.
All the things that we're shipping will be iterated and improved. We take our mission incredibly seriously. Shopify is banded together like crazy because we see our job as trying to make it so that more SMBs in the world survive because Shopify exists. That's the role we picked for ourselves and that's what we are spending all our time on trying to make it come true. So thanks for joining us for our quarterly call.
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant