Good morning. My name is Matthew, and I'll be your conference operator today. Thank you. Katie Keita, Head of IR, you may begin your conference.
Thank you, operator, and good morning, everyone. We are glad you can join us for Shopify's second quarter 2018 conference call. We are joined this morning by Tobi Lütke, Shopify's CEO, Harley Finkelstein, our Chief Operating Officer, and Amy Shapero, our CFO. After prepared remarks, we will open it up for your questions. We will make forward-looking statements on our call today. These statements are based on assumptions and therefore subject to risks and uncertainties that could cause actual results to differ materially from those projected. We undertake no obligation to update these statements except as required by law. You can read about these risks and uncertainties in our press release this 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, not a substitute for, GAAP financial measures. Reconciliations between the two can be found in our earnings press release, which is available on our website. 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 delivered another quarter of strong results in Q2. In the quarter, we spent a valuable three days with partners at our Unite conference. We announced dozens of new features and capabilities, and we added more merchants than ever to Shopify Plus. In other words, we spent Q2 doing all the things that when executed well, produce continued strong results in the future. In fact, this month we hit a really special milestone. The one-billionth order was placed on Shopify. What's remarkable about this is the pace at which we've achieved this milestone. It took us more than 10 years to get to half a billion orders and just a fraction of that time to double it. This rapid growth is a testament to the strength of our platform, our Plus program, and our partner ecosystem. Let's start with our platform.
Several of the product announcements we made in the quarter are the result of work we started long ago, and we are looking forward to rolling them out to our merchants before the end of this year. A few of these key product announcements include multi-location, which enables merchants to track and update inventory across multiple locations. Fraud Protect for Shopify Payments, which helps merchants sell with greater confidence. The introduction of the tap and chip reader to transform in-store shopping experiences. We've already launched several of these products that were announced at Unite, including buy one get one capabilities and quantity discounts. We also launched Ping, our mobile app that consolidates merchants' business conversations with staff, customers, and even their AI employee, better known as Kit. Through Ping, merchants can now run their store and handle their marketing conversationally.
Finally, we launched Dynamic Checkout, which enables shoppers to quickly check out directly on a product page using their preferred payment method. This feature is expected to increase conversions by further reducing friction to complete a sale. All of these, along with other initiatives, are aimed at helping entrepreneurs on our platform sell more and work more efficiently. This will, in turn, support the continued growth of our merchant base and the expansion of GMV on our platform. Moving on to Shopify Plus. As I mentioned, Shopify Plus really knocked it out of the park in Q2. Four years ago, we invested in Plus to increase the flexibility of our platform for high-growth, higher-volume merchants, and the value of these investments is becoming more apparent than ever. Larger brands we welcomed to Shopify Plus this quarter range from consumer goods and clothing to sports gear and jewelry.
These include the diamond company De Beers, Reckitt Benckiser, which manufactures products like Lysol, Air Wick, Clearasil, and K-Y, high-end skincare, RéVive, Supra Footwear, which sells skateboarding footwear and apparel, and household names such as K-Swiss, SodaStream, as well as new shop launches from CPGs like Unilever. Highlighting our push internationally was the launch of a new shop in Japan by the internationally renowned brand, Comme des Garçons. We continue to improve the Shopify Plus merchant experience by enhancing support capabilities for these larger brands and by building more advanced enterprise features directly into our platform. Shopify Flow, for example, which was announced at last year's Unite, brought the power of automation to Shopify Plus. Connectors for Shopify Flow, which we announced at this year's Unite, expands these automation benefits to apps and services, allowing merchants to simplify workflows across the tools that they use every day.
We are also on track to release our multi-currency feature later this year for Plus merchants, which will allow them to sell in multiple currencies and settle in their local currency. Finally, our partner ecosystem. We held our third annual Unite partner conference in Toronto in May, an event that only gets better every year as a forum to collaborate and celebrate with our partners. With the rapid evolution of retail and Shopify's position as a retail industry leader, partners are becoming even more important to the merchant experience. More than 16,000 partners referred merchants to the platform in the last 12 months, and the number of apps in the App Store has grown to 2,500. Our continuous improvements curating these apps to ensure merchants find the right apps at the right time seems to be paying off.
Today, not only is a greater percentage of our merchants paying for apps than a year ago, per merchant spend on apps has also increased. Finally, we expect both partners and merchants will benefit from our discovery algorithms, which are central to the new services marketplace and the Shopify App Store 2.0. As you know, our partner ecosystem extends beyond theme, app, and referral partners. We recently announced a partnership between Shopify and Google to help make physical stores more secure. Shopify now offers Nest Cam hardware and Google Wifi routers in our hardware store to our more than 70,000 point-of-sale merchants. This gives businesses the ability to manage and monitor their physical locations centrally from the Shopify dashboard, further integrating a merchant's complete view and management of their business directly into the Shopify platform.
If any of you are in L.A., you can come check out all of our hardware in person in our new Shopify retail space, which will be open for business in Q4. The common thread connecting all of our partnerships is that Shopify is really delightful to build on, to work with, to support, and to recommend. Our view is that our platform is more of a retail operating system than a software suite, and we believe this is a key part of our sustainable competitive advantage going forward. In closing, we are on a long-term journey to build a holistic system that solves key challenges entrepreneurs face while starting and running a successful business.
While we still have a lot of work ahead of us, this quarter's progress demonstrates that we're moving in the right direction and that we continue to be well-positioned to lead, to inspire entrepreneurship, and to build a company that thrives over the years ahead.
Thanks, Harley, good morning, everyone. Shopify showed solid growth in the second quarter. We continued to execute on key initiatives and demonstrated the strength of our business model and the diversity of our revenue base. We grew our revenue in the second quarter 62% to $245 million. Within this, Merchant Solutions revenue expanded 68% year-over-year to $134.2 million, and Subscription Solutions revenue grew 55% to $110.7 million. GMV, one measure of our merchant success, expanded 56% to $9.1 billion. GMV growth, along with continued adoption by our merchant base of every one of our Merchant Solutions offerings in the quarter, drove the strong growth in Merchant Solutions revenue.
The amount processed on Shopify Payments reached $3.6 billion, an increase of 66% versus the comparable quarter last year. The percentage of GMV processed on Shopify Payments ticked up to 40%. This is the highest level of GPV we have seen to date, driven largely by Shopify Plus increasing its share of GPV. Revenue from Capital and Shipping, both higher-margin solutions, grew over 100% from last year. Subscription Solutions growth was driven primarily by monthly recurring revenue, which grew 49% and ended the quarter at $35.3 million. Merchant ads continue to be the primary driver. We are increasingly benefiting from a larger contribution from Shopify Plus merchants who continue to expand their share of MRR to 23% of total MRR or $8.1 million. This compares with 18% in Q2 of last year.
Shopify Plus platform revenue, which is the Subscription Solutions revenue above what we can consider to be recurring because it is linked to GMV, contributed slightly. The bigger contributor to the difference between recurring revenue and Subscription Solutions revenue was apps revenue, which more than doubled over last year's second quarter. Our adjusted operating loss in Q2 was approximately $4.3 million or 1.7% of revenue, compared with a loss of $2.9 million or 1.9% of revenue in the second quarter of 2017. Adjusted net income for the quarter was $2.5 million or $0.02 per share. This compares with a $1.1 million net loss or $0.01 per share for last year's second quarter.
Our cash equivalents, and marketable securities balance was $1.6 billion, consistent with our March 31st balance. Cash flow from operations was negative in the quarter due to the strong growth of merchant cash advances. This use of funds for MCA is just one example of how we have been putting capital to good use at Shopify. Diversification is critical to good investing, and this is something Shopify has in spades. This may be something casual investors miss, but our results in Q2 certainly highlighted this. Investments we made in past years, which diversified our revenue streams, are paying off. Shopify Plus had a fabulous quarter, and the resources allocated a couple of years ago to start Shopify Shipping and Shopify Capital also continue to show excellent results. This optionality is among the most exciting and also the most challenging issues facing Shopify.
Which opportunities do we stand behind and fully focus our efforts on? The three areas we carved out at the start of this year, our platform, international, and Shopify Plus, were the right ones, albeit with different time horizons. Harley has already spoken to the success in Shopify Plus, which has had the most time to establish itself and gain momentum. The investments in our platform, while not as obvious, are incredibly important to establishing a strong foundation for future growth. Our transition to the cloud, which we began to work on nearly two years ago, is now complete. While it was not without headwinds in the short term to our subscription margins, as this has been a major investment, this transition has made our platform faster, more adaptable to needs globally, and lets us innovate faster than ever.
In other words, it is a payoff we expect to benefit from for years into the future. A huge thank you and congratulations to this team and the many others that contributed. We will complete the decommissioning and depreciation of our remaining data center hardware this quarter and in Q4 begin to look for ways to optimize our costs in the cloud, which as you know, are slightly higher than running our own data centers, but which we believe are well worth the premium. Our efforts internationally have been deliberate and targeted. Two months ago, we released an early beta for Shopify in 6 languages: French, German, Japanese, Italian, Brazilian Portuguese and Spanish. Already, tens of thousands of our merchants have opted in, which is as easy as changing staff-level settings in your store. On track for launch this fall is our first local payment method for Shopify Payments.
Local payment methods offer buyers the payment options they know and trust based on currency and regional popularity, which vary greatly by region. We were already seeing a tailwind international merchant mix from our marketing initiatives in local languages last year and would expect the native language features to continue this momentum outside our core geographies. Like other investments, we would expect sustained payoffs from our efforts here to fully materialize over the next several years. This long-term thinking is behind the preliminary short form-based shelf prospectus we filed yesterday evening. Our original shelf expires this quarter. By filing, this shelf will retain financial flexibility over the next two years. Optionality is core to strategic success, and by keeping it sufficiently available, we mitigate the risk of losing out on important opportunities.
We have already put capital to work effectively in our opportunity-rich space over the past several years and fully intend to continue our favorable track record. To be clear, we consider this to be ordinary course of business given the pending expiry of our current shelf, and we have no current intention to undertake an offering. Given the strong top-line growth in the quarter, we are raising our revenue expectations for the full year and now expect to grow revenue at slightly better than 50% to between $1.015 billion and $1.025 billion. We are maintaining our adjusted operating income expectation, which is between breakeven to $5 million. For the third quarter, we expect revenue of $253 million-$257 million and an adjusted operating loss of $9 million-$11 million.
Stock-based compensation in 2018 is still expected to be approximately $110 million for the full year, with about $31 million of this in the third quarter. It's worth reminding you here that the base supporting our rapid revenue growth is broad, strengthened by new merchants joining our platform from entrepreneurs to larger brands leveraging Shopify Plus, greater merchant adoption of our services as well as those of our partners, and importantly, the growth of our merchants' own businesses, boosted by continued enhancements to our platform that makes selling easier. We believe that investing across this broad foundation supports a growth trajectory that extends well into the future. With that, I'll hand the call back to Katie.
Thanks, Amy. Before we turn it over to question and answer session, I'd like to remind everybody on the call today to please limit yourselves to one question. That way, everyone can get a chance to ask a question. Matthew, can we begin polling for questions, please?
Thank you. At this time, I'd like to remind everyone, in order to ask a question, press star, then the number 1 on your telephone keypad. Our first question comes from the line of Brad Zelnick with Credit Suisse. Your line is open.
Excellent. Thank you so much. I appreciate merchant count is something you disclose annually, but can you give us any sense of subscription dollars per merchant across basic, advanced and Plus?
No, that's not a disclosure that we are prepared to give on this call. We did see in the quarter a Subscription MRR per merchant stay largely within the same range that we've seen over the last four -six quarters. We did see an uptick in GMV per merchant, both quarter-over-quarter and year-over-year, if that helps.
Appreciate it. Thank you.
Thanks, Brad.
Our next question comes from the line of Colin Sebastian with Robert W. Baird. Your line is open.
Great, thanks. In terms of the shipping and capital acceleration, was curious if there are any underlying factors or drivers there on the business development sales side, or is that more of the natural output from, how that business began to progress last year? If you could add some color. Thank you.
Sure. It's Harley. I'll take that question. In terms of both shipping and capital, with shipping, we've added new partners to it, and we're just getting better at making sure that the right merchants are using the right products on our Merchant Solutions side. Same thing with capital. As you now know, we've optimized capital to be algorithmic-based. We're able to make a lot more targeted offers to our merchants at the right time for the right amounts and make sure that they're tailored to the specific needs of the merchant. In general, I think both of those products, penetration continues to grow. As we get smarter about figuring out who needs them and when they need them, you'll see that continue as well.
Thank you.
Thanks, Colin.
Our next question comes from the line of Monika Garg with KeyBanc. Your line is open.
Hi. Thanks for taking my question. Facebook changed its data sharing policies and Europe implemented GDPR in the quarter. Are you seeing any impact from that, or do you expect any impact from the same? Thank you.
Hey, thank you. This is Tobi. GDPR, like, we didn't see a lot of impact, honestly. Again, on our business, it doesn't have a lot of bearing. Like, our customers, our merchants' data has always been their own. You know, we did not have to change any policies. In fact, From a philosophy point of view, we have been Our opinion has always been that data is being taken a little bit too lax generally in the technology industry. We've held ourselves to very, very high standards, the GDPR set of regulations have, if anything, codified the approach we've taken all along.
When GDPR came around, we had to go ahead and make some changes not in spirit to the way we deal with data, but rather just sort of to comply with the precise lettering of the regulations. We were compatible with on day one, and our merchant base really appreciated that. One thing we do, which is probably what you're really curious about, is what we see in terms of impact because there's some marketing impact. Our merchants are place a lot of ads across different systems. We did look into this, and honestly, we did not see much change in terms of effectiveness of marketing. Now, we have limited visibility, so I can't say that for sure.
In terms of volume and advertising referred sales across the system, the impact was really minor, if there at all. Not much to report on that front.
Great. Thanks, Monika.
Our next question comes from the line of Gus Papageorgiou with Macquarie Research. Your line is open.
Hi. Thanks for taking my question. Just on Shopify Capital and shipping, both seem to be doing quite well, but it seems to me that you're still, these are still very limited regionally. I think Shopify Capital's only available in the U.S. and shipping only in Canada and the U.S. Do you have plans to roll these out globally? You know, what have been the barriers to do so? I mean, why is it taking so long to see these kind of roll out on a broader international basis?
Hey there. It's Harley again. Yeah, on the shipping one, certainly, as you know, one of our priorities for the year is international expansion. As we look to new geographies, not just with localized payment methods, but also localized translation and things of that nature, things like shipping providers will also come eventually come as well, and that's something we're exploring. On the Capital side, we're really trying to get it right. We think that it's really important that we do this properly, we're not just arbitrarily rolling this out to geographies where we don't feel like we have a real understanding of the markets.
I think you'll continue to see international expansion with things like payments and shipping and also Capital, all those great Merchant Solutions, but it'll be done in a very deliberate way, which is just really how we do everything at Shopify.
Do you just have a sense of timing for Capital? Do you think by year-end or next year that you'll be able to be more comfortable rolling it out globally?
That's not something that we're going to disclose at this point.
Okay. Thanks for taking my question.
No problem. Thank you.
Sure. Thanks, Gus.
Our next question comes from the line of Ross MacMillan with RBC Capital Markets. Your line is open.
Thanks so much. Payment volume ticked up as a % of GMV, and it had been pretty constant for a few quarters. I just wondered if there was anything to call out here, 'cause it feels like most of the international opportunity is still ahead of us. You didn't really open the spigot on new markets this quarter. Was there anything else that was impacting that and caused it to tick up as a %? Thanks.
You're right in that the payment penetration increase largely came from Plus in this quarter. We did introduce payments in a couple of new markets in the quarter internationally, Japan and Hong Kong, but they had minimal impact on this quarter.
Thank you.
Thanks, Ross.
Our next question comes from the line of Terry Tillman with SunTrust. Your line is open.
Yeah, thanks for taking my question. It's a question about the Shopify Capital and the cash advances. Can you give us any kind of update in terms of correlation of when you're giving out these cash advances, seeing a direct correlation with improvement or accelerating GMV from those customers and/or their aptitude to move to a higher price point software SKU? Just trying to understand the returns you're seeing. Thank you.
Yeah. Sure. I mean, this is why we do it, right? Like, this is exactly the kind of Like if you would go into the part of the teams that are working on these products, the dashboards that are hanging in there are all related to general business success metrics rather than, you know, factoring rates and all these kind of things. Okay, I don't wanna give the impression we're not looking at those either. It's the reason why we started the product was really that, you know, just re-acquiring capital, it was one of those barriers to entrepreneurship that we just really wanted to simplify. I can't give you hard numbers and frankly, they are also very much in flux. They are massively seasonal.
They depend very much on industry. There's a lot of different kind of requirements that people need the money for. We do see, and our surveys show and the conversations we have, like we have and specifically I have with my customers, is that the vast majority, it just goes in inventory. People usually use it to do a higher commitment on the products purchases, and therefore get better rates, increase their own profitability. In many cases, the factoring ends up being completely revenue neutral to them, and this is why it's such a successful product.
Great. Thanks, Terry.
Our next question comes from the line of Darren Aftahi with Roth Capital Partners. Your line is open.
Thanks for taking my questions. Just with the completion to the cloud over, can you just give us a sense on the cadence for gross margins for the rest of the year? Thanks.
Yeah, sure. Let's start with the 2nd quarter performance. As we had indicated on the last call, it would be impacted by the migration to the cloud, which it was. We have subsequently completed migration of our customers over to the cloud, which was a huge milestone, and we now in the 3rd quarter expect to just be finalizing elimination of duplicative costs and accelerated depreciation on our servers as we decommission. We expect to be largely completed in the 3rd quarter. Subscription margins will be impacted again in the 3rd quarter. We expect comparable subscription margins to the 2nd quarter. As we exit the 3rd quarter and into the 4th quarter, with all of that behind us, we expect a sequential increase in subscription margins.
Thank you.
Thanks, Darren.
Our next question comes from the line of Jesse Hulsing with Goldman Sachs. Your line is open.
Yeah. Thank you. Tobi, or maybe Harley, this is a question for you. I'm wondering if the cost of advertising on Facebook or other social media goes up or becomes less effective, what impact do you think that has on your merchants and I guess the health of your business? Have you thought about ways to help merchants find their customers in other ways? Thank you.
I mean, you talk, like you're talking about the actual increase of costs of your marketing that's going on, or probably the hypothetical of this continuing forever. It's hard to know, like the internet so far has been exceptionally good at coming up with new advertising surfaces, which then allows the, you know, some kind of bounds to the cost of every particular ad. Now, you know, internet, like Facebook's clearly running out of humans on the planet in terms of increasing, you know, these surfaces. Like, this is the kind of questions we kind of have to ask ourselves now.
I think the reality is that because so many of our customers are makers, they end up having fairly high margins because they're the only people who sell the products and so on, and they are really, really good in an advertising future that might turn significantly more expensive. That being said, a lot of what's marketing in general has also really shifted to some other forms that actually aren't Like that have completely different economics. I mean, if you look at the Forbes cover right now, it's Kylie Jenner there, right?
We've talked about this before, like she's built in three years, a $900 million business, which is just, I mean, it's absolutely unprecedented and crazy. There was not a lot of advertising spend. The entire company is a team of eight, right? Now they did it with had the luxury of doing sales influencer marketing, which is not available to most people, but the category is available with another form of getting the word out. I think people are too crafty to really let themselves limit if there's, if some advertising source dries up, another one will be found. In fact, things have been shifting significantly away from purchase ads in many product categories.
I think you'll just see people become a little bit more entrepreneurial along those lines.
Would you consider making a marketplace for your merchants?
I'm always gonna consider it, and I've done it many times before unsuccessfully though. You know, if you would've come to shopify.com, in let's say 2007, which seems like about 100 internet years ago now, it was a marketplace back then. The reason why we stopped it back then was we were a fairly small company. We really, really needed focus to building just the merchant operating system that we talk about now happens to be a dedicated pursuit for a even a public company of our size. We luckily recognized this and stopped the efforts.
Interestingly, a marketplace is something that really only, like if you, if you think about it, there's really one per decade, if even that really makes it become something that people go to. It requires a whole lot more luck than execution. It usually happens around a time of a significant technology switchover. We might participate, but I think the problem is that marketplaces also exist at a different timescale than I think what we are sort of aiming at. Like for instance, and this is sort of our go-to example, right?
With our multi-channel strategy five years ago, maybe 10 years ago at this point, MySpace would've probably been the kind of marketplace that we really have to push hard and then of course that went away. I think our position with being neutral, like as in not having an own marketplace, and therefore having a very easy way in and easy way to talk to all the people who do happen to have marketplaces like Pinterest, Instagram has the marketplace right now, makes it so that we can actually integrate all of them and help our customers in, in that way.
We think about it a lot, but it's, it is unlikely that it's the right move for the company. Now that doesn't mean we have to completely sit on our hands in terms of, you know, helping our customers with marketing. You know, I already said when doing the Kit acquisition that we are very interested in, especially marketing simplification because it is just very difficult. Like if you use the Google AdWords interface in its normal mode, you really need a PhD in AdWords to even use this thing, right? That's the kind of, that's one of those barriers.
The industry itself is trying to make it a little bit more beginner friendly, but this is something we can partake in. As we get people to get comfortable spending money, getting return on investment on these kind of things, I think we help people greatly in their early days. They're off to the races.
Great. Thanks so much, Jesse.
Our next question comes from the line of Deepak Mathivanan with Barclays. Your line is open.
Hey, guys. Thanks for taking the question. Merchant Solutions gross margin was only up, I guess, around 170 basis points, despite shipping and capital being strong during the quarter. I know last quarter you benefited from timing of certain one-time items. Can you talk about what drove leverage or, you know, less than leverage compared to last quarter this time? Should we expect the leverage levers going forward to be around, you know, what we saw in Q2? Thanks.
On Merchant Solutions gross margin quarter-over-quarter, you're correct. There were one-time items in the first quarter. Subtracting or excluding that, most of the lift did come from Shopify Shipping and Shopify Capital. Shopify Payments probably saw a little bit of a decline because of on the margin side because Shopify Plus was such a big component in the second quarter. They get a reduced rate on Shopify Payments. That definitely played a factor. With respect to the remainder of the year, we're continuing to keep our guidance the same.
We said that every quarter in 2018 would be higher than their comparable quarter in 2017, but not to the extent that we saw in the first quarter because of the one-time items. We do largely expect that lift to be driven by shipping and capital.
Great. Thank you, Deepak. Next question, please. We have a question from Thomas Forte with D.A. Davidson. Your line is open.
Great. Thanks for taking my question. I appreciated the comments on the updated shelf, but was hoping you can give us an update on what your current M&A strategy is. Thank you.
Hey there, it's Harley. Similar to what we've always said, we are very careful and deliberate about M&A. We've done a number of deals that have added a ton of value, not just to our company, but also to the value we give to merchants. We continue to evaluate that, but I wouldn't tie the two together. The shelf is filing a shelf is paperwork that we have to do, we're diligent about that, but I wouldn't necessarily tie the two together.
Yeah, I'd like to just add.
Thank you.
I'd like to just add a couple of comments while we're on that topic, just to be clear, in addition to my script. In Canada, shelf registration statements expire after two years, and our current shelf was due to expire in early September. We renewed at this point in time a little earlier than the expiration because we wanted to have the opportunity to discuss it directly on this earnings call. I wanna emphasize we have no intention of an immediate offering. Unlike the U.S., where there's no fixed dollar amount required for a shelf, under Canadian law, we must enter a dollar amount. It makes sense for us to maintain flexibility. The amount is commensurate with the growth in our market cap, and it's consistent with Canadian comps.
Great. Thank you.
Thanks, Tom.
Our next question comes from the line of Kevin Krishnaratne with Paradigm Capital. Your line is open.
Hi there. Good morning. Just a question on international. Can you talk about the opportunity for Shopify Plus internationally? What do you think the TAM is there? How are you addressing that opportunity? You've been seeing Shopify Plus MRR disclosed moving up to 23% of total MRR. How early are we on that metric when you're looking at international markets only? Thank you.
Hey there, it's Harley. I'll take that question. It's important to understand that international growth, and our international expansion plans, just like Shopify's overall journey, is gonna be a long-term endeavor. We've obviously been at this for a long time in our core geographies, more than 10 years, and so we understand what those growth drivers are. When it comes to international, we're still working through to figure out what are the best growth drivers for us, whether it's through partnerships or it's different advertising methods to get new merchants. To your question on Shopify Plus, in certain geographies, Shopify Plus' offering lends itself really well to that, to the nuances and the cultures of those geographies.
You know, for example, we have brands like Mercedes-Benz in India on Shopify Plus, which we've said a couple quarters ago. In some geographies, as we expand, we will naturally and organically see some really great uptick in Shopify Plus adoption. But that's gonna be dependent on the specific geography itself. But we're excited about international. We're, again, we're still sort of in the first inning of the game and maybe just kind of just getting started to figure out what works and what doesn't. Again, it's not just about language. It encompasses different cultural nuances of how people shop in those places. We don't just wanna go ahead and translate language and leave it at that.
We actually wanna make sure that we truly have product market fit in each geography that we enter into.
Great. Thank you, Kevin.
We have a question from David Hynes with Canaccord Genuity. Your line is open.
Hey. Good morning, guys. Thanks for taking my question. Maybe for Tobi or Harley, I wanted to ask about the acquisition of Magento. Obviously Adobe is a firm with pretty broad reach, so just curious for any comments how you see that deal impacting your opportunity.
I mean, That's always a good question, you know, how to approach this. It's like if I just sort of say like, I mean, Magento hasn't been that big of a factor, right? I mean, the biggest like Magento comes up a lot at the Shopify offices as a sort of latent potential acquisition source for Plus customers. I mean, this is the context we usually talk about. There isn't strength in the product.
There's no like the Most of the reasons why someone would use Magento over Shopify are because of sort of internal politics and poor decision-making, frankly, or misguided ideas about wanting to do your own hosting for e-commerce, which I do a lot of hosting for e-commerce, and I can tell everyone they should not want to do this. It's quite tricky. What do I think about this? I mean, like it's interesting that everyone's being picked up around us, right? This happened sort of with Demandware, too, just a short time earlier. These are pieces of software that were written in another decade. They are, I don't think adequate for the modern internet.
They don't solve the real challenges that merchants have. You know, if you talk with the people who are running these kind of stores, you usually hear a lot of conversations about how re-platforming and so on. Now Adobe is a company I admire greatly. They have a lot of free cash flow. If they are willing to pump it all in or much of it into Magento, maybe something interesting could come out of it.
I would actually frankly welcome a strong competitor of some kind because it's usually good for a market if people compete and, you know, like we are having fun sort of increasing our internal bar for quality and, you know, trying to, you know, get better and better every day. It's really hard to create internal urgency around these kind of things if there's no one else who sort of at least looks a little bit dangerous. That might be fun for everyone. I don't know. I can probably keep going and talk about another 50 irrelevant things about Magento. I think the main message is I don't think it matters much.
Yep. Okay. Helpful follow up. Thanks.
The only thing that I would add, the only thing I would add to that is we've been, you know, you mentioned sort of the Plus merchant acquisition through Magento. We've been at that for quite a long time. Same thing with the Magento Gold Partners. We've been trying to get as many over to us as possible. A lot of the low-hanging fruit that we had in the early days, we've already seen. We continue to see migrations from Magento and Magento partners moving on to Shopify Plus. A lot of that, a lot of the major migrations we saw had happened already, so that won't really change much for us.
Thank you.
Thanks, DJ. Next question, please.
We have a question from Nikhil Thadani with Mackie Research Capital. Your line is open.
Oh, hey. Thanks, guys. We've all seen the recent headlines about tech hiring in Toronto and Canada picking up. I was just curious how that impacts your growth plans, if at all. Thanks.
Yeah. I, the headlines exist because, I think everyone's woken up to the opportunity. Like, I mean, people probably also looked at Shopify as like, why the heck did this thing work as well as it did? Realized we've been recruiting out of talent pools that are completely underappreciated, right? You know, Toronto, like all our cities, recruiting, I mean, is getting more competitive, but these are also incredibly deep talent pools and incredible places to build companies at. Frankly, I think in all the cities we have offices, we are the best employer in that particular geography. Therefore, you know, this all works to our advantage in the end.
Great. Thanks, Nikhil. Next question, please.
We have a question from Brian Essex with Morgan Stanley. Your line is open.
Hi, good morning. Thank you for taking the question. I guess I just had a question on, you know, some of the nuances around, you know, changing and pricing arrangements for Shopify Plus. Curious to the extent that the removal of the cap on Shopify Plus on January 1st, how did that impact the model? How should we think about that going forward in terms of, if it didn't really impact the quarter, where do you see upside, and in what categories going forward?
Yeah, I mean, the reason we added the cap in the first place was obviously when you change pricing as we did last year to the new pricing model, we wanted to ensure that our merchants can sort of ease into it and made sure that they were able to digest it. We thought that having a cap there provided us with a little bit of an easier way to introduce a new pricing model. We feel at this point now that for all new merchants that are coming on and obviously merchants that are expiring on their contracts, that are renewing their contracts, that the cap is just no longer necessary.
In many ways, the removal of the cap is more forward-looking and future looking in terms of if we have a merchant that comes on now that is going to sell, you know, a lot of products and increase a lot of GMV, we want to make sure that we share in that upside, and this removal of the cap does exactly that for us as well. I wouldn't say that the removal of the cap has been a massive driver for us to date, but it really does future-proof our pricing model for Shopify Plus to ensure that we consistently share in the upside going forward.
Thanks. Any merchants in particular?
We don't comment on individual merchants.
No.
Thanks, Fick.
I was going to say any merchants in particular, like just in general, have, you know, acceleration in the fees that they pay as a result of the removal of CAP?
Well, most of the merchants are on a contract, right? When the contract expires, they'll be renewed on the new pricing model.
Got it. Thank you.
Thanks, Brian.
Our next question comes from the line of Suthan Sukumar with Eight Capital. Your line is open.
Good morning, guys. Just a question on the B2B opportunity. Can you update us on the progress you are making or you're seeing with the B2B wholesale opportunity? How has that been driving adoption with existing and new Plus merchants? Thank you.
I mean, the way to think about the B2B and the wholesale channel for Shopify Plus is really for some, for a few merchants, it's really, really important. I don't think it's gonna be a product that we use across the larger user base and merchant base of Shopify Plus. It'll be for some specific merchants, it'll be very, very important. What we like about it, however, is that it further increases our total addressable market because now we can go after larger brands and high volume retailers that are doing wholesale that traditionally wouldn't have been able to do that before. Certainly we have merchants that are using it, and the ones that are using it are quite happy with it.
It is, it's still, the functionality continues to evolve on it. We're still adding new features and functionality, as we go and as we learn about the nuances of B2B wholesale selling, which is something fairly new to us. Again, the way to look at it is that for a few merchants, it's really important, but it will not be something that will be used broadly across the Plus merchant base.
Great. Thank you, Suthan.
Thank you.
Next question, please.
We have a question from Todd Coupland with CIBC. Your line is open.
Good morning, everyone. I got the explanation on monthly recurring revenue shifting to Plus in the quarter, but at a 49% growth rate, that's the slowest growth we've seen in that line in quite a while. Can you comment if there's anything else going on there? Thanks very much.
We think our almost 50% MRR growth is pretty solid performance and was within our expectations. We don't expect MRR growth to accelerate every quarter. Our Q2 results indicated our growth drivers are varied and strong. We continue to add merchants at a healthy pace. Shopify Plus added a record number of new merchants in the quarter. Merchant mix did play a factor in Q2. Merchants continue to expand their GMV. The percentage of merchants adopting Merchant Solutions grew across the board, payment, shipping, and capital being the key drivers. We really look at it as the totality of this strong business model, and that's what allowed us to increase our revenue forecast for the year.
Thanks, Todd. Next question, please.
We have a question from Ronald Bookbinder with IFS Securities. Your line is open.
Good morning. Thank you for taking my question. The market seems to be concerned about churn and that you could possibly run out of potential merchants. Isn't it true that entrepreneurs just aren't one and done type of people, that the entrepreneurs will have multiple websites, as they continue to try and figure out what works for them? Similar to like, Wayfair started off with 240 websites before consolidating down to one . What do you think is the average number of websites each entrepreneur has on your platform?
I love the question. You're exactly right. Again, the very entrepreneurial process is, you know, start up a bunch of things and then figure which one gets the traction and then hopefully go all in on that one, right? And involves a series of pivots and changes. I mean, this very business used to be a snowboard store, right? We, you know, here's a, I can't give you good numbers around it. Like we, of course, we have internal estimates on it, but it's lossy because the way Shopify, like probably one of the regrets I have when I wrote the initial version of Shopify is that I didn't really anticipate this sort of creation and trial.
What I didn't do is allow people to create one account under which you could create any number of stores and sort of track them against each other. If I had a time machine, this would be one of those little changes in the data model that I would have done. We will retrofit this. This is something we've already said we would do at Unite. Once we do that, we will have a much better idea because we kind of really can sort of track the entrepreneurial process across different attempts. This is like, you know, the churn, there's a lot of focus on it. This really, like, we haven't found the right language to describe why it's simply not a problem.
Like, for instance, like churn in almost universally is actually the successful discovery of something that didn't work. It's a building block in this process towards, you know, being successful, creating something just as you said. In fact, this actually isn't even so concentrated on the very beginnings. What we also see is that, the, even with a Plus store, they would add a new product line, maybe a new, like let's say a fashion store adds a new collection.
This goes into the main store, what they will do is actually create a completely separate account, a separate site just built around the one collection as a, you know, almost a landing page for their marketing campaign for some kind of real-life activation and so on. Even that process continues throughout the line. It's an interesting component, and it's one of the reasons why, you know, just looking at Shopify purely through units, is a very lossy picture. I'm violently agreeing with you is what I'm saying.
Okay.
All right.
Thank you very much.
Thank you, Ron. Next question, please.
We have a question from Brian Peterson with Raymond James. Your line is open.
Hi. Good morning. Thanks for taking the question. I wanted to hear on the go-to-market motion for Shopify Plus. You know, obviously we've seen the partner channel expand quite a bit, what inning do you think we're in in terms of addressing established relationships with potential partners? Maybe give us an update on hiring plans for the Shopify Plus sales force. Thanks, guys.
Yeah, I mean, on the sales, I'll start with the sales part. You know, we continue to add new sales hackers to the Shopify Plus team every quarter as we have in previous quarters. That will continue. We're hiring some really wonderful people that we think can help us, you know, move the needle there. In terms of other channels, you know, with maturity or more maturity with Shopify Plus, we're now, you know, four years out since we started, launched it in 2014. We're now realizing which channels work better than others. Certainly, the types of partners that we have that are referring merchants to us are not the type of partners that we traditionally saw on Shopify, these sort of, you know, ten-person agencies.
We're now seeing 300 person agencies that are now becoming wonderful channel partners for us and that are referring new large-scale merchants to Plus. We're also, you know, utilizing things like trade shows, which are something that traditionally Shopify had never really done. In the enterprise commerce world, that is something that is really effective. I would say that we've matured our strategy beyond just sales hackers to have a multi-pronged strategy from partners to in-person selling, and that's working really well for us. As we continue, we're always gonna uncover new opportunities. Again, you know, we still see those upgrades coming from people that started on Shopify just a couple years ago as a small little shop at a coffee shop.
We're still seeing those upgrades come to Shopify Plus as well. I think the mix of where we're getting these Plus merchants from continues to develop, and it's a really exciting part of our business.
Great. Thank you, Brian. Next question, please.
We have a question from Jonathan Kees with Summit Insights Group. Your line is open.
Great. Thanks for taking my question. My sole question will be regarding your three priorities, the platform, international, and Shopify Plus. I guess to me, those sound like separate investment endeavors. I kind of want to pull into some of the comments you've made in this call as well as in the previous earnings call. Can you talk about in terms of how you're, how the investing is going to go for each of these priorities? You, in the previous call, in the last earnings call, you talked about for Shopify Plus, you're looking to hire about 500 salespeople for that the next couple years. You know, you just mentioned for the international, that's a long-term endeavor. You've raised the guidance for this year, kept operating margin the same.
I guess beyond 2018, how do you look in terms of the spending for each one of these priorities? You know, ideally, if you could talk about in terms of sales marketing versus R&D and that kind of stuff, if it's still gonna be I'm assuming both are still gonna be pretty rapid growth. You know, if you can do a comparison between one versus the other, that'd be great. Thanks.
I'll kick it off here. You know, I, they're all three , you know, incredibly important, as we've talked about historically. I think what you're just saying, though, you know, I, well, I expect the investment will continue to be significant in each one of them and some other growth areas. But they do have slightly different time horizons in how to think about them. You know, Plus we started investing in several years ago and is paying off in spades now as you saw in the second quarter. But we also see continued opportunities there both on the product R&D side and sales and marketing. The information that you talked about, the 500 adds is incorrect. We've never stated a headcount number.
We are investing in sales and marketing capabilities, both in our core markets and internationally for Plus because we see a very exciting opportunity there going forward. On the platform, you know, we've just finalized the cloud migration, which we said was incredibly important for us in terms of growing into the future. It provides more flexibility as we grow internationally than if we had our own data centers, and it allows us to introduce product faster. There will be continued investments in the platform as we, as we move forward, some of them that we've announced later this year in multi-location inventory and things like that, and we'll continue to grow and evolve our platform over time. With respect to international, I would say those investments are a little bit earlier stage.
We're just now rolling out additional features and functionality as we've talked about on the script. We see a lot of exciting opportunities there, but international is challenging. Each market is slightly different with different regulations, different go-to-market strategies, with partners and different payment methods, et cetera. So that will take time, and as we've said, those investments will continue well into the future, and we expect those payoffs to be measured in years, not a quarter or two. We see a lot of exciting opportunity, continued investment into the future, because the growth opportunities are enormous.
I'll just pipe in there, Jonathan. I think you're thinking about the Waterloo office expansion, 300 to 500 people over the next few years is probably where that came from.
Okay.
Thanks, and I think we have time for-
Great. Thanks for the clarification.
Sure thing. We have time for one more question.
Our last question will come from Justin Furby with William Blair. Your line is open.
Great. Thanks for sneaking me in. I guess just for Harley, the Google partnership, can you give a sense of did you approach them? Did they approach you? What drove that and sort of the monetization for you guys that did that? Then Amy, one of the metrics that we look at is sort of the incremental MRR you add quarter-over-quarter and compare that to the year-ago period. It looks like that metric was a little bit negative for the first time in terms of new bookings growth. I'm just wondering why that is and maybe if that's not giving us the real picture in terms of subscription bookings. Thanks.
Hey there. I'll start with the Google question. We're not gonna sort of get into where these partnerships come from. We work with the largest and some of the greatest companies around the planet constantly. They, we have a lot of partnerships. The reason that we thought the Google partnership in particular with the hardware was important was because Shopify, we fundamentally want to be the heart of the business for our merchants, and we feel like if even if those, you know, if those brick-and-mortar merchants and the POS users of Shopify are able to monitor actually their physical stores directly from Shopify, it further makes us the center and the heart of their business, which we think is really important.
We think it just makes sense for everyone, and we're quite happy with it.
With respect to the MRR added in the quarter, which I think is what the question was relating to, you know, I go back to what I said previously in another question, that we think our growth in the quarter was solid performance. We don't expect to accelerate either added MRR or MRR growth every quarter. There's puts and takes in our model and varied drivers of growth that will hit at various times, and we're confident in the overall business model to continue to produce strong growth into the future.
Okay. Got it. Thank you.
All right. Thanks so much, Justin. Thanks everybody for joining today's conference call.
This concludes today's conference call. You may now disconnect.