Thank you for standing by. This is the conference operator. Welcome to the Shopify Inc. 3rd Quarter 2019 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 questions. 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 are glad you can join us for Shopify's Q3 2019 conference call. We are joined this morning by Toby Lutke, Shopify's CEO Harley Finkelstein, our Chief Operating Officer and Amy Shapiro, our CFO. After prepared remarks, we will open it up for your questions. We will make forward looking statements on our call today that are based on assumptions and therefore subject to risks and uncertainties that could cause actual results to differ materially from those we 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 morning as well as in our filings with U. S. And Canadian regulators. Also, our commentary today will include adjusted financial measures, which are non GAAP measures.
These should be considered as a supplement to and not as a substitute for GAAP financial measures. Reconciliations between the two can be found in our earnings press release, which is available on our website. And finally, note that because we report in U. S. Dollars, all amounts discussed today are in U.
S. Dollars unless otherwise indicated. With that, I turn the call over to Harley.
Thanks, Katie, and good morning, everyone. We continued to make great progress this past quarter, and I'll get into more detail on that shortly. First, I'd like to take a minute to mention 2 major milestones. Last month, our counter hit the 1,000,000 merchant mark. That means that 1,000,000 businesses, large and small, have put their faith in Shopify.
For all of us working to build Shopify each day, it is incredibly validating and meaningful that we continue to help tens of thousands more businesses each quarter launch and thrive on our platform. And earlier this month, we closed the biggest acquisition in our history when we welcomed 6 Rubber Systems to the Shopify family. This is another milestone, not just because it signals our commitment to solving some of the most critical challenges our merchants face, but because it is yet another way in which we are evolving to continue making commerce better for everyone. So thank you to all our merchants and partners who continue to put their trust in us. As I mentioned previously, our momentum continued in Q3 as you can see from our Q3 results.
Our international expansion efforts continue to pay off as merchants from outside our core geographies were once again the largest component of new ads. GMV from these international merchants outpaced GMV growth overall, and adoption of merchant solution products continued to expand across Shopify Payments, Fraud Protect, Multi Currency, Shopify Shipping and Fulfillment and Shopify Capital as we make these offerings more attractive and accessible. We are also showing progress across the multiple product initiatives that are underway. In October, we began rolling out our native video and 3 d modeling features to Shopify Plus merchants, with a broader rollout planned over the coming months, making Shopify the 1st commerce platform to natively support 3 d and AR shopping experiences. These features create the most immersive online buying experience, which not only makes a purchase more likely, but also just makes it really fun way to shop online.
More buyers are opting into Shopify Pay with quarterly order volume increasing and GMV rising to over $1,000,000,000 in Q3. We continue to release more features to make it easier for buyers such as giving buyers more payment options to complete their purchases using Shopify Pay. And we continue to work hard to connect merchants around the world directly to their buyers. In Q3, we enhanced our marketing and support tools and we introduced Shopify Chat, our first native chat function that helps merchants build stronger relationships with their customers through real time conversations. Shopify Capital put up an excellent quarter setting a new record in merchant cash advances with over $140,000,000 issued in Q3.
We started Shopify Capital to help solve another pain point for entrepreneurs, access to capital to grow their businesses. This is especially true as merchants gear up for their busiest selling season of the year. As we mentioned last quarter, we introduced Shopify Capital to non Shopify Payment merchants and while it's still early, we're seeing strong adoption from those merchants. Shopify Shipping adoption continued to grow with 44% of eligible merchants using shipping in the Q3, up from more than 1 third of merchants in the same period last year. Shopify Shipping empowers merchants to speed up their packaging and fulfillment process and save time.
After a merchant buys a shipping label directly from the Shopify admin, they can print it, affix it to the package and then ship it from any post office. This is why we continue to provide competitive shipping rates and add best in class features like parcel insurance, which we launched in Q3 for U. S. Merchants. Moving to Shopify Plus, which had yet another strong quarter.
Shopify Plus continued to solidify its position as the preferred commerce platform for high volume merchants. Some of the brands that launched this quarter include footwear brands, Aerosols, Harry's of London, the Frye Boot Company and Nicholas Kirkwood from luxury brand LVMH. The shop for the iconic British broadcaster, the BBC and the space exploration disruptor, SpaceX sports strength behemoth, Gatorade Australian electronics giant, JB Hi Fi appliance brand Bissell, additional iconic toy brands such as Gund, more brands from some of the world's largest influencers like Kim Kardashian's new shapewear line called SKIMS and Victoria Beckham's makeup line, Victoria and Beckham Beauty. And finally, more launches from the world's largest consumer packaged good companies that have been leveraging our platform for some time, including Heineken and Unilever. Shopify Plus is becoming the most relevant platform globally for both iconic as well as the fastest growing modern retail brands.
As a quick anecdote, I recently spoke with an executive at one of the largest food and beverage conglomerates on the planet after they went live on Plus. He said that this was the most successful product launch probably in the history of the company. And the best part is that I hear stories like this all the time from Fortune 500s to SMBs. While these brands represent different verticals, they have one thing in common, they are growing in complexity. This is reflected throughout their evolving business from the global reach of their marketing, manufacturing and distribution to the management of their inventory and the growth of their employee base.
Shopify Plus features like Flow, Launchpad and Scripts are built to help solve those complexities by making easier for our larger volume merchants to manage the increasing scale of their businesses. Turning to our partner ecosystem, which continues to play a critical role in the success of our merchants. 23,000 partners have referred a merchant to Shopify in the past 12 months, and we've added more than 300 App Store App Store, bringing the total to 3,200 at the end of the quarter. International partners are becoming a larger part of our partner ecosystem as well, and we see an opportunity to further leverage its community to help develop localized features in specific markets. At Shopify, we build products that make it easier for anyone to become an entrepreneur, and then we level the playing field so that they can grow and succeed.
As our merchants scale and face new challenges and new levels of complexity, Shopify is designed to grow with them, revealing new capabilities as merchants require them. With this formula, we can not only help mint the next 1000000 merchants, but we can arm them with everything they need to thrive. More entrepreneurs reaching for independence means more choice for buyers, which ultimately makes commerce better for everyone.
Thanks, Harley, and good morning, everyone. We delivered strong growth this quarter and continued to execute on our strategic initiatives. With more than 1,000,000 merchants building their businesses on Shopify, we are more focused than ever on making entrepreneurship easier and helping our merchants succeed. Revenue in our Q3 was up 45% year over year to $390,600,000 Subscription solutions revenue increased 37 percent to $165,600,000 primarily due to strong merchant adds as well as level setting subscription pricing for legacy plans, growing monthly recurring revenue to $50,700,000 which is up 34% over the same period last year and the same pace as last quarter. Shopify Plus continued to increase its contribution to MRR, accounting for $13,500,000 or 27 percent compared with 24% of MRR in Q3 2018.
Subscription solutions revenue grew faster than MRR in the quarter, primarily due to strong growth in apps revenue as well as from Shopify Plus Platform V revenue. Merchant Solutions revenue grew 50% over the same period in 2018 to $225,000,000 This growth was driven by GMV expansion, up 48% year over year to $14,800,000,000 with international being the fastest growing contributor. Both international and Plus continued to grow their share of GMV mix, while POS channel GMV growth gained momentum, accelerating for the Q2 in a row. 6 $200,000,000 of GMV was processed on Shopify Payments in Q3, up 51% versus the comparable quarter last year. Shopify Payments penetration of GMV grew to 42% in the 3rd quarter versus 41% in Q3 2018, primarily due to increased Shopify Plus penetration as well as the addition of new Shopify Payments geographies.
Newer products like multi currency are gradually being adopted and adding further value to merchants using Shopify Payments, contributing to year over year revenue growth as we continue to improve their product market fit. Gross profit dollars grew 45% from Q3 of 2018 to $216,700,000 consistent with revenue growth in the quarter. Adjusted operating income in Q3 was $10,500,000 or 3 percent of revenue compared with a loss of $2,400,000 or 1% of revenue in the Q3 of 2018. We achieved better than expected adjusted operating results in Q3 due in part to strong revenue contributions from higher margin products and lower marketing spend. Note that we have updated our definition of non GAAP financial measures to also now exclude the impact of amortization of acquired intangibles and related taxes.
In addition to the stock based compensation and related taxes, we have always excluded. This is consistent with our peers and provides a clear view of operational results in the period. In the Q3, amortization of acquired intangibles was $1,700,000 Adjusted net loss for the quarter was 33 point $6,000,000 or $0.29 per share over adjusted net income of $5,800,000 or $0.05 per share for the same period last year. Our Q3 2019 adjusted net loss includes a tax provision of approximately $48,000,000 net of certain tax offsets related to a one time capital gain triggered by the transfer of certain rights from our Canadian entity to regional headquarters, which allows us to develop and maintain merchant and commercial operations in their respective regions as we expand internationally. Finally, our cash, cash equivalents and marketable securities balance was approximately $2,700,000,000 which increased around $700,000,000 largely due to proceeds from a share offering we completed in September.
As Harley said, we're building a global commerce operating system that helps solve problems at critical points along the merchant journey. We have thoughtfully developed and implemented a portfolio of investments that addresses many of these pain points and fueled our growth to date. These include multi channel integrations, enhancements to marketing functionality for merchants, expansion of Shopify payments and related services, further development of Shopify Plus capabilities, Shopify Shipping functionality and expanding the availability of Shopify Capital to more merchants among others. I will focus my comments today on more recent additions to this portfolio, international expansion, building brand awareness of Shopify, Shopify Fulfillment Network and the acquisition of 6 River Systems. Shopify is taking a disciplined and localized approach to achieve optimal product market fit in our international markets.
Over the past year, we more than tripled the number of languages which the Shopify admin is available and in Q3, introduced Shopify Payments in Italy and continued to roll out multi currency to merchants using Shopify Payments, which is now available in 14 countries versus 10 the same time last year. Our efforts internationally are bearing fruit as the pace of merchant adds from outside our core geographies accelerated in Q3. As a result, international merchants continue to grow their share of our overall merchant base. Merchants around the world need to know that entrepreneurship is an option. So we have begun to build our brand awareness of Shopify outside our core geographies.
We kicked off 1st ever brand campaigns in Germany and France in Q3 and expect to continue brand testing and learning into Q4. We've spent roughly 2 thirds of our approximately $30,000,000 budget allocated toward our brand campaigns and Shopify Studios so far this year and plan to invest the remainder of this budget in Q4. Moving to Shopify Fulfillment Network, our solution to further democratize commerce and help merchants provide fast and affordable shipping for their buyers. We have to get this right for our merchants. That's why we're taking a thoughtful and gated approach to the development of Shopify fulfillment network.
We continued working with our warehouse partners to bring more nodes online through the Q3, and we're happy with the performance of our network so far. We are seeing strong demand and continue to add select merchants and partners as we focus on high performance and optimizing for the merchant experience. With the 6 River Systems acquisition now closed, we are better positioned to deliver faster, high quality fulfillment. Once implemented, we expect to expand throughput and capacity at our partner nodes, boosting productivity by 2 to 3 times that of manual processes. We will continue to operate, build and sell 6 River Systems' solution in addition to making it available to our warehouse partners.
As a result of extending this innovative technology beyond Shopify's current market, not only are we helping to change the broader fulfillment industry, we are also expanding our total available market. While the acquisition of 6 River Systems had no impact to our 3rd quarter results given it closed on October 17, we expect the acquisition will be additive to Shopify's top line over time. Given our strong Q3 results and acquisition of 6 River Systems in the Q4, we are updating our full year 2019 Q4 outlook. To be clear, this updated outlook includes 2 new items that were not included in our August guidance and includes our acquisition of 6 River Systems and it includes a change in the definition of adjusted operating income to now exclude amortization of acquired intangibles. Accordingly, for full year 2019, we are raising our revenue expectations to be in the range of 1,545,000,000 dollars to $1,555,000,000 with an adjusted operating income between $27,000,000 to $37,000,000 which excludes stock based compensation expenses and related payroll taxes of $180,000,000 and amortization of acquired intangibles of $15,000,000 For the 4th quarter, we expect revenue of $472,000,000 to $482,000,000 and an adjusted operating income between $10,000,000 $20,000,000 which excludes stock based compensation expenses and related payroll taxes of $57,000,000 and amortization of acquired intangibles of $10,000,000 Our outlook includes expectations for 6 River Systems ownership in the Q4 as follows: We expect no material impact to Shopify's revenue given most of 6 River Systems revenue is recognized over the multiyear lifetime of each contract and also reflects a reduction of acquired deferred revenue under purchase accounting.
We expect incremental expenses to Shopify of $25,000,000 including $10,000,000 of cash operating expenses, dollars 7,000,000 in stock based compensation and $8,000,000 of amortization of acquired intangibles. We are excited about our progress in Q3 and going forward as we continue to democratize commerce by bending the learning curve, adding more tools and capabilities to make entrepreneurship easier and leveling the playing field, we are unlocking the power of commerce for those who want to reach for independence all over the world. With that, I'll hand the call back to Katie.
Thank you, Amy. Before we open the call up for your questions, let me remind everyone that we'd like you to limit yourselves to just one question, so everyone can get a question in on the call this morning. Ariel, can we have our first question please?
Thank you. Our first question comes from Colin Sebastian of Robert Baird.
Good morning. Thanks for taking my question and congrats on the customer milestone. Shopify Capital, obviously, a big step up in the merchant cash advances and loans, as Harley mentioned. So,
how are you thinking longer term
about the role of capital in customer acquisition and retention and the ability to manage that risk as you expand outside of the Payments Group? Thank you.
Thanks for the question. Harley here. So it certainly was a record quarter for capital. We gave it more than $140,000,000 of advances to merchants. And again, as you mentioned, part of this is making sure that we help merchants spend in the entirety of their journey to success.
Certainly, things like having additional cash for things like inventory and marketing are very important to them, and there's not the many places to get that sort of capital. So we think we're really helping merchants by doing this. It also serves, of course, as a way to retain merchants because we're not only now their e commerce platform or the point of sale provider or the payments provider, we're also now, in some cases, playing the role of their capital provider. So this is a meaningful part of our business and keeps growing and certainly it's something we're very proud of. In terms of the managing of the risk, it's something we keep a close eye on.
We do a ton of trend forecasting ensuring that we look at the data to update our models as we see trends changing. That being said, it's important to remember that most of the capital that we put out there is insured by our partner EDC. So we think that we continue to grow the capital business, but at the same time manage the risk. And so we're not doing anything that is outside of that loss ratio and risk exposure comfort zone that we think we have right now.
Thank you.
Thanks, Collyn.
Our next question comes from Matt Pfau of William Blair.
Hey, thanks for taking my question. Just wanted to ask on the fulfillment network. So how has the supply of fulfillment partners been relative to the demand and fulfillment that you're anticipating? And correlating to that, any updated thoughts on if you're going to need to operate some of your own fulfillment centers to help supplement the supply? Thanks.
Hey, it's Harley again. I'll take that question. So as of right now, the demand for SFN is coming from both sides of the coin. It's coming from our merchants who want to use it, but also coming from partners. It's important to understand that there are warehouses all over the U.
S. Where we're this is our first geography that have spare capacity that are looking to find a way to increase their business. And this is just a great by being part of this network, it's a great way for them to do that. As of right now, the 7 nodes that will be operational by the end of Q1 in 2020, all of those will be 3rd party fulfillment warehouses. So whether or not we build our own, we hope we don't have to.
And if we do, it's likely to be just a test do some development work. But as of right now, we feel we can do a lot with 3rd parties and still achieve the type of service and cost that we want to get for our merchants. So into 2020, it will be a gated approach to SFN and we'll be adding more and more partners. But there's been significant demand on both sides from merchants and also from partners ever since the announcement of Shopify Unite in June. So, we're quite pleased
with the progress. Great. Thank you, Matt. Next question please?
Our next question comes from Ken Wong of Guggenheim Securities.
Great. Thanks for taking my question guys. So some of your e commerce peers have called out softer than expected holiday trends. Can you maybe talk a little bit about what you're seeing across your base as we head into the typically strong Q4?
Yes. Sure. I'm taking this. This is Toby. So far, I mean, it's all trend forecasting at this point.
Like, we've all sort of looking at probably similar data. We don't see any weaknesses. Right now, it looks pretty much on track to the previous years. Some dates are falling on different parts of the year. So there's some change to that in terms of seasonality, but right now we don't see anything that gives us an indication that there's a difference in purchasing behavior, at least from our segment of the world we can see.
Great. Thank you, Ken. Next question please.
Our next question comes from Mark Zuglitsch of Rosenblatt Securities.
Hi, thank you. Maybe just a quick follow on to that last point, Tobey. I think we have one essentially one last week between Black Friday Christmas this year, roughly speaking. I'm just curious if there's that's contemplated in your guidance. And then maybe separately, Harvey, you talked about capital and just curious if
you can provide any color
in terms of the impact it's having on GMV growth? Thanks.
So I'll take the one last week. Yes, it is built into our guidance. We had a strong Q3 in terms of GMV growth. We're pleased with our performance going into our peak selling season. And that is one of the reasons why we upped our guidance on the top line.
On the capital piece, we've now given out about $770,000,000 of cumulative cash advances. Is that okay if you could grow? It's up 85% since if you look year over year from last Q3 20 18. So our capital business continues to grow. Is it going to have a material effect on GMV?
Probably not a material effect on it. Obviously, people will use this these merchants will use this money to do things like advertising inventory, which will have a correlation to GMV. But just given the amount of GMV happening across our platform in 175 countries, I don't think that's going to be a material increase in our GMV by itself.
It's also not like on the capital side, we don't see an sometimes you give a loan and then people just accelerate or increase inventory order and it has an immediate effect. What happens a lot more is that businesses who could otherwise not access loans get them and therefore actually continue building the business. So the effects of on GMV of the loans end up being delayed, but we might end up with an additional customer who would never actually have taken become a customer because of them. So it's hard to cause and affect it. It's secondary, tertiary effects, which end up affecting the GMV in the long run.
Got it. Thank you.
Great. Thank you, Mark.
Our next question comes from Gus Papageorgiou of PI Financials.
Hi. Thanks for taking my question. If I look at your numbers, it looks like the year over year growth in GMV per merchant is very strong, kind of double digits. It looks like it's been double digits all year long. I'm assuming that's from increased number of Plus customers, but also it seems like probably the conversion rates are improving for your merchant customer base.
Can you talk about what are the kind of main features that you guys have implemented that have helped your merchants convert? And if you look into the future, how do you expect conversion to improve with stuff like augmented reality and whatever other features you think you're going to influence that?
Yes. In terms of the conversion, look, the things that we're doing, we're trying to ensure that anyone that any browser turns into a buyer for our merchants. So things like augmented reality or three-dimensional product listings, things of that nature, as I mentioned, it
not only makes it a
more fun experience for consumers, but it also increases the conversion rate. But even beyond that, things like Shopify Pay, more of our accelerated checkout options. What you're beginning to see more and more is that we are trying to reduce the amount of friction that any browser has so that they do become a buyer and hopefully buy a lot from these merchants. So I mean, we've been doing that for almost 15 years now, trying to make it easy for anyone to check out as easy as possible from a Shopify store. We'll continue to do that, of course.
Yes. And I'll just add one point at the end that the GMV per merchant growth, it's pretty much across the board, across all of our merchant segments. But yes, in particular, Plus has been very strong.
Great. Thank you.
Thank you, guys.
Our next question comes from Deepak Mathivanan of Barclays.
Hey, guys. Thanks for taking the question. So I wanted to ask about how you're approaching the fulfillment rollout. Are you using initiatives like early adopter discounts or value promotions for some of the large merchants at this point already as you prepare for the holiday season. Can you talk a little bit more about kind of the go to market strategy for fulfillment near term and maybe in 2020 as well?
Thank you.
Yes. So with respect to fulfillment, we're still in our early access program and we're onboarding merchants as we speak. We're happy with our progress and absolutely on track. Each contract is competitively priced. We look at each merchant based on the size, weight and complexity of their fulfillments.
And that's largely how we have approached it and we'll continue to approach it moving forward.
Great. Thank you, Deepak. Next question, please.
Our next question comes from Brad Zelnick of Credit Suisse.
Excellent. Thanks so much for taking the question. So with take rate flat quarter on quarter, how much of this was driven by mix shift? And if we dig into the different segments, Plus and International, what does take rate growth look like on a segment level basis? Thanks.
Yes. If you look at it at the segment level, each of our merchant segments has continued to increase take rate year over year. So the entire impact from Q3 to Q4 is a mix. We're still seeing strong growth in international and that take rate is improving quarter over quarter, year over year. It's just weighing down the average a little bit.
Great. Thank you, Brad.
Our next question comes from Richard Tse of National Bank Financial.
Yes. With respect to the Socelmont network, as it becomes a growing part of your mix, how should we think about the margin profile here for the business going forward?
Yes. So, so let me just talk a little bit about Shopify fulfillment network and what we sort of expect here. So let's take Q3 to begin with. There was minimal impact to gross margin given we're still ramping the early access program. As we enter Q4 and our peak selling season, we start to ramp fulfillment volumes.
We do expect to have slight dilution on our gross margin from that. This is all factored into our Q4 and full year guidance. We do have a path to profitability that we announced at Unite, and we expect to be in product market fit phase through early 2021. So we likely will be dilutive on the gross profit line for Shopify fulfillment network, until we hit the scale phase, which again we expect early 2020, but we believe the short term dilution is the right long term decision for our merchants. We expect fast and affordable fulfillment will energize our flywheel by helping our merchants to sell more.
And that would be hitting the scale phase in early 2021?
Our next question comes from Darren Aftahi of ROTH Capital Partners.
Yes. Maybe Amy, could you expand on gross margins? It looks like subscription solutions solutions gross margin dipped a little bit sequentially. I'm just kind of curious what's driving that and then your thoughts going
forward? Thank you.
Yes. On the subscription solutions margin line for Q3 quarter over quarter, we did see a slight dip. It was due to infrastructure investments to increase the performance for merchants, speed performance and also some additional infrastructure in anticipation of our peak selling season. I will say for the full year for subscription solutions margins, year over year, we are still anticipating an improvement because of post cloud migration this year versus last year.
Great. Thank you, Dan. Next question, please.
Our next question comes from Jonathan Kees of Summit Insights Group. Jonathan, your line is live.
Hi. Can you hear me now? Hello, can you hear me now?
Yes. Go ahead.
Okay, super. All right, sorry about that. I really just want to ask about one topic. Amazon during their call talked about one day shipping really materially had an uplift on their volume on their GMV. At Unite, you guys talk about 2 day shipping.
Does that change your planning, your table stakes offering in terms of what you're planning to roll out for your merchants? And if I may, on the same topic here, I know you consider Amazon to be more of a partner, it's a sales channel for your merchants. I guess at what point do they become a competitor, especially as more merchants defect from their network over to yours? Thanks.
Hi, Tycho. It's Toby here. Again, I said this before, it seems to have resonated. Like Shopify and Amazon, we are partners. Again, we offer Amazon Pay to the customers who want it, deliver merchants who want it.
Often when you buy something on Amazon, there's a Shopify store that particular order flows into and from which the merchant does their fulfillment and so on. It's a partnership. So we're not competing with Amazon. Some of our customers are competing in some segments. We certainly help them with that.
So in a very indirect way, you can draw the parallel of that we are competing, but like I don't think either of us thinks about it this way. But Amazon also serves as a best practice. They've kind of I mean, they are certainly the retailer on that figured out how to sell perfectly on Internet. The things that people really, really need, they order from there because it arrives often now next day as they announced. The products on Shopify are often the things that people really want rather than what they need.
It's a boutique kind of product. And there's a little bit more tolerance for the shipping because of that. So we are not aiming at one day delivery because that's just it's an incredibly expensive kind of thing to do and isn't like the return investment for the category of products that are on Shopify isn't there. It will happen in certain instances because frankly, a lot of our partner warehouses will be close to population centers and will be able to do this. But to create any kind of guarantees around this, that's not something we are planning on doing.
So no, there's no change because of the announcements there. Thank you.
Great. Thank you, Jonathan.
Our next question comes from Kevin Krishnarate of Paradigm Capital.
Hey there, good morning. Congrats on the milestone. You had strength in ads from international. I'm wondering if you could provide any color on gross ads in core markets, sort of what are the trends are like there versus say a year ago or prior quarters, stronger or weaker? Just trying to understand how this quarter might compare to other peak periods for gross adds, Just trying to unpack the different markets.
Thanks.
We continue to see solid growth in merchants in core geographies. Merchants, merchant count is something that we look at as a metric, but we're also looking at GMV growth. And the growth in our core geographies and GMV wise was quite strong. So the combination of the 2 of them, we're happy and that's another reason why we upped our guidance for the year.
Great. Thanks, Kevin. Next question, please.
Our next question comes from Nikhil Sadani of Mackie Research Capital.
Good morning. I wanted to go back to Harley's comments about your native three d support and augmented reality. Maybe if you could help us understand how that would scale? Can merchants use their smartphones to scan different SKUs? Or do they need like specialized hardware or perhaps new partners to help them out in that area?
Thanks.
Hey, there. Thanks for the question. So in terms of new hardware, no, I mean, the great part about things like augmented reality is that never anyone that has the new iOS has it built into the AR kit. So there's nothing you need. Now in terms of getting the 3 d modeling done, that is something that we're actually helping merchants with.
So if you go to our services marketplace where we connect merchants with experts and photographers and agencies and freelancers and developers to help them with their business, the specific needs and requirements of their business. That's an area where you now can find 3 d modelers as well. So we are playing that we are matchmaking them with people that can help with that. But from a consumer perspective, I think the best part about this is that a consumer doesn't have to do anything. Consumer can now go to that particular merchant's online store and they can have a much better experience given the work that we're doing with 3 d and AR, and we think it's going to lead to higher conversions ultimately.
But there is no onus on the consumer, and we're making it really easy for merchants to adopt this.
Great. Thank you.
Great. Thank you, Nikhil. Thank you.
Our next question comes from Chris Merwin of Goldman Sachs.
Okay. Thanks very much for taking my question. In terms of profitability, it looks like you flowed through the fiscal 3Q beat on non GAAP EBIT into the full year guidance. I think you mentioned that the updated full year guidance also includes $10,000,000 of OpEx. This is on the non GAAP.
And I guess just given all the runway ahead for Shopify Fulfillment Network Plus International, maybe can you just talk a bit about flowing through kind of that level of profitability and how you think about the pace of investments going forward? Thanks.
Yes. Let me talk specifically to our outlook that we just updated, because there are multiple factors going on with respect to 6 River as well as the change in definition. So if you think if you start with our outlook in August, that did not consider the 6 River acquisition, we were at $20,000,000 to $30,000,000 of adjusted operating income for the full year. If our outlook in August were adjusted to also exclude amortization of existing acquired intangibles So, So apples to apples, our updated outlook for adjusted operating income for the full year under the new definition is essentially unchanged. And so what that mean?
That means that the $10,000,000 in OpEx from 6 River in the 4th quarter is essentially being offset by the organic performance of Shopify. So we're going to continue to invest in these important growth areas, and that will be something that we're working on in 2020 planning and we'll have more to say in February on that. But the performance of the overall company, including 6 River for the 4th quarter, we think is very strong.
Great. Thank you.
All right. Thank you, Chris.
Our next question comes from Thomas Forte of D. A. Davidson.
Great. Thank you for taking my So regarding your Shopify fulfillment network efforts, what was the rationale for purchasing 6 River Systems? And do you believe you need to engage
No plans right now on more M and A, but it's definitely a possibility. Again, this is a completely new field for the company and they're trying to do this right. The rationale specifically is, in this particular load of fulfillment warehouses like efficiency and quality metrics, everything and also things that are massively improved by robotics. And part of a significant reason for a lack of robotics build out in this particular space has been that people have experienced like a great robotics provider coming on the market about a decade ago with Kiva and that then disappearing and the robotics were no longer available. So that feed is a good set of horror stories in the market, which made people just not want to go for this particular option.
I was bringing in 6 River Systems brings a lot of fantastic talent in house, people who have known the space for like and have built hardware software in the space for many decades. And also, we can go out to the slide and just say, hey, we like it's demonstrable that we will want this to be available over the next decades and that people can do long term planning with robotics in mind and just keep it in the space and make it a part of the fulfillment network build out and that increases again efficiency and e commerce picking ability of warehouse, which currently are doing this. And so it became pretty obvious that this would be a good move and this is a significant part of rationale of why we did it.
Great. Thanks, Tom. Great.
Thanks, Tom.
Our next question comes from Koji Ikeda of Oppenheimer.
Great. Thanks for taking my questions. I had a question on the conversion of mobile eyeballs to mobile dollars. So Shopify does a great job with that mobile conversion rate. I think it's well above the industry metrics we see out there.
But there's still a gap between mobile eyeballs and mobile dollars even for Shopify. Could you talk about what is the factor or factors that is causing that gap and Shopify is doing to help close that gap over time? Thank you.
I don't think anyone I mean, this is really, really hard to know. It's from like I think the default devices just has shifted. Like it's massively more traffic on mobile and people use mobile a lot more in sort of the cracks of a day. And sitting down on a computer is becoming more and more deliberate, a deliberate act. So people might have it might be the same people who have bounced on that store who then sit down on a desktop to then do a purchase and kind of things end up skewing the numbers a little bit.
I think the correct way to think about the world of the Internet really is it exists for serving mobile devices. There's a couple of fallback systems for desktops. That was super clear long time ago and it's actually some retailers are surprisingly unprepared for it. Mobile device have tons and tons of advantages like the fact that you can do use biometrics as a form of securing access to credit cards on mobile devices have payment systems directly built in on the platform level, which is again, at the moment, the lack of the browsers doing this over the last decades many times. And the mobile vendors have done such an amazing job building secure elements into the hardware and bringing these ideas into reality.
And it's like I think the experience of purchasing on mobile on Shopify stores is now equivalent. Like I don't think friction is a differentiator for conversion rate anymore. And so now it's purely based on intent. And so I think that was that took a long time to get there, but now I think we are there between Apple Pay, Google Pay, Samsung Pay and all these kind of things that are supported. And of course, Shopify Pay is sort of making up the difference in the 4th day cases.
Great. Thank you, Koji.
Our next question comes from David Hynes of Canaccord.
Hey, good morning, guys. Can you talk about 1st year GMV for new Plus accounts maybe versus a year ago? I'm trying to get a sense of the increasing contribution we're seeing there is more a function of adding Plus merchants at a higher velocity or landing larger accounts? I suspect it's a bit of both, but anything you could provide to help quantify would be helpful.
Hey, it's Harley. I'll take that question. We certainly are seeing more complex merchants come into the Plus platform. We announced Staples Canada coming on a couple of months ago. More recently, companies like JV Hi Fi come on with some of the largest out China retailers in the world and based in Australia.
So we are seeing more of these complex merchants that traditionally, we saw mostly homegrown success stories come in at Plus and upgrading through the different plans. Now, obviously, we're seeing merchants that frankly, even 5 years ago, we didn't anticipate they'd be coming to us. They come with a whole bunch of nuances that we just weren't aware of. And I think now we're getting better at understanding what they require. And that even extends to some of the government agencies we're working with in places like Canada for things like cannabis, where they come with a whole set of requirements.
I think we're getting much better and much smarter and much more effective in onboarding them and getting them up and running. The neat part about this particular merchant is they come with an existing business. And so GMV, obviously, for them, accelerates fairly quickly relative to a brand new direct to consumer brand that's just trying to build up their business. That being said, relative to the entire stack of GMV across all of Shopify, which again was $15,000,000,000 for the quarter, it's not necessarily going to be overly material, but I do believe you will continue to see more large complex, very well established brands come onto the Shopify Plus in the coming years. Got it.
Thank you. Thanks, David.
Our next question comes from Paul Treiber of RBC Capital Markets.
Thanks very much and good morning. Just in regards to Shopify Pay, the adoption does seem quite strong. What's your thoughts on some of these more consumer facing services like Pay creating a consumer brand or on Shopify itself? And then how do you relate to that, how do you think about striking a balance between any Shopify related branding with consumers and the merchant's own branding?
This is the perennial or evergreen conversations within Shopify, right? Like again, we've grown up as sort of a total brand behind brands, like even putting powered by Shopify on the stores that are hosted on Shopify. That's something that people did manually at some point and only then did these sort of create it as an option. So the success of the company has traditionally been just making other people look good rather than ourselves. So we are very, very careful with any exposed branding.
I mean, we are certainly like agreeing with our customers who are saying that, hey, you guys have a pretty good brand, so let's use it. So this is why Shopify Pay was something we engaged in. It certainly was very successful. But I think it's just going to be something we are going to do very, very carefully. That's basically the best thing I could say about it.
I think this direction is so fraught with potential pitfalls and going overboard. I think it's important that we stick to what we know.
Great. Thanks, Paul.
Our next question comes from Ygal Arounian of Wedbush Securities.
Hey, good morning. I just I wanted to ask the macro question on holidays just from a different angle and there's obviously been a lot more discussion around the macro environment, potential recessions and slow in growth and would seem to indicate from all your numbers that you're not seeing any real negative sentiment out of, I guess, particularly your SMB cohorts. But to any degree, you could kind of talk about the overall business investment and sentiment you're seeing from your merchants? And then real quick, you guys didn't touch on POS on this call and you rolled out a pretty meaningful software upgrade at Unite earlier in the year and I wanted to see if there's any early reads from that and customer reactions and
any lessons you're learning? Yes, the product sale update hasn't hit yet. This is still coming out in the future. We're super excited about it. And generally, the scenario we are building up, point of sale is doing pretty well.
Marco, we have visibility in purchasing behavior where we don't see any indication of diminishing confidence. We have visibility in new business formation, which seems strong and it's not tracking in any meaningful way different from how it has through the last 10 years of a bull market. So we are not seeing anything coming from our side as everyone whose business recessions have now is they usually come from the side where you don't expect them from. So it doesn't look like our site. If something is happening, it doesn't look like our site is the thing that's causing it and is tracking ahead.
Helpful. Thank you.
Thanks, Yigal. Sure. Thanks. And I'll just remind everyone, as we are coming close to the end here to please limit yourselves to one question as we still have several people waiting to ask a question.
Our next question comes from Josh Beck of KeyBanc.
Thank you for taking the question. I wanted to ask about B2B. I think it's been approaching 6 months since you purchased Handshake. So any updates you can provide us on what the key strategic objectives are for you within that opportunity?
Yes. So, as you mentioned, we did acquire Hengshook about 6 months ago. It's an incredible team of people that been thinking more about modern wholesale, modern B2B, probably more than anyone else on the planet. Remember, the Plus historically had a very small B2B business. That was sort of we didn't necessarily go there.
Our merchants pulled us there. We were noticing that some of our merchants had a very successful and thriving retail business, but also we're looking to use Shopify for their wholesale and B2B business. We felt that although we could probably get there ourselves, we wanted to accelerate that. And we felt with the team over at Handshake, we'd be able to do that a lot faster. So again, we're still working together to figure out exactly what the go to market will be for that, what exactly the final product will look like for that.
But certainly, we have the greatest team, we think, on the planet thinking about modern retail and modern B2B and that will continue to grow over time. But it's not yet a material part of the Plus business or the Shopify business, but it does allow us eventually to get an entire different segment of the market to think about Shopify who currently we are not talking to. Very helpful. Thanks, Travis. Great.
Thanks, Travis.
Our next question comes from Brian Peterson of Raymond James.
Hi, thanks for taking the question. So just wanted to hit on the success you've had internationally. And I'm curious if the merchant ads you've seen, have those been more traditional Shopify merchants? Or have you also seen quicker than expected adoption for net new plus merchants as well? Any color on that?
Thank you.
Hey, I'll take that question. From an international perspective, the interesting part of that, our expansion there is it differs by different countries. In certain countries, we're seeing a lot larger merchants come on. They look a lot more like the Plus Merchant segment. They're coming out with GMV.
They have dozens of employees, if not more, working at their companies. In other segments, we're seeing very small merchants, very similar to what we'd see signing up for $29 plan in North America. So the neat part about our strategy there is that we actually tailoring our product and the go to market on a per country basis. And that's the reason why we need things like country specific and language specific applications. We need a partner ecosystem in each country that differs from other countries.
And obviously, languages, something we've been working on for a while. So we currently have Shopify now in 19 languages, and obviously, the diversification of the merchant base increases our TAM. So we're excited about that. The other thing that obviously, Hany had mentioned in her prepared remarks was that GMV from international is actually going faster than other segments and that's really great. And we still have not penetrated the international market with merchant solutions in the way we have in some of our core markets.
So that remains an opportunity in the future for us.
Great. Thanks, Brian.
Our next question comes from Samad Samana of Jefferies.
Hi, thanks for taking my question this morning. Amy, I think in your prepared remarks you mentioned level setting subscription pricing for legacy plans. I was wondering if you could maybe help us understand much legacy pricing there still is? What the impact of that was on the quarter? And maybe the philosophy around price increases now and what drove that?
Thank you.
Yes.
The migration to standard pricing is largely done now. And it was merchants legacy merchants that were not on our standard plans. And for simplicity, we just wanted to clean that up. And we called it out, the MRR growth would have been significant without it, but it did have about a 1 percentage point of growth year over year impact. So we wanted to call it out, but it is largely done now.
Great.
Thanks, Samad. Next question, please.
Our next question comes from Todd Coupland of CIBC.
Great. Just following up on the international questions, which countries did the best in the quarter? And how do you expect that to trend in the 4th quarter? Thanks.
So we've mentioned in the past, there are some countries we're focusing on places like Germany and France and Japan and other places like that. But in terms of doing best, again, some of them are areas and geographies where we're going to see merchant growth and other places we're going to see higher GMV growth depending on the type of merchants that we have there. But we're constantly we're taking a very nuanced approach to each country based on what they actually require and then trying to find product markets that based on that. So I wouldn't say there's any one country that is eclipsing every other one internationally.
Great. Thanks, Todd. Next question, please.
Our final question comes from Soudan Sukumar of 8 Capital.
Good morning. Just wanted to touch on POS. So historically, this has been more of a cross sell to your online merchant base expanding into offline. Given that you're now making more focused investments in the segments with the launch of the new platform and new hires, how do you anticipate evolving your go to market plan going forward here?
Here? So in terms of the point of sale go to market efforts, we now have a sales team around it. So we didn't have it in the past. Now this is mostly inside sales. So we feel there still remains significant low hanging fruit inside the platform, people that are already using Shopify, but may not be using us for point of sale.
And so that's where we're focusing. Now we are seeing some new merchants come to the platform just for point of sale. And as Toby mentioned earlier, as point of sale next rolls out in the future, we think that's going to be a very compelling reason to come to Shopify strictly for the POS product and then take more of our products. But right now, the majority of our sales efforts around point of sale are inside sales selling to our existing merchant base.
Great. Thanks, Sutan. Thank you. And then we'll hand it over to Toby for closing remarks.
Yes. So as you probably saw, like we also announced that we have now a 1,000,000 active merchants on the Certainly, didn't imagine to be able to say that one day. So this is kind of blowing my mind right now. I think here's an interesting thing. A lot of what's working about Shopify is two levels of, I don't have a good term for it, but it's more like, I would say, business model to customer needs harmony.
So I think Software as a Service as a business model is one of those things, which is, I think, a little bit underappreciated because here's what's going on. The vast majority of our customers are subscribing month to month. What that does is it keeps us as a company incredibly honest, right? Like they are talking to us. Like we are getting a ton of suggestions, ideas.
We are seeing a lot about reverted. E commerce, as Harley pointed out earlier that we actually have some data on the mobile question. Now that's 81% of all traffic is mobile phones and 71% of all orders compete on mobile. So think about that compared to 15 years ago, iPhone wasn't even out there yet, right? So what SaaS compels us to do is just really understanding what's happening and rolling out all these updates for everyone to appreciate then for free rather than making big like additional charges for this.
And so it aligns our interest with our customers. And I think this is a dynamic which forges software of just simply higher quality because again, there's no long term commitments that you can rely on. One zoom level down, this is like there's a similar dynamic around the B2C situation, right? Like our customers now selling without intermediation directly to their customers also puts them into direct conversation with their customers and they create significantly better products. And of course, that in a loop feeds back to us doing well as a company.
For those of you who have been on a bunch of these calls as far as I, at some point, mentioned that I had an investor who ended up not investing because they told me that the worldwide market for online stores was about 40,000 stores. So it's just amazing to zoom out and just see, hey, hear what happened, how many people are actually building successful businesses from every downtown area in every city to the most remote islands in the middle of Atlantic and it's just all of them integrating themselves perfectly into the global network of commerce. And it's just really, really gratifying. So there's some thoughts to leave you with and thank you for joining us.
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.