Good morning. My name is Kelly, and I will be your conference operator today. At this time, I would like to welcome everyone to Shopify fourth quarter 2017 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question at this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Katie Keita, you may begin.
Thank you, operator, and good morning, everyone. We are glad you can join us for Shopify's fourth quarter 2017 conference call. We are joined this morning by Tobi Lütke, Shopify's CEO, Harley Finkelstein, our COO, and Russ Jones, our CFO. After prepared remarks, we will open it up for your questions. We will make forward-looking statements on our call today, statements that are based on current assumptions and 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. Information about these risks and uncertainties is included in our press release this morning, as well as in our filings with regulators in Canada and the United States. 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. I turn the call over to Harley.
Thanks, Katie, and good morning, everyone. 2017 was undoubtedly our best year yet. Not only because it was another year of exceptional growth, it was also a year of immense learning that led to a lot of progress. Progress across our product lines, progress geographically across the globe, and progress on how we do things internally across our organization. I couldn't be more proud of the team at Shopify for all the growth we've accomplished together in what's been a formative year, capped off by another successful quarter. Our number one priority in the fourth quarter, as with every fourth quarter, is to do everything possible to power our merchants through their biggest selling season. Many of us at Shopify have been immersed in commerce ourselves, and this helps build incredible empathy and know what our merchants need to thrive.
We go to great lengths to make sure our merchants have everything they need to be successful, either by building it ourselves, enabling partners to build it, or by connecting merchants to those with the expertise. I believe that there is no other platform in the world that cares as much about merchant success as we do at Shopify. This is why Shopify is doing well, because we make it possible for our merchants to do well. We saw proof points of this across the business in the fourth quarter, from our platform to our partner community to Shopify Plus. Let's start with our platform. For the past three years, we've continued to build new ways for merchants to expand their footprint by selling anytime, anywhere.
Two years ago, less than half of our merchants were using more than one channel to sell, and this past quarter, that number is closer to 60%. When you think about where consumers are spending more of their time, on their mobile devices, on their desktops, on social networks, on apps, and on a variety of marketplaces, our focus on enabling multiple sales channels makes sense and ensures our merchants can find new customers wherever they may be. Given these trends, it is not surprising that this past holiday season was the biggest ever for e-commerce. Shopify merchants helped make this happen, selling over $1 billion of GMV in the four days of the Black Friday to Cyber Monday weekend. Industry estimates are that 1/3 of e-commerce revenue on the 2017 Black Friday/Cyber Monday weekend came from mobile devices.
Compare this to Shopify's order volume from mobile devices in the fourth quarter, which was nearly twice that at 61%. You can see that Shopify is best positioned to help our merchants meet these new consumer shopping habits and trends. Efforts we made to facilitate better conversions and transactions on mobile underpin our leadership position here. Shopify Pay is a great example of this. Shopify Pay streamlines the checkout process, especially on mobile devices, by allowing consumers to bypass inputting their billing and shipping information after they've completed it once and opted in via any Shopify merchant using Shopify Pay. Since becoming available to all merchants using Shopify Payments eight months ago, Shopify Pay has facilitated over 5 million transactions for more than 2 million consumers.
Add to this the millions of transactions streamlined by Apple Pay, which our merchants can also offer, it's easy to see how shopping on mobile is becoming increasingly attractive. There's lots more to come. From Apple's ARKit, which we used to build an app that allows consumers to view items for sale in their homes using augmented reality, to Frenzy, our app that turns a product release, also known as a product drop, into an experiential phenomenon. These are just two examples of the many future possibilities mobile holds that we at Shopify are intent on unlocking for merchants everywhere. Being a merchant in the twenty-first century brings a whole new set of challenges and opportunities that we are excited to meet and explore. Shipping is one of these, in the fourth quarter, we added UPS to Shopify Shipping's partner lineup.
As with sales channels, optionality for shipping is important when serving a merchant base as varied as ours. This variability among our merchants is why our partners are so important. We want our software to do everything for merchants while keeping the user experience as seamless and effortless as possible. This means capturing domain-specific innovation and expertise from each partner in order to offer up the best available solutions to meet any one of our merchants' particular needs. The number of apps available to merchants in our App Store grew to 2,300 by year-end, and app spend per merchant continued to increase in 2017, indicating that we are offering increasingly relevant apps and making them more easily available to our merchants. Surfacing the right apps at the right time becomes even more important as the number of apps in the Shopify App Store continues to grow.
With machine learning, our algorithms for achieving this are getting better all the time. We're also improving the way our merchants find partners like setup specialists, designers, developers, marketers, and photographers to ensure that the process of getting the right support is easier than ever. Of course, many of these partners also send new business and new merchants our way. In 2017, more than 15,000 partners referred merchants to Shopify. As our platform adds functionality and our partner community grows, we are able to bring on more merchants who are able to sell in more places and save time with more capabilities. This same formula is working for Shopify Plus. We ended 2017 with approximately 3,600 merchants on Shopify Plus.
We welcome brands ranging from the healthcare industry, like the infant formula Enfamil, to apparel brands like Jockey and Lolë Yoga. We are also bringing on celebrity brands like Elle Macpherson's fashion line and a headphone line from Cristiano Ronaldo. At the same time, we are excited to bring more established brands to Shopify Plus, like FAO Schwarz and Polaroid, and even industrial heavy weights like Cummins Engine Company and Ford. Both our sales team and our growing Plus partner network contributed to this growth. As we predicted, the majority of new Shopify Plus merchants added in the quarter were brand new to the Shopify platform. From what started out as an experiment four years ago to approximately 350 people today, consisting of sales, sales engineering, merchant success, and developers, it has been incredibly fulfilling and a lot of fun to build out this part of the business.
We're excited to continue fueling the growth of Shopify Plus in the years ahead, as it will be a primary investment area for us in 2018. As those of you who have followed us for a long time know, we created Shopify Plus to give merchants who'd grown to be large businesses on the platform a more hands-on service level as they required more sophisticated functionality. In the early days, this meant a dedicated account representative, lower rates on payments and shipping, and access to certain features. While excellent service is still a critical feature of Shopify Plus, today more than ever, the team is focused on building more advanced enterprise features into the platform. We've always believed that if software can solve a problem, it should, and as Shopify Plus grows, so does the business case for expanding its capabilities.
This is, of course, in addition to, and not instead of, expanding our footprint with small and mid-sized businesses and investing in our partners. With that, I will turn it over to Russ to cover the financials.
Thanks, Harley. I'll second Harley's assessment of 2017 as our best year yet. Yes, because of the excellent growth in every sense of the word, and also because we achieved both adjusted operating profitability and positive operating cash flow for the full year, thanks to a very strong fourth quarter. In the fourth quarter, revenue expanded 71% year-over-year, nearly the same pace as in Q3, to $222.8 million. Subscription Solutions revenue grew 67% to $93.9 million. Monthly recurring revenue grew 62% and ended the quarter at $29.9 million. We ended 2017 with more than 609,000 merchants on the Shopify platform.
Subscription Solutions revenue growth was about five points higher than the monthly recurring revenue, reflecting the faster growth in Apps revenue, as well as the seasonal impact of the variable component of Plus pricing, which does not get reflected in recurring revenue and which was not a factor in last year's fourth quarter. Even so, Shopify Plus merchants continue to expand their share of monthly recurring revenue to 21% of overall MRR or $ 6.3 million, compared with 20% of MRR or for Q3 of 2017 and 17% a year ago. Merchant Solutions revenue grew 74% to $ 128.9 million. The addition of new merchants selling on the platform, double-digit GMV growth for existing merchants, and incremental revenue from Shopify Shipping and Shopify Capital, which are still ramping, all contributed.
GMV grew to $9.1 billion, up $3.6 billion or 65% from last year's fourth quarter. Of the $1 billion in GMV over the Black Friday and Cyber Monday weekend, we had peak volumes of up to $1 million in sales per minute. The enormity of this from a platform standpoint cannot be overstated, and we are very proud of our infrastructure and support teams that made this holiday period such a resounding success for our merchants. Of the $9.1 billion of GMV transacted in the quarter, 39% was processed on Shopify Payments. This is the same percentage that we did in the fourth quarter of 2016 and a higher percentage than in Q3.
While the share of GMV from countries where Shopify Payments is not offered continued to tick up in the fourth quarter, merchant and GMV penetration in each country where Shopify Payments is offered grew even faster. Gross profit dollars again grew faster than revenue, up 78% to $121.1 million, versus $68.1 million in Q4 of 2016, reflecting the positive impact from higher-margin merchant solutions such as shipping and capital. Our adjusted operating profit in Q4 was $11.6 million or 5% of revenue compared with a loss of $0.8 million or 1% of revenue in the fourth quarter of 2016. The adjusted net income for the quarter was $14.7 million or $0.15 per share.
This compares with a $ 0.4 million net loss or $ 0.00 per share for the fourth quarter of 2016. Finally, our cash equivalents and marketable securities balance was $ 938 million, compared with $ 392.4 million at December 31st, 2016. At the start of 2017, I don't think we could have predicted the strength of merchant adds. As we emphasized last quarter, many different kinds of merchants use Shopify. This means our addressable market is not limited to merchants of a certain size or life stage. We have a large number of entrepreneurs setting up on the platform. This is on purpose. As long as there are people coming up with new ideas and are looking then to put those ideas into action, there will be new merchants on Shopify.
As the most successful of these merchants scale, and we are developing solutions every day to help this happen, our GMV-related revenue scales with them. We have observed that merchants on our platform grow sales at a faster rate than retail industry overall. If you look at the merchants on the platform for 12 months or more, year-over-year sales growth for them was approximately 20% or better for every month of 2017. This is why, like last year, we will continue to invest in bringing more merchants to the Shopify platform and will continue to invest in ways to help our merchants thrive. We are focusing our efforts in 2018 on three principal areas where we will incrementally invest. First is international.
Our initial marketing efforts to non-English speaking geographies that we began in 2017 started to show results within a few quarters, with merchants in these geographies now accounting for 19% of our base versus 15% at the end of 2016. In 2018, we're stepping up our investments to further grow our international merchant base in a small number of priority geographies where we believe we are the closest today in product-market fit, with an eye towards expansion beyond these in the coming years. Second is Shopify Plus. As we mentioned last quarter, our expansion plans include adding up to 500 new employees over the next three to five years, and we are soon moving into our new space in Waterloo. We are adding capacity for sales and sales support as well as for product development.
Finally, Shopify's core platform. Adding more voices to commerce means expanding not just up, but also down market and outward. This means innovating on our platform to optimize merchant experience and partner collaboration. Much of this involves data analytics, adding more and better ways to apply machine learning across our platform. It also involves development across our existing as well as future product offerings. Having gone from tens of thousands of new merchant adds in 2016 to hundreds of thousands in 2017, the advantage of scale are clear, which is why in 2018, we will continue to strategically invest for growth. We are well positioned for a very special opportunity in commerce. As such, we are building today for the Shopify of five years from now.
What this means for 2018 is that we expect to see continued strong top-line growth with revenue for the full year in the range of $970 million-$990 million. Adjusted operating results ranging from a $5 million loss to a $5 million profit. Note that this incorporates a headwind from what we expect will be a stronger Canadian dollar for 2018. For the first quarter, we expect revenues in the range of $198 million-$202 million and an adjusted operating loss in the range of $6 million-$8 million. Stock-based compensation and related payroll taxes in 2018 expected to approximate $100 million for the full year, with about $19 million of this in the first quarter.
With that, I'll turn it back over to Katie to start the Q&A.
Thank you, Russ. All right, Kelly, can we open the line for questions after I remind everyone that please limit yourself to just one question so everyone can have a chance to ask?
Certainly. At this time, I'd like to remind everyone, in order to ask a question, please press star then the number one on your telephone keypad. Our first question comes from Jesse Hulsing from Goldman Sachs. Please go ahead, your line is open.
Yeah, thank you. Harley, it seems like the efforts around Plus are going to intensify. I'm wondering, if you look over the next few years, what's the vision for Plus? Do you intend to compete in the, you know, IR 1000, IR 500 level of retailer against Demandware and Hybris and kind of the incumbent e-commerce SaaS vendors? Is that the intention here? Or is it just to ensure that the merchants that you're currently supporting can scale to any level? Thank you.
Great. Thanks for the question. As you recall, the reason we initially built Plus was really for these homegrown success stories. I guess one of the things that we're quite pleased with is that a lot of other merchants that have existing businesses on other platforms, including some of the big ones you mentioned, have all migrated over. We've now had migrations from all the major platforms, including enterprise platforms, to Shopify Plus. That being said, what we're also seeing is that a lot of these bigger merchants, larger merchants, are beginning to act a lot more entrepreneurial. The stuff that we're producing across our platform, integrations to things like Instagram or Apple Pay integrations, are things that even the largest merchants on the planet are looking for as well.
There's no particular priority to go after the IR 1,000, but we are seeing some of those merchants come to us as well. I think that will be furthered by the fact that this year we're putting a lot more effort, not just to the service we give around Shopify Plus, but also for the product offering. You've seen some stuff come out recently, like Shopify Flow, as well as wholesale, that I think gets us closer there. There is no priority to go after those big IR 1,000 in particular.
Thank you, Jesse. Next question, please.
Our next question comes from Nikhil Thadani from Mackie Research Capital. Please go ahead. Your line is open.
Thanks, guys. Just a quick one for Russ. How should we think about the gross margin going forward, especially on the Subscription Solutions line? Thanks.
In subscription solution, as is typical Q4 goes a little bit lower than Q2, Q3. That's in part just because of the higher volume, and additional hosting costs associated with that. The one thing that we did in Q4 is because we are seeing our move to the cloud being both successful and we're able to move faster than we originally expected, is we accelerated some depreciation on our data centers. You'll see that again hit sort of the first half of next year. Overall, I would say that initially having the cloud will be slightly more expensive than doing our own data centers. As we optimize those, we do expect to see improvements over time.
The nice thing about the move to the cloud is it gives us more flexibility in terms of geographic coverage as well as reduces the capital that we need to spend on the data centers. Overall net-net, it's gonna be a pretty positive impact. On the margin specifically in the short term, you could see a little bit of a dampening there.
Great. Thanks, Nikhil. Next question, please.
Our next question comes from Monika Garg from KeyBanc. Please go ahead. Your line is open.
Hi. Thanks for taking my question. Total merchants end of 2017, 609,000, which actually accelerated year over year. Could you talk about what led to acceleration of merchant additions on the platform? Thank you.
Yeah. Again, as we saw throughout the year, we are really seeing very strong merchant growth. I think part of it is our ability, as Harley talked about, adding some of these bigger merchants to the platform. More importantly, I think the ability to reduce the learning curve, and in the case of some of the stuff we've done, such as Oberlo, reduce the investment that it takes to be an entrepreneur, is allowing more people to try out their ideas on the platform itself. Last thing I would say is our international progress has been faster than we originally anticipated, so a good area of investment as we move forward.
Great. Thank you, Monika. Next question, please.
Our next question comes from Darren Aftahi from ROTH Capital Partners. Please go ahead. Your line is open.
Hey, guys. Thanks for taking my questions. Congratulations on the results. I'm just curious, you talk about the overall TAM of the business, but I'm curious with the 3,600 + customers ending the year, what are your thoughts on how big that opportunity is? Thanks.
I think in general, TAM is, in determining our TAM has probably been the most difficult thing for us to do even at the time of the IPO itself. That continues to be challenging because every time we turn around there's a brand new opportunity that presents itself. Certainly on the plus side, the momentum we're getting there, we expect that to continue. As I mentioned before, international continues to grow and we're seeing more and more varied type of entrepreneurs that are now moving to the platform. We've always had a big TAM, and we've always said that we think it's understated. I think what we're seeing now is that gets proven day in, day out.
Great. Thank you, Darren. Next question, please.
Our next question comes from Michael Nemeroff from Credit Suisse. Please go ahead. Your line is open.
Hey, guys. Thanks for taking my question. It's for Russ. My question is on profitability. In Q4, you generated a non-GAAP operating margin greater than 5% while you were growing greater than 70%. I know you've said in the past, Russ, that Shopify is a growth company, but at what level of growth or what size is the business before you either let more profitability come through or you just can't control the profits from occurring? 'Cause as we look out several years into our DCF to value the shares, you know, the terminal multiple is swayed meaningfully by your margin. Do you see, Russ, Shopify becoming a 20%-30% non-GAAP operating margin business over the next 5-10 years?
That's always been our sort of aspirational goal. If you look at both Q3 and more importantly Q4, I think we had a nice check-in on that achievement. Yes, I do think we'll get there, but really the given our sort of market and competitive position and what we're seeing in commerce right now in the sort of that short to midterm, our focus is really gonna be on continuing to grow the number of merchants on the platform and our share of wallet because we think creating that sort of bigger piece of pie positions us much better once we wanna sort of move more towards achieving longer term profitability goals.
Thanks.
Sure. Thank you, Michael.
Our next question comes from Bhavan Suri from William Blair. Please go ahead. Your line is open.
Hey, guys. This is actually Arjun for Bhavan. I know you don't guide to merchant count, but just thinking more generally in going forward, given your guidance, do you think there's an opportunity in the market to sort of perhaps almost double your merchant count over the next three or four years? Or going forward in 2018, 2019, 2020, should we see sort of a dip in that merchant count considerably and then more an increase from ARPU and plus here on? Thanks.
Yeah. Yeah. I think as we've talked over at least the last sort of 12-18 months, the MRR is actually more important than the merchant count itself. Given the opportunity that we're seeing, we expect some continued strong growth on the MRR front, and clearly Plus with its higher price points contributes nicely to that. Again, we just see strong performance over the period that you talked about there.
Got it. Thanks.
Thank you. Next question, please.
Our next question comes from Sam Kemp from Piper Jaffray. Please go ahead. Your line is open.
Great. Thanks for taking my questions. Can you perhaps call out what percent of GMV is now coming from Plus merchants or perhaps Plus and advanced merchants? Thanks.
Yeah, that number continues to grow. If you combine the two together, which is the right way to look at it, because we do get advanced merchants moving up to Plus as part of their upgrade path, it continues to be over 50%, and that number continues to grow. They do have a very meaningful impact on the GMV, which is why providing other merchant solutions to get even their share of wallet's an area of focus for us.
Thanks, Sam. Next question, please.
Our next question comes from Ross MacMillan from RBC Capital Markets. Please go ahead. Your line is open.
Thanks so much. Two, if I could. Just maybe for Russ, as you obviously are adding merchant at a terrific rate, I'm just curious what you're seeing on the cost to acquire those merchants. Is that moving down as you acquire some more of the entrepreneurial type of merchant? Second question, I'm just curious what the view on the dropshipping environment is gonna be like over the next 12-18 months. There's been a lot of articles on that. How do you think the dropship world is gonna sort of play out here in the, in the next, you know, 18 months or so? Thanks.
I'll do the first one, and I think Tobi can give you a better view on dropshipping. If you look at our CAC, it continues to remain relatively flat overall because we're also getting larger merchants and looking at other ways to invest there. The LTV has gone up. If you look at our LTV to CAC, we actually have seen improvement there. With that, I'll turn it over to Tobi for the dropshipping.
Yeah. Thanks. Hey, everyone. Yeah, the dropshipping question is coming up. We honestly, there's sort of a debate out there about it, and we're looking at it with some amusement because I think the, there's a lot of industries that go through a similar transition as retailers like. What dropshipping really is just like you don't want to own or have your inventory. You know, like I started Shopify, what is this, about 14 years ago with a snowboard shop, and one of my biggest obstacles there was like I had to purchase all the snowboards, which I had to put in my garage before I could mail them out.
The best thing possible at this point would have been if I could just simply, you know, get my software to do an API call and then the manufacturer would send the snowboard directly. In fact, even if you look back in sort of retail history, everyone who read Phil Knight's wonderful book, Shoe Dog, will know that Nike started as essentially dropshipping products from Japan, right? So it's the long history of doing people trying to approximate what we now have sort of productized as dropshipping through computers talking to each other directly. So it's really no different than, you know, people used to build their own data centers and like host their servers, and now they're moving to the cloud.
People used to build their own warehouses. Now their products are moving to the cloud. It's a wonderful way to start a business. It's leading to great entrepreneurial activity because it just lowers the bar. Every time the bar lowers, it means more people are gonna try it. Every time more people try it, there's gonna be a total like more people succeed. That's what we see. That's what in fact we can impact by making our software better for those folks and, you know, giving them the advice they need along the way. It's a very, very positive development for the market. I do think there's a surprising amount of, you know, odd opinions floating around on this. I think it's absolutely great.
Great. Next question, please.
Our next question comes from Gus Papageorgiou from Macquarie. Please go ahead. Your line is open.
Thanks. I take the question. Just going through your MD&A, you said, you attributed the increase in gross margin to services like Shopify Capital and Shopify Shipping. I'm just wondering how you, especially on Capital, how do you see the demand for services like Capital, and are there any gating factors that you had last year that you've been able to remove, going into 2018? You know, your cash advances are, I think, running around $40 million a month. I can't remember exactly. How do you see that progressing through 2018?
Yeah. In combine the two new areas of shipping and capital grew over 300% year-over-year. In terms of capital, some of the things that are on the roadmap there is, in addition to doing cash advances, potentially looking at flexible loans, expanding that to merchants outside of the U.S. as well, are all good things there. In terms of shipping, I mean, sometimes we get asked what inning do we think and we are on some of these things. I'd say capital, we're in a very early inning there. I would say on shipping, we're basically just completing batting practice. We haven't even really started the game. Some of the things that we announced in the second half of 2017 really helped position us for shipping.
It's also an area where if you look at our merchants, they're probably spending most of their time on fulfillment-related activities. To the extent that we can simplify that and reduce the cost of that, not only can they pass that on to their customers to sell more, but they can free up their time to really focus on, again, ways to grow the business. Both of those had a strong impact in 2017, but they're still very early stage, and so we see lots of great growth going forward.
Do you think you can roll out capital into other geographies in 2018?
That is the plan, yeah. Each geography has their own regulatory requirements, there is work to be done there. Certainly from a demand point of view, similar to what we saw with our U.S. merchants, it's difficult for these particularly newer and smaller entities to be able to get working capital financing, it's such an important piece of what we can offer.
Great. Thanks for answering the question.
Since you asked about the entire year, I think just for cash advances, we said this before, we entered the year with cash advances being like computer-assisted, but mostly manual process, and this is now taking over the algorithms and machine learning almost completely. That's another thing that's was gating initially and now is wide open.
Thank you.
Great. Thank you, guys. Next question, please.
Our next question comes from Tom Forte from D.A. Davidson. Please go ahead, your line is open.
Great. Thanks for taking my question. Shopify was one of the first platforms to allow merchants to accept Bitcoin. Given the movement we've had in Bitcoin, was wondering if you could comment on adoption rates, the number of merchants accepting Bitcoin, and if they're seeing meaningful sales coming in Bitcoin or cryptocurrency in general. Thank you.
Yeah, it's true. We integrated Bitcoin as soon as it made sense, partly because there's a strong belief that there's very bright future in the ideas behind Bitcoin. As I think it's well documented at this point, the particular implementation of Bitcoin has all sorts of issues before it can really be used for transferring money. Right now, it's a good store value. Very volatile store value, but that's what people tend to use it for, mostly for speculation. Almost no one moves Bitcoins around, because depending on how the network is doing, like I recently did a $30 donation somewhere and it cost me $29 for in fees. It's not very good for moving money around.
There's a lot of efforts, like the Lightning Network and all these kind of things that they are doing. It's all these reasons not much is happening. I think, as it comes to cryptocurrency and commerce, the best way to think about it is lots of the innovation that will lead to the things that we'll use in the future has now happened. There's a brainstorm about exactly how to implement and scale it. We are going to be super prepared for like welcoming everyone once they want to use this and once the buyers are ready to use it, and once the fees come down and confirmation rates are quick and everyone has figured out how to deal with refunds and these kind of things.
You know, like there's a lot of things credit cards obviously do that go away in cryptocurrencies and have to be re-implemented and so on and so on. We're not just observing this. We are like fairly active participants in these conversations. We'll be ready. There's plenty of people have enabled accepting Bitcoin, but it's very sporadic for them to actually get any Bitcoin sent. It's people do it for novelty rather than because it makes a lot of sense.
Great.
Great.
Thanks, Tobi.
Thanks, Tom.
Our next question comes from Deepak Mathivanan from Barclays. Please go ahead, your line is open.
Hi, thanks for taking my question. This is actually Aki Agrawal for Deepak. Two questions, if I may. The first question is sort of big picture. You know, in terms of your GMV, you're almost approaching a $30 billion revenue run rate. Just wanted to see what you would call out as the primary drivers of that, you know, the one or two things you would want to call out on that. Secondly, in the merchant solutions business, your gross profit growth slightly decelerated. I mean, it's still strong above 100%. Just wondering, is it, you know, just tough comp or is there anything else you'd want to call out on that front? Thank you.
Yeah. In terms of the GMV, I mean, a number of factors go into that. One is a lot more merchants on the platform. As you would expect, their selling activity increases that number. The success we're having on Plus, again, we're bringing these larger brands over. A number of them are doing in excess of $100 million a year in terms of GMV. Just for the existing merchant base, so merchants, for example, that have been on the platform as of or before December 2016. Those merchants every month of 2017 grew by 20% or more for every one of those months. Again, the existing merchants are doing much better as well on the platform.
We continue to do things to help this. I expect that number to continue. In terms of the merchant solutions, I mean, on the payment side, in terms of merchant penetration, we're at a very high number there. Capital and shipping, as I talked about, we're in sort of early periods there. Over time, we expect to see those start to have a more meaningful impact.
Great. Thanks, Aki . Next question, please.
Our next question comes from Brian Essex from Morgan Stanley.
Hi, good morning, and thank you for taking the question. I was wondering if I could dig into Subscription Solutions revenue a little bit. It looks like MRR has been at a pretty stable growth rate through the year, but Subscription Solutions revenue has accelerated. I mean, you know, maybe implying that some of that acceleration may be due to non-recurring items or easier comps. I guess if we parse that out, could you maybe, Russ, give us a little bit of clarity in terms of what's driving that acceleration? Was it the change in Shopify Plus pricing doing that, or are there other items that are kind of pushing that Subscription Solutions growth rate higher than MRR growth?
Yeah. The two reasons that we saw, particularly in the fourth quarter, the sort of Subscription Solutions growing faster than the MRR. One is the sale of apps, that continues to be very robust and will continue to be robust. The second one, which had a meaningful impact in relative to other quarters in Q4, was the new variable pricing for Plus. It was about 3x higher in Q4 than in Q3. Again, in terms of the overall number, not a material amount, but certainly a positive impact in that quarter.
Great. Thanks, Brian.
Our next question comes from Kevin Krishnaratne from Paradigm Capital. Please go ahead.
Hi there. good morning. Just on the Plus investment for 2018, how do we think about the growth there, sales and marketing versus R&D spend? On Plus usage, I'm curious to know if you're seeing any difference in the type of apps taken by Plus versus non-Plus merchants, and if there's any opportunities to maybe either acquire or build out, those offerings as part of the Plus offering.
Hey there. It's Harley. I'll take that question. In terms of expense or spend in on Plus, as I mentioned earlier, I think that in the early days of Plus, we really did focus on just giving amazing service, whether it was having dedicated account reps, or making sure that our merchants have everything they need when it comes to Shopify. On the product side, I think that this is where you'll start seeing a lot more products coming out around for Shopify Plus, specifically for these larger enterprise-like merchants, and that's something that is new to us. In terms of the apps, you're correct.
I mean, some of the nuances and complexity of what these larger merchants need, things like, cross-border tax compliance, things of that nature, it's just not something that smaller merchants require. We created a partner program specifically for apps that larger merchants need, and that's still in its early days, but we're seeing a lot of great companies come to the table to offer their services for our Plus merchants.
Thank you.
Thanks, Kevin.
Our next question comes from Todd Coupland from CIBC. Please go ahead. Your line is open.
Good morning, everyone. I wanted to ask about international. What countries will be the focus in 2018 in terms of expansion? Now that you've had a few quarters of strong international growth, would you expect those merchants to be a tailwind to GMV growth in 2018? Thanks.
The focus in terms of country priority, Germany, France, Japan, Singapore are kind of the sort of Tier 1, and then we could expect to grow from there. Now, some of these merchants will be earlier merchants, and so potentially a little bit of an impact in GMV, but net-net, good additions. With the data that we gather as part of that, clearly we'll be able to use that to help these merchants as well.
Thank you.
Our next question comes from Suthan Sukumar from Eight Capital. Please go ahead. Your line is open.
Good morning, guys. Thank you. The question on the eBay channel that you guys launched recently, can you speak to some of the recent traction that you're having on the channel and what other types of channels that you may look ahead to integrate over the course of fiscal 2018?
Hey there, it's Harley. I'll take that question. Yeah, really happy with the eBay channel. It was, you know, it's a marketplace with 170 million consumers that shop there. Again, the strategy with channels is to make sure that our merchants can find their customers wherever they may exist. Certainly, eBay is a place where a lot of consumers hang out. Natural progression was obviously eBay. Excuse me. One thing that I think gets lost sometimes is we also have this channel SDK, which means that some of the core channels we're gonna build ourselves, things like eBay and Amazon, 'cause we think they're really important.
The nice part about having an SDK, it means that other marketplaces that are more niche, and really relevant to a very, to a smaller subset of merchants, they can easily integrate into Shopify and then right through the Shopify backend, our merchants can sell anywhere they want.
Great.
Great. Thank you.
Our next question comes from Richard Tse from National Bank. Please go ahead, your line is open.
Hi, thanks for taking my question. This is actually Andrew in for Richard. My question is actually on the take rate. You mentioned in your remarks some of the drivers to what you're seeing that expand in the quarter. I'm hoping that you could provide some vision into the direction over the next few years, just based on your expectations for new products and services scaling, and whether you expect Plus uptake to be a headwind or tailwind for that longer-term direction. Thank you.
We did see good increase in the take rate in Q4. Q4 will always have a higher take rate just because of the nature of the volume in that period and the services that we provide. I think as we've talked about, part of our strategy as a company is to increase our share of wallet. We will continue to focus on things that do that. In terms of Plus, more of the Plus merchants are actually using things like Shopify Payments now. Whether or not we will get some big merchants that have their own sort of payment gateway that corporately they need to use, which could be a bit of a headwind there is to be determined.
Overall, we expect the take rate to improve over time.
Great. Thank you, Andrew. Next question, please.
Our next question comes from Brian Peterson from Raymond James. Please go ahead, your line is open.
Good morning, everyone. Thanks for taking the question. I wanted to hit on the customer cohort that you guys talk about, or you reference in the MD&A section. It looks like the majority of the incremental revenue dollars this year came from the 2016 cohort and the 2017 cohort, where the 2015 and prior were more or less stable, maybe up a little bit. What I wanna understand there is there a certain point where your customers sort of just kinda grow in line with digital commerce? When do we typically see that? Is there anything different about your recent customers that suggest that could be a longer growth tail or shorter? Just curious on that dynamic. Thanks, guys.
Both the 2015 and the pre-2015 cohorts grew in 2017. The reason you see what you just talked about, the much larger growth in sort of 2016 cohort is because that cohort, 2017, that's their first full year to be on the platform itself. Some of those merchants in 2016 actually joined sort of late in the year. You might be getting a little bit of distortion there. Overall, again, our monthly billing retention rate was over 100%. We can see as we add larger and newer cohorts, that just becomes incremental for us.
Thanks, Russ.
There are no further questions at this time. I'll now turn the call back over to Tobi Lütke for closing remarks.
All right. Thanks, Kelly. I'll turn the call over to Tobi for his final words.
Good. That's a quick one. Nice. Nice work. We left no stone unturned. Talked about, you know, fun things like Bitcoins and dropshipping and all these kind of good things. I mean, look, I think what we do here is, as always, we are trying to predict where the future is going in commerce. We are doing a lot of work to so that if small merchants we have on the platform, you know, if somehow their industry changes in some meaningful way or if new technologies happen and that they need to take advantage of, that we have all of this ready at the push of a button, so that they don't have to correctly anticipate all the changes to technology landscape and so on.
I think there was a like, let me just point at one recent kind of example that didn't come up, but It's just a good example of this kind of thing, which is that we've been investing in virtual reality and AR. This seems a little bit fanciful to you know, what does commerce have to do with these kind of things? The answer is kind of everything. You know, we have just we've uncovered really interesting ways of taking very human processes of, you know, how to sell it from a shopkeeper to a buyer that happen in the current world and that people appreciate and it's how people want to shop and how to move them onto the internet and so on. That's a little bit abstract.
More concrete is something you can already see like that, specifically AR through phones is clearly how in the future a lot of such things like furniture is going to be sold. Very soon in the next year or two, people are going to simply expect that when they look at a piece of furniture, they're not looking at a picture, which they then have to sort of internally visualize in their house, but rather just place it in their house and see what it looks like and walk around it and so on. That's one of those kind of tidal waves which is going to hit the furniture industry. You know, like if, you know, if you're IKEA, that's not a problem. You kind of put a couple hundred people on the job and make that happen.
If you are a small independent furniture store, or some craft people on some island in the Atlantic who are getting together to make fantastic furniture, you will not have that kind of R&D department. In most cases, we want once this change happens in the industry, we want to be there with a single button that people can push, and then they can take advantage of these kind of things. That's just, I think, a good metaphor for the way we think about continued investment in R&D and our product roadmap and so on. We wanna almost inoculate our customer base from having to correctly anticipate future changes so that we create some semblance of stability so that they can focus on their product, on their business, growing it, and so on. Good.
That's something I want to get off my chest. I think good quarter. Thank you very much for joining us, and see you in three months.
This concludes today's conference call. You may now disconnect.