Excellent. Thank you everyone for joining us. My name is Keith Weiss. I run the U.S. Software Research effort here at Morgan Stanley. Very pleased to have with us this afternoon from Shopify, both President Harley Finkelstein and CFO, or newly appointed CFO, Jeff Hoffmeister, who's having a little bit of a homecoming.
Yes. Definitely.
... Coming back to the Morgan Stanley TMT Conference. Before we get started, I do have to read a brief disclosure. For important research disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. Excellent. With that out of the way, so thank you, gentlemen, both for joining us.
Yep.
Just finished up a fiscal year for Shopify and it was a good Q4. You guys outperformed both on the top line. I think you exceeded expectations on how well you were able to sort of sustain overall growth and definitely exceeded expectations on the bottom line as well. I think tempering that a little bit was the Q1 guide that looked for kind of a deceleration to high teens revenue growth in Q1.
Yep.
It left, I think investors trying to figure out kind of where we are in this cycle.
Yep.
... Or for Shopify.
Yep.
Maybe to start out, we could sort of baseline and talk about how you guys are feeling about the environment from a top-line perspective, as we head into the next fiscal year.
Yeah. I think for us, Keith, it was just being mindful of the environment that we're in. I know everyone in this audience here has their own views on kind of what they're seeing in the economy overall. Obviously, we had news yesterday as it relates to interest rates and all that. I would say, though, very explicitly, we're not seeing anything in our business which caused us to be more cautious than the kind of views of the economy overall. In fact, our business is doing very well. This was just the abundance of caution as it relates to some of the news out there. This is. We talked a little bit about Q4 in terms of our multiplier, in terms of us continuing to take share in e-commerce, U.S. e-commerce overall.
The statistics are out there that we're 10% of U.S. e-commerce, and that data point itself is, in fact, a dated one based on third-party data, which, one, is more than 15 months old, and two, it doesn't include everything we're doing on Point of Sale. In fact, when you look at Q4 and we track very closely internally the multiplier that our business is versus U.S. e-commerce overall. Q4 was stronger than Q3. We certainly do not wanna lose track of all the good stuff we did in terms of new products last year.
Okay.
Black Friday/Cyber Monday was the highlight, I think, in a lot of respects to Q4, so I should just let Harley talk about that and talk about the products. Again, this is not, this is us just being cognizant of the uncertainty in the market. This is not us seeing anything in our business that causes us concern.
Good.
If you think about Shopify as a product, there's sort of two products to Shopify. One is the actual product we deliver to merchants. There's also sort of the company. I'll just touch on the company product for a second because I recently celebrated my Shopify bar mitzvah, which is my thirteenth year at the company. I can tell you, I think this is by far, number one, the most stacked team we've ever had. I don't just say that because Jeff is sitting next to me. We have the best team we've ever had in Shopify history. That's the first thing.
The second thing is, I think one of the things that a lot of you in the room have asked us is really to ensure that, you know, you've asked about is Shopify operating with real discipline. The reason that it was important for us to show, you know, cash flow positive for Q4 was we wanted to show that this is a company that really understands the levers of our business, and we can manage growth and profitability. That's the first thing. Second thing is on the product side. If you go back even a year or two, predominantly most people came to Shopify for one thing. It was e-commerce, and it was mostly for small businesses.
Today, you know, if you look at our attach rate, which we view as revenue divided by GMV, we are more than just the e-commerce provider for our merchants. We help them with Point of Sale. We have capital with them. We have things like audiences on demand aggregation and demand, getting more customers to their site. We have things like fulfillment. We have things like capital and balance and Shopify Markets. The product itself, in terms of the role we play in the lives of our merchants, has expanded dramatically. You look at what types of merchants are coming to Shopify. Historically, it was mostly small businesses.
It sort of evolved into those small businesses that got really, really big, so the homegrown success stories, the Gymshark, the Allbirds like you're wearing of the world, the FIGS of the world. We announced we started working on about 2.5 years ago, this thing, this real enterprise product, which is now out in the market. It's called Commerce Components, and we think we can take a much larger chunk of the enterprise market. We have companies like BLACK+DECKER and Spanx and Supreme and Mattel, which is our launch partner for CCS, coming to us as well. Not only do we think we're having more merchants come to the platform, but also when they come to the platform, the role we play in their lives is very different.
We're the central nervous system for the millions of stores that use us. To Jeff's point, I mean, this is an exciting time for Shopify. The company is great. The product's great. Our growth levers we understand well. I think, you know, notwithstanding some of the reaction to the Q4 print, we were trying to be prudent. The business is rocking.
Got it. A lot of different points that I wanna drill down into there, but maybe start with the profitability side of the equation. I think coming out of of COVID, the previous CFO had a message that, like, investors didn't really know how to take of, like, trying to spend away all of our profitability. Jeff, you're now been on board for a little while now. What's the message that you wanna kind of convey on a go-forward basis to investors on how you're going to approach sort of the balance between growth and profitability?
Yeah. I wanna build off of Harley's comment about a commitment to cash flow profitability and how we think about expenses. When you think of the guidance we gave in Q1, we said gross margins were gonna be above where they were in Q4 last year. I talked about OpEx dollars, and if you look at where we were Q3 of last year and Q4 of last year and kind of the guidance we gave on Q1, when you translate those into dollars, it's $888 million in Q3. It was $903 million in Q4. I'm stripping out the charges related to the real estate space we had in Toronto and the legal settlement.
If you really get to kind of apples to apples expense dollars and you think about what that translates into Q1 of this year, yes, there's a very small movement in OpEx dollars. If you can basically keep those OpEx dollars in line, and obviously gross margins are where they are. Q1 is just seasonally our lowest quarter. We have a really strong Q4. People see the profitability. They wanna get behind that, as do we.
As I think about where I spend time with Harley and Tobi and the team in terms of how we think about that balance between growth and profitability, we are very focused on profitability. We also think we just to what Harley just alluded to, all the products we introduced last year and this, his comments about where we've really had success in kind of couple core products in a couple core markets and all these additional products and all these additional markets, and what that translates to in terms of sustainability of growth for years to come. If you keep the operating expenses in line, then you achieve both. We feel really good about it.
Got it. On the gross margin side of the equation, one of the things that investors think about is the capital intensity of the business on a go-forward basis. Shopify Fulfillment Network is going to.
Yep.
... A big sort of lever point in that capital intensity. Can you talk to us about how we're thinking about sort of the CapEx requirements for that build out? Because we started calendar year 2022 talking about like $1 billion in CapEx we had to spend and you really underpaced the initial like $125 million guide for calendar 2022.
Yep.
I would say $50 million for Q1 was probably a little ahead of in investors expectations. Again, I'm trying to calibrate.
Yeah.
... Is that $1 billion still the right number? How should we think about that capital intensity going forward?
Let me start by answering your question with some numbers, and then I'm gonna turn it to Harley and just talk again, which he's done before, just how we're different than some of the other players out there in terms of the problem we have to solve. I did mention on the call that we are still in the process of integrating Deliverr. That's going very well. We want to be mindful of getting that integration fully done before we update any CapEx dollars out there.
I would say we've been extremely pleased with what Deliverr's brought us in terms of the quality of the management team, a lot of the technology that they brought, as well as their just understanding of the industry and how that's accelerated a lot of our thoughts as it relates to just how we can do this and do this in a CapEx light way. To your comment, Keith, you see that in Q4 in terms of what some original expectations were in terms of what we may spend on CapEx, and obviously what we said on guidance as it relates to Q1. We think we can do this in a very capital efficient manner.
I do wanna make sure we get integration done on Deliverr before we update those numbers, but you can see that we're trending in a nice spot, which allows us to do this in a much more thoughtful way maybe than we were doing this before. Part of it again is just we're solving a very, very different problem. Some of the technology we got from Deliverr allows us to do this in a distributed way, and then tackle some things which Amazon and others have in terms of problems we don't have. Harley, I should let you build on that.
I mean, I think one of the issues that when people are building their models around fulfillment, they're using comparisons with other companies. Just to be clear, if you look at something like FBA, for example.
Okay.
... With Amazon, they built one single network with something around 22 million SKUs. When I go to a marketplace and I choose detergent, toothpaste, and shampoo, no matter what CPG is providing, no matter what warehouse it's in, it all comes in one single box. We don't have to do that. We never wanted to do it. It's not important to us. What we're trying to build instead is what if we created a lot of small networks with 20 SKUs, like Allbirds, for example. You can pick a hoodie, a pair of sneakers, and a pair of sandals. That is a much easier thing for us to do, and it's a lot less capital intensive.
The other thing that I think that most people miss about SFN generally is that the entire objective of SFN is really about this thing we call Shop Promise.
Mm-hmm.
What if we were able to provide a consumer-facing badge to the millions of stores on Shopify so that their consumers can actually expect with certainty when the package will arrive? We don't have to just do it with SFN. It makes it a lot easier for us to anticipate when it's gonna happen. We've seen merchants that are now showing that Shop Promise badge are seeing a 25% increase in conversion rates. If we can do that en masse, it's one of those things that right now merchants cannot do on their own, they can do with Shopify, and that's really what we're trying to build.
Got it. The different nature of the problem that you're trying to solve lets you build a different type of network. You guys have talked a lot about mixing owned warehouses with third-party spokes. Where are we in kind of solidifying that plan on a go-forward basis? Do we have to wait for Deliverr to get more fully integrated before we really understand the master plan, if you will, from Shopify?
I'll build on one of Harley's comments and just with a quote "problem" that we're trying to tackle versus Amazon and some others, this is for us something which is, I don't want to use the word simple, but it's much easier to tackle versus some of the other larger problems out there, and so it allows us to rely on partners in a way.
If some of our competitors have a very large, complex warehouse with some material handling equipment in there or some warehouse automation software, some things which are a level of complexity which require a lot of proprietary solutions in addition to everything they're just trying to tackle versus what we have, which is something which partners can tackle because we're asking them to tackle in terms of complexity, something which is much simpler to do. We can rely on partners a lot more, not only in kind of the core hubs, but also on the edge of the network where we have inventory, whether it's in New York or Chicago or Dallas or wherever.
We can have partners in the core, we can have partners on the edge, and that allows us on the CapEx side to be much, much more thoughtful about it. Do I wanna be careful about laying out more until we get integration done fully on Deliverr? Yes. We've talked a little bit before about how we can build one or two hubs and have our partners clone those hubs and the team from Deliverr has helped us accelerate that thinking.
Got it. When investors are tracking your progress with SFN, I think one of the things we're thinking about is what percentage of volumes is gonna kind of go through the network.
Yep.
Any kind of road marks or mileposts you could give us on like what percentage of U.S. deliveries you expect to go through the network this year or longer term?
Yeah. I would, let me approach it from a couple angles. We've not been extremely explicit in terms of the revenues of Deliverr, but we've given enough data out there to, I think people have a general sense of the size of it. When you think of the percentage of our merchants, of the millions of merchants that we have that are using Deliverr right now, it's a very, very small percentage. Part of the opportunity for us is once we do have Deliverr fully integrated to ramp that and get more and more of our merchants, using Deliverr. I'll use two bookends for you, Keith. One is you think about payments. We've had payments as a solution for roughly 10 years, and we're at a 56% penetration rate.
We've also talked about our tax solution that went from tens of thousands of merchants using it to hundreds of thousands of merchants using it in literally just a couple of months. That's now ramping a tax software solution is very different than ramping a logistics solution. I'm cognizant of that. Within those two bookends, you have the ability to say that once we turn on a solution for merchants, how quickly they adopt it. That's just because we're so merchant-obsessed, and we've always been from day one. Merchants know that if they're coming to us for a solution, we're gonna deliver something in a high-quality way.
We have the opportunity with that relationship of trust with our merchants to, once we have Deliverr fully ready to go, to turn it on in a way where we can control the volumes in a way where we scale it to the pace we want. Maybe we start with plus merchants, or maybe we start with this geography, or maybe we start with this sub-segment of the merchants that we have, and we can do this in a way which is one, profitable, but two, delivering the quality which the merchants have, which the merchants need. The merchants, we have never wavered from our view that we are selling a solution which the merchants cannot get from anyone else.
Got it. You mentioned that you're gonna do it in a profitable way, and I think that's still a debate for investors.
Yeah.
Of whether something like Shopify Fulfillment Network is now a cost of doing business, that's just part of being an e-commerce vendor, or is this actually something that could be a profit pool or a profit generator for Shopify?
Oh, yeah, no, we, this is meant to be profitable for sure. We think about just from a customer acquisition perspective, historically, and Harley alluded to this before, historically the subscription platform has been where most merchants come and stay, and then we put payments or capital or Markets Pro or all kinds of other things on top of it. Again, the customer acquisition cost is done, as long as we can offer that merchant high-quality additional solutions, they will buy from us. Deliverr Shopify Fulfillment Network is another one of those that will make money in and of its own self for years to come, but also just be part of the total solution set that we're giving to merchants.
The point of one of the things that makes us so excited about our Point of Sale progress is this allows us to be the, this allows that to be a tip of the spear on some of the brick-and-mortar elements, where historically we would get merchants in via online, and now we can do it via the traditional retail. Again, all this is getting more merchants in the funnel, and we put Deliverr and everything else on top of it in terms of what they're doing.
Got it. I wanna switch gears a little bit and talk about the move-upmarket in Shopify Plus, and I think the penetration of Shopify Plus continues to be a real success story for Shopify. Harley, maybe you could dig into some of the, both the product and kind of go-to-market components that have enabled you guys to see better and better success in that upmarket move.
Yeah, I mean, Shopify Plus was really created as an answer for what happens when merchants that start on Shopify when they're very, very small get really, really big. One of the sort of realizations was around the IPO time that these merchants were not churning off. There was no graduation off of Shopify. That is very different than most software companies, where you start with one product, as you scale, you have to sort of go up to the enterprise version of it. With that, we created Shopify Plus originally in 2014 as an upgrade path. Very, very quickly we realized that a lot of the sort of enterprise or higher mid-market merchants also wanted a product like this.
Cost of ownership was important, flexibility was important, but also they just want to future-proof their commerce stack. They wanted to be able to activate an Instagram channel or a TikTok channel. They wanted to be able to use Shop Pay, or they wanted to be able to, you know, use some of the new functionality we were putting out there. Then I guess in the last three or four years or so, something else happened, which frankly was, I think, surprising to us at the time. Now it seems rather obvious, which is that some of the largest brands on the planet in some cases never sold direct- to- consumer before and wanted to. I'm talking about the like the CPGs of the world, the Procter & Gamble, the Unilever, the PepsiCo of the world. They were looking for solutions.
A lot of the big brands that historically, the retailers that had built their own stack, like Glossier or Spanx, they were looking for a new solution as well. What we tried to do is initially build enough functionality into Shopify Plus that what you get out of the box with Plus is sufficient to run a multibillion-dollar retail operation. I think probably the third phase or third chapter was, which is sort of the last 18 months or so, some of the largest brands, like, on the planet wanted to use Shopify, full stop.
To do that, we realized that they wanted to bring some of their own functionality, so they wanted to use our checkout, but they wanted to bring their inventory system, or they wanted to use our storefront and checkout, but they wanted to do, you know, use their own ERP system. We realized that there was another opportunity in this thing we called Commerce Components by Shopify, whereby you can modularly take apart Shopify, and you can add your own products to it, and you can actually get exactly what you want. You can do massive flash sales. Probably the largest flash sale in maybe e-commerce history happened a few weeks ago, which was Supreme, which is now powered by Shopify, who does more higher flash sales than pretty much anyone else on the planet.
Our positioning from a product perspective, I think is, we are the leading product for that. In terms of our pricing, it is the from a value to, you know, cost perspective, both Plus and Commerce Components is still very much on the side of value, which it's because we wanna win the market. In terms of go-to-market, that's where we really had to make some changes. I think we have, you know, we have 10s of thousands of partners all over the world that refer business to Shopify. These are agencies and freelancers and third-party development companies. We realized that the types of partners we require for this enterprise segment was just different.
Right.
We began to start talking to, this probably started around 2019, 2020, the largest SIs on the planet, so KPMG, Deloitte, EY, WPP, Accenture. It turned out many of them were looking to build true Shopify practices inside those agencies. We formalized deals with all of them. They've now become a go-to-market strategy for us. We also had to make one additional step, which was we had to build a real go-to-market team for enterprise. I think we stretched our SMB go-to-market team really well, but we needed someone who actually can come and build a full stack sales and marketing machine for enterprise.
We brought in a guy named Bobby Morrison, who was previously at Microsoft and then running sales inside of Intuit, to come and build a full stack go-to-market team, and he's been with us for six months or so. It's not just the product we have for the enterprise, we also have a different go-to-market strategy from sales reps that are quoted. We now participate in RFPs, which is something that I think I've said on this stage we would never do. It's just there's a real opportunity for us to win the enterprise, and that's gonna require a different model around go-to-market and sales.
We're doing it now, and every earnings call, if you listen up, I mean, I'm mentioning 10 or 12 new massive brands that have either migrated from, you know, Salesforce or have migrated from Magento or for the first time ever are selling direct- to- consumer with Shopify Enterprise. That's a really great part of our business that wasn't didn't exist even two years ago.
Yeah. Keith, I'd add that the experience we've had with the systems integrators has been excellent. We've had the biggest, and we've talked about some of the names out there. Some of the biggest names have gravitated to us, and they're putting us. Part of it is just because we've not been in the enterprise historically, that some of the low-hanging fruit is just to have them make sure that we're in some of these opportunities we just did not see coming, or some of the enterprises maybe don't know to even call us.
Yeah.
That's changing quickly, but they're also out there. They're bringing real good-sized GMV merchants to us.
I mean, you look at a company like Glossier. Glossier was effectively the poster child for many, many years. I mean, their CTO wrote the white paper on why a company that is going to be a multi-billion dollar direct-to-consumer brand has to have their own stack. The second Kyle came in as their new CEO, one of her first, you know, first action items was migrate into Shopify, through Shopify Plus. You're seeing less and less of these massive brands wanting to have a 300 person engineering team, and they're giving the business to Shopify.
The last thing I would probably say is sort of on the enterprise side is I think that we can get better at our sales and marketing a lot faster than other companies can get better at their product, and that's where I think we have an unfair advantage to win the enterprise.
Got it. That makes a ton of sense. If you just bear with me for a little jaunt down the skeptical mind of a.
Yep.
... Sell-side analyst.
Understatement of the year.
Yeah. The Shopify Plus solution, because you're going after larger enterprises, there's a higher capacity for attach. You have all these attached solutions, and it's gonna be likely a more profitable customer. The other side of the equation, you didn't give us merchant count this year. Like, you guided to it.
Yeah.
... For the fiscal year. You didn't give it. We could take a look at MRR, and it seems like merchant adds has slowed down a lot. Does this represent a more fundamental shift for Shopify of, like, the focus is going from those very small merchants to the larger merchants where there's probably a bigger kind of profit pool to go after?
I mean, I don't think so at all. In fact, I think hopefully what people have realized is that we're able to do two things at once, which is that at the same time that we're able to go after and win this enterprise, we're also able to. You know, we have a starter plan now, which allows aspirational entrepreneurs to come to Shopify and try their hand at it. We know that not all of them will succeed. We believe that the unit economics of them coming on is very healthy. The ones that do, we will, you know, stay with us indefinitely.
At the same time that we're going after the enterprise, we're also expanding our top of funnel, both internationally, but also going even further up the stack to say, "If you have an idea in the shower in the morning, the best place to go and test that idea to whether or not you have product market fit is with Shopify.
Okay.
The ones that are successful, whether they get to 10 sales or 100 sales, they will stay with us indefinitely and become the next FIGS and Bombas and these great companies.
Got it.
I think we can do both. To your point, it does, you know, merchant count is only it was a lot more valuable, we think, as a metric when all we did was the SMB. The fact that we have these massive brands coming on, which is only one single merchant, but brings a disproportionate amount of gross profit dollars to us, means that you probably have to look at both.
Yeah. I'd emphasize, I hear you on the skeptical research analyst concern about mer. We are not seeing a slow in merchant count. This was a function, to Harley's comments about the different types of merchants that we're getting as well as the merchant trials that we talked about, which we did right before the end of the year, it was just a true apples to oranges comparability issue.
Okay.
We feel really good about our merchant adds.
Yeah. I mean, I think the other part that is, you know, we didn't talk about historically that much, but we do now, is this idea of attach rate. I think the attach rate is actually one of the metrics that more people should care about because it is a direct reflection of the value that merchants get from Shopify. In our last earnings call, we talked the attach rate being about 2.85%, I believe.
Mm-hmm.
I mean, that is materially more than what it was a year ago.
Okay.
That is before things like Audiences has really hit. Shopify Point of Sale is really just starting to ramp. Things like Shopify Capital, for example. We've given out now more than about $4 billion or $4.7 billion of cash advances. That's in four geographies. Shopify Payments has a lot of room to grow. When you look at all the different merchant solutions from Capital to Payments to Shipping, but then you add things like Collabs and Audiences, you now begin to see that Shopify really is the heart of the business for these millions of stores. I think attach rate actually becomes an even more important metric as not only we get more merchants into the funnel, but they take more services from us sort of horizontally.
Got it. That makes a ton of sense. One last Shopify Plus question.
Sure.
Then we'll move on. You guys recently raised pricing on Shopify Plus, I think it was the first time in
Not Shopify Plus, Shopify, Core.
Shopify Core.
Yeah.
I think it was like the first time in a decade, right? I think pricing is always a fascinating indicator of sort of what, how people are feeling about the value of their solution. Why now? What gave you guys the confidence that this is the right time to take price and obviously you don't think you're gonna have a negative impact in terms of customers coming to the platform?
We don't. I mean, I talked to my Shopify bar mitzvah year. Since I got to Shopify, the $29 plan has been $29. If you look at the value and the actual product, the solutions, frankly, just the infrastructure of Shopify, how it's evolved over the last 13 years or so, it is materially better. We thought that it felt like the right time for us to increase pricing. We took the $29 plan to $39, and we saw, I mean, there's a three-month sort of grace period for people to upgrade to an annual plan if they wanna preserve the $29. We heard almost no pushback on that.
Okay.
You're right, that's the first time in a very long time that we've played with pricing. Your next question, I assume, Keith, is going to be what about Shopify Plus? The truth is we eventually may look at increasing pricing there. What we have now with Plus, which I think is a really wonderful model, is it's 25 basis points. So if the merchant does many billions of dollars, we do very, very well. If they have a small, they don't do as well that particular month or quarter, obviously we share in that upside, we also share in the downside. So it is a good model that allows us to share in this massive upside from these emerging winners. That said, we want to win the enterprise.
Again, competing with a, you know, a 25 basis point product that has as much infrastructure and as much product and functionality as Shopify Plus is very difficult for pretty much every other enterprise company. There's a strategy to that, and at some point we may say, "Look, the value to cost ratio on Plus is simply too far on the side of value. Let's increase pricing." We're not ready for that just yet.
Yeah. I think overall this signals a little bit of just us continuing to advance our thinking on monetization more broadly. Across all of our products, across all of our solutions. We did a lot of benchmarking, of course, before we raised prices and how we thought about it. We are still by far the best value out there.
Yeah. We just before in sort of our prep, Jeff and I were just talking. There's a company, many of you, some of you may know, it's called Kit and Ace . It's Chip Wilson's new company. He's famously the Founder of Lululemon. They were on Salesforce Commerce Cloud for a while. They migrated a month ago. They've now launched on Shopify, last couple days. Part of that was functionality, a lot of it was price. In this particular environment right now, every major company, every boardroom of any major brand or retailer, they're trying to figure out their cost base. The fact that they can get way more value at much less cost by migrating from one of the large enterprise e-commerce providers to Shopify Plus or Commerce Components is a really compelling, you know, value proposition.
Got it. running towards the end of our allotted time slot. There's two kind of investor concerns I wanna make sure that we touch on. One is the just overall health of the DTC merchants, post-IDFA, and whether their kinda top-of-funnel activities are still as effective as they used to be. What do you think about sort of the health of the DTC model and how is Shopify looking to help those merchants?
I mean, first of all, I actually think the DTC model is quite healthy. You know, Jeff talked about Black Friday, Cyber Monday. In four days, during that, like basically the Friday to the Monday, Black Friday, November 2022, we saw about $7.5 billion go through Shopify. If you walk down any major, you know, street in San Francisco or in SoHo or on a Regent Street in London, and you look at the stores or retailers that have recently moved in, it's mostly direct-to-consumer. I mean, we did a tour of London a few weeks ago. The massive sort of location where J.Crew had sat on Regent Street for, I don't know, 10 years is now replaced with Gymshark.
Next to them is Alo Yoga, next to them is Vuori, next to them is FIGS and Allbirds. Actually I think it is a lot healthier than people think. I think the major shift is that they're not relying exclusively on digital ad platforms to grow their business. They're looking at things like physical retail, but they're also leaning on Shopify for things like Audiences. For those that don't know, I mean, Audiences are a product which effectively helps merchants better target customers.
Before they run an ad on Instagram or Facebook or Google or more recently Pinterest, they can run that ad, copy the meta tags, the product description, through our algorithm, and we can say with some certainty that we will give you a better sample size or a better lookalike audience, where you now upload that and you will have, in some cases, incredibly more effective ads and higher return on ad spend. That's one new thing around demand gen we've never done before we're helping with. We are helping on the backs of IDFA changes. I think that was a good idea three years ago. I think it's a very good idea today. Also, I mean, we're seeing our merchants have, in some cases, record years year- on- year.
Got it. The second concern is the Buy with Prime, right? You guys have always been very open to working with different partners and different technology partners. Amazon's a technology partner. What's the puts and takes? Is there a risk in Buy with Prime getting kind of integrated into your stack and sort of sapping that, maybe some of that attach rate potential away from Shopify?
I mean, it's, you know, I sat on a stage like this a few years ago or seven years or eight years ago, we were integrating with PayPal and the same question came up, "Why would you integrate with PayPal?" We believe that any company that makes their infrastructure available to a long tail of retailers is a good thing. Our view is that if there is a new way to pay or a new way to check out, that net makes merchants sell more, increases GMV, that's a good thing. I said this on the earnings call. We want to integrate with Buy with Prime. We've been talking to Amazon about that. We just want to do it in a way that doesn't obfuscate information from the merchant.
It has to be done in a way that allows the Shopify admin to remain the retail operating system for all the stores that use it. We think we'll get there, but we haven't announced exactly what we're doing there yet. In terms of, you know, is it competitive? No. It's one more way that a consumer might be able to check out, like we have with PayPal, or like we have with buy now, pay later partners like Affirm or Afterpay or QuadPay or Klarna for that matter. We think that giving merchants more choice is really important. The key to all this is you mentioned partnership.
The reason I think that Shopify's become such a trusted partner and frankly that central nervous system for the businesses that use us is because when there is new technology or a new product or new functionality that exists that could make their business more successful, they know they can get that from Shopify. Our responsibility is if we wanna make sure we future-proof their business, that we make that available, but in a way that preserves their business model. That means that all the information must flow directly back to the Shopify admin so they can run their business properly. It has to be done the right way, and I'm optimistic we'll get there with Amazon. We have a good history and a good relationship with them. We've integrated with them in the past.
Got it. I'm gonna try to squeeze in one last question. Yesterday I was on stage with Scott Guthrie from Microsoft, and he talked about generative AI and saying in two years he envisions a completely new shopping experience of that. It's gonna be more directed by the generative AI and less about.
Yep.
... Here's five different products that you could buy. Like, what's Harley's view on this in terms of generative AI's potential of fundamentally changing that shopping experience?
I think it's really exciting. Show of hands, how many of you use the Shop app in the room? Okay. I mean, the Shop app right now if you download the update on the top right corner has a bot where you can have a conversation with this incredible bot that is powered by ChatGPT. You can say, "I wanna have a barbecue with Keith, and it's gonna be a Hawaiian theme, and here are so many people." You will see products you can buy with one click and actually create a full barbecue and a full party experience. I can say, "I want a backpack. Here's my price range. I want it from a direct-to-consumer brand. I want it to be leather, or I want it to be nylon." You will see those things as well.
We're already doing stuff like that. The key for us, whether it's, you know, generative AI or any new trend for that matter, any new piece of technology, and I think AI is a step function above, you know, Web3, for example, in terms of what it can do from an impact perspective. We look at the practicality. It's great that we can integrate with ChatGPT, but it's only really great because you as the consumer that's using Shop app now can have a much better shopping experience. In the same way that, you know, one of the announcements we made at Shopify Editions in February was now using AI, if you're a merchant, you can actually get help writing product descriptions. All this technology is really cool, but we think about it from the practicality perspective.
Helping merchants write product descriptions means they spend less time doing that and more time running their business. Helping consumers find stuff they want they otherwise wouldn't find otherwise, and it's all powered by I think we have about 13 million SKUs uploaded now into that particular conversational chatbot. That is very exciting, and it's great for consumers, but it's really great for the merchants. In order to take advantage of it, you have to be a Shopify merchant.
Outstanding. Jeff, Harley, thank you so much for the fascinating conversation. Consider this the official invite to my July 4th Hawaiian-