Good morning. My name is Sharon, and I will be your conference operator today. At this time, I would like to welcome everyone to the Shopify Q2 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'd like to ask a question during 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, Head of Investor Relations, you may begin your conference.
Thank you, Operator, good morning, everyone. We are glad you can join us for Shopify's Second Quarter 2017 Conference Call. We are joined this morning by Tobi Lütke, Shopify's highly ranked CEO, Harley Finkelstein, our COO, and Russ Jones, our CFO. After prepared remarks from Harley and Russ, we will open it up for your questions. Once again, we will make forward-looking statements on the call today. These are based on current assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those projected. We undertake no obligation to update these statements except as required by law.
Information about these risks and uncertainties is included in our press release this morning, as well as in our filings with Canadian and U.S. securities regulators. Our commentary today will include adjusted financial measures which are non-GAAP measures. These should be considered as a supplement to and not as a substitute for GAAP financial measures. Reconciliations between the two can be found in our earnings press release, which is available on our website. 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. The excellent momentum we started out the year with continued into the second quarter. The biggest news, of course, has been that the number of merchants joining Shopify continues to expand every quarter as we recently surpassed the 500,000 merchant milestone. While it is very important to us to foster entrepreneurship by removing barriers to commerce, it is even more important to us to ensure our merchants have every possible means to succeed. We made a lot of progress towards the second goal as well in Q2. We added more sales channels, we rolled out new features, and we continued to grow the value of our ecosystem. Several of the announcements we made at our Unite conference came to life over the past few months.
Among them, Shopify Pay, which accelerates checkout, and our EMV card reader designed specifically for the Shopify merchants. Both of these are off to a strong start and should prove to be helpful to Shopify branding and increase name recognition as well as conversions for our merchants, especially as the Shopify Pay network expands. We view Shopify Pay as a helpful interim step on a journey to streamline checkout even further. The early indicators are good. We continue to expand our sales channels to help merchants reach new customers in new places. Both BuzzFeed and Wish are now live, and we recently announced that we will be adding eBay as a channel, making it the second large e-commerce marketplace natively available to Shopify merchants. Listing on eBay exposes over 167 million shoppers to our merchants' products and expands the product options for eBay's users.
We expect the eBay channel to be available to merchants in the U.S. later this year. Adoption of our merchant solutions also continues to grow. More than a quarter of Shopify merchants that are shipping from the U.S. and nearly 20% of those shipping from Canada use Shopify Shipping in Q2. With all the cash advance offers now benefiting from machine learning for the entirety of the second quarter, we nearly doubled the number of capital advances in Q2 over Q1. The total cumulative amount of cash advanced by Shopify Capital reached $86 million by 30th June and stands at over $95 million as of today. Moving on to partners. As most of you know, the large number of partners that are building on and for our platform are a key differentiator. Scale makes a difference here.
The number of submissions to our App Store in Q2 doubled over last year, and those that get approved are making the App Store more valuable to merchants overall, as reflected in the continued increase in app spend per merchant. We now have more than 13,000 partners who have referred merchants to Shopify in the last 12 months, up from 12,000 just last quarter. This ecosystem has been a steady source of new merchants to Shopify and our third strongest acquisition channel behind organic traffic and paid marketing. Partners are particularly important to building our higher touch Shopify Plus business. Not only do we continue to expand the number of Plus partners in the quarter, we augmented our program with the addition of nearly 50 Shopify Plus technology partners.
Because Shopify Plus merchants have unique needs, it is important to connect them with proven technology partners that have been vetted and certified by the Shopify Plus partner team. These partners along with our own Shopify Plus sales hackers continue to onboard some of the largest and most recognizable brands to Shopify Plus. Companies that launched stores on Shopify this quarter include Visa, Frito-Lay, Jones New York, BuzzFeed, Elvis Presley, Canadian Tire, and The New York Times. Shopify appeals to renowned brands like these for many reasons, attractive price, scalability and resilience of the platform, and ease of use. I point this out because it highlights just how vast our total addressable market is.
It is essentially anyone wanting to make more money than their shop costs them, an appeal that is universal and that helps to explain why we have added ever larger numbers of merchants for the last three quarters straight. While we cannot expect every single merchant to succeed, we are confident that Shopify gives merchants the best chance at success on a platform that we're making better all the time. With that, I will turn it over to Russ to cover the financials.
Thanks, Harley. Q2 is another strong quarter with an increasing number of entrepreneurs, SMBs, and larger brands both starting and growing their businesses on the Shopify platform. In Q2, we again grew revenue 75% year over year to $151.7 million, driven by rapid growth in both elements of our business model. Subscription solutions revenue growth accelerated from last quarter to 64%, coming in at $71.6 million. This strength was driven by the monthly recurring revenue growth of 64% to $23.7 million as we had another record number of merchants join Shopify in Q2. In fact, today, Shopify is serving over 500,000 merchants on our platform, more than double the number we were serving at the start of last year.
The contribution to MRR from Shopify Plus also grew to 18% of overall MRR or $4.3 million, compared with 13% of MRR for Q2 of 2016. MRR from Shopify Plus includes only the minimum contracted subscription value. Any incremental revenue stemming from the variable pricing structure we introduced in February is counted in subscription solutions revenue, not MRR. These amounts are not significant at this stage. Merchant Solutions revenue grew 86% to $80.1 million. Gross merchandise volume was a primary driver, aided by shipping and capital as adoption of each of these continued to expand in Q2. Our Merchant Solutions take rate grew to 1.37% of GMV from 1.28% of GMV in Q2 of last year.
GMV grew to $5.8 billion, up $1 billion from just last quarter and up $2.5 billion or 74% from last year's Q2. $2.2 billion of GMV in the quarter or 38% was processed on Shopify Payments. This compares with $1.3 billion or 38% in Q2 of 2016. While the percentage of merchants on Shopify Payments ticked up again slightly in the quarter, the gross payments volume held steady as a percentage of GMV. This is due in part to a greater percentage of GMV being generated in markets where Shopify Payments is not yet offered and an increase in the amount of GMV not processed through credit cards. Cash-based POS transactions, for example. Gross profit dollars once again grew faster than revenue in the quarter.
Margin improvements in both Subscription Solutions and Merchant Solutions more than offset the higher mix of Merchant Solutions in our overall revenue mix. Although both continue to benefit from scale, Merchant Solutions also benefited from the expansion of the higher-margin Shipping and Capital offerings. Our adjusted operating loss in Q2 was CAD 2.9 million or 1.9% of revenue, compared with CAD 3.2 million or 3.7% of revenue in the second quarter of 2016. The adjusted net loss for the quarter was CAD 1.1 million or CAD 0.01 per share. This compares with a CAD 3 million loss or CAD 0.04 per share for the second quarter of 2016.
Finally, our cash equivalents and marketable securities balance grew to $932.4 million, up from $395.7 million in March 2017. This increase reflects the $560 million in net proceeds from Shopify's successful offering of additional shares in the second quarter. These proceeds further strengthen our balance sheet to fund various growth and operational initiatives. As we look to the rest of the year, we now expect 2017 revenue in the range of $642 million to $648 million and adjusted operating loss in the range of $7 million to $11 million. For the third quarter, we expect revenue in the range of $164 million to $166 million and adjusted operating loss in the range of $2 million to $4 million.
We continue to expect stock-based compensation to amount to $55 million for the full year, with about $15 million of this in the third quarter. As our guidance implies, we continue to expect to achieve operating profitability on adjusted basis in the fourth quarter of this year. With more than half a million merchants and more than 1 million staff accounts now on the Shopify platform, it is clear we are extending our lead as the go-to platform for sellers. Larger brands increasingly look to us for a scalable and reliable platform to support their higher volume multi-channel selling. Exciting to us is that as we continue to flatten the learning curve and increase our capabilities, more and more entrepreneurs who may not have considered launching a business are now able to. With that, I'll turn it back to Katie to start the Q&A.
Thank you, Russ. Okay, thanks, Russ. Thanks everyone for dialing in. Operator, we can now open the line for questions. Before we do, I'll just ask everyone to limit themselves to one question so we can have enough time for each person to ask a question.
At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. Please limit yourself to one question. We will pause for just a moment to compile the Q&A roster. Your first question comes from Justin Furby from William Blair. Your line is open.
Hi, guys. Thanks for taking the question and congrats on a stunning quarter. Russ, I wanted to ask you about Shopify Plus. The MRR ticked up to 18%, which is probably no surprise that it's outpacing the core business growth. I'm wondering if you expect that trend to continue if you look out over the medium to long term. I guess, is there a scenario where that business could be 40%, 50% or more of your subscription base? If that's the case, what are sort of the longer-term model implications to that? Thanks.
I mean, we'll continue to see Shopify Plus grow. Whether it gets to that sort of higher level that you said, time will tell. From our side of it, Shopify Plus has a higher subscription amount, but also as we've changed some of our pricing also contributes to the merchant solutions. From an overall point of view, that just means that we'll see continued strong revenue growth in the company.
Got it. Thank you.
Thanks, Justin. Next question, please.
Your next question comes from Ross MacMillan from Royal Bank of Canada. Your line is open.
Thanks so much, and my congratulations as well. The strength of new merchant adds in the first half has been striking, and I was curious if anything has changed in terms of your investments in customer acquisition this year relative to last. Also, I'd love to understand what you're seeing in terms of retention improvement as the cohorts of merchants mature. Thanks.
Yeah. In terms of the overall investment side, no real change in the mix. Organic still is our number one source of new merchants, followed by the paid advertising and then the partner side of it. The thing that has changed, we talked a little bit about some of the experiments we do on the international front, some of the work we've done to translate our blog into other languages has resulted in, again, we're seeing more merchants internationally join the platform.
In addition to that, the stuff that we're doing to sort of flatten that learning curve in terms of getting new entrepreneurs up and running on the platform has really enabled more entrepreneurs to join the platform. On the retention side, we've seen no change in our retention numbers. I think that sort of bodes both to our ability to track merchants and our ability to get them up and running.
Thank you.
Your next question comes from Darren Aftahi from Roth Capital Partners.
Congratulations as well. Just curious, your Amazon and eBay partnerships, just curious on impact to business. I know eBay's not launched yet in terms of kind of merchant growth. Any other platforms or partners you feel like you're not yet, you know, do you feel like you're fully covered at this point? I guess as you've reached this milestone of 500,000 merchants, can you just give us an update in terms of kinda how you view total addressable market? Thanks.
It's Harley. I'll take the first part of that question, in terms of the Amazon and eBay announcements. In both those cases, our objective here is to ensure that our merchants on our platform can sell anywhere they potentially have customers waiting for them. Obviously, Amazon and eBay being two of the largest marketplaces globally were obvious fits for us. Amazon, we continue to work with to improve to improve the experience for our merchants.
We also are beginning to expand into new categories with Amazon, which is exciting. eBay, of course, hasn't launched yet, too soon to tell. Again, the goal there, whether it's Amazon or eBay, or it's BuzzFeed or Wish or any of the other channels that we're looking into, is to enable our merchants just to sell more products. That really is the goal there. I'll let Russ answer the total addressable market question.
I mean, I think it's clear, and it's been clear for a while that even though we talk about sort of the SMB side as a very large and big market, that really with the platform, the fact that we can stretch up and pick up a number of these larger brands and now, with a number of things that we've been doing, also pick up a lot of these brand new entrepreneurs, both in our core markets and now, beyond those core markets, I think shows that that addressable market continues to get larger and larger. In fact, I would say to a large degree, Shopify is actually increasing the size of the pie.
Great. Thank you.
Your next question comes from Nikhil Thadani from Mackie Research. Your line is open.
Thanks, guys. Two quick questions from me. Firstly, in terms of your growth plans, with all the changes that have been happening, is it becoming easier for you to find R&D talent up here in Canada? Secondly, with some of the changes to the U.S. dollar right now, how does that change your FX hedging plan going forward? Thanks, guys.
This is Tobi. I can talk to recruiting. I mean, there's all sorts of things that's going on right now that make it easier for Canadian companies to recruit R&D talent. You know, like definitely, the profile we have now, I mean, honestly, like this is from the first, like when I first sat down with my, you know, co-founders and said, "Hey, like, how should we build this company?" We said, "This whole thing is only gonna, you know, work out if somehow we establish like a large geographical consensus that Shopify is just the best company to work for engineering talent and, you know, product and UX and all the kind of people who are working on to make Shopify work." I think we've been, I mean, we've been very successful doing this.
This has been the case for a couple years now, and we are getting the kind of, you know, sort of recognition for this now. When I talk to other people in the industry, or even to people on my board of directors, they usually describe it like this. They say that we complain how hard it is to get R&D talent, and everyone else tells them that it's impossible to get R&D talent. I think this is sort of the way things are right now. I'm gonna give it over to Russ for the FX question.
Yeah. On the FX side, our main exposure as a company is Canadian dollar versus US dollar, not so much on revenue, but on the cost side. Over a year ago, we implemented a formal hedging program that has a sort of a 12-month running view and contracts in place for that. We, even with the recent sort of strengthening of the Canadian dollar, we don't see a large impact to 2017, and any impact we factored into the guidance that we provided. In 2018, particularly in the second half, if the rate stays at this level, it definitely is something that we need to take into account.
Your next question comes from Gus Papageorgiou from Macquarie. Your line is open.
Thanks. I think the last time you guys updated, your international customers, I believe it was either 17% or 18% of your customers, merchant customers were outside of your core markets of Canada, the U.S., the U.K., and Australia. Can you give us a sense of, if you look at the ads so far this year, what kind of mix we're seeing, globally?
Yeah. We see good growth in all the core markets there. In terms of the international, it's now just under 19% of the total merchant count.
Great. Thank you.
Your next question comes from Ken Wong from Citigroup. Your line is open.
Hi, guys. I know it's early, for Pay and the reader, but any update in terms of kind of what you're seeing from customers, and their, you know, kind of just what kind of spend patterns that their customers are having and the impact that you guys potentially expect going forward with those products?
Yeah, Tobi, I'll take it. I mean, it is really early, we are also really, really happy with how things are going. The pickup is fantastic, it does exactly what we expected it to do. It increases conversion rates. People who might otherwise get discouraged by seeing a long checkout form now push, you know, like very quickly find a way to skip through this process. I keep getting notes from people who, like, encounter Shopify Pay in the wild for the first time and just really, really like the experience. This is just I mean, I think the right way to think about this is this is like an entirely new construction site that sort of like has just put up the scaffolding.
There's enormous amounts of additional work to be done to, you know, get it to the point where every Shopify store, just sort of from a usability perspective, is similar to, you know, a place like Amazon, where you might have had an account which already has your address and has your credit card, where you can just buy with one click, or two clicks or whatever. This is where we want to go. Shopify Pay is one ingredient in this. It's the thing that allows us to get there really quickly.
Our long-term ambition is really to work with the hardware vendors and the device manufacturers and the browser vendors to get all these features into secure hardware and secure elements and take this out of a process of a web the way it's traditionally been done. We all know in 10, 20 years from now, this is not how we're going to transfer money on the internet anymore. Our interest is to get there faster, and our input into these processes is just for everyone to think of the buyers, create great UX and manufacture delightful experiences. Exactly the same sentence I can say about the chip and swipe reader.
It's hardware that's built by actually working very closely with the kinds of people, not just the people who actually have to use the device when they want to pay, but rather, the cashiers who were standing like 8 hours a day in the store and have to, you know, handle credit cards. Like just simple things such as this reader makes it impossible to put your credit card in the wrong way. You know, like, again, why did that take, what, 30 years for someone to build it like this? This was just, you know, putting a bit of plastic into the right spot and it just works. Sometimes this kind of thinking is just sort of absent in our industry. We took it upon ourselves to supply it at this point.
Yeah, got it. Thank you for the thoughtful commentary.
Thanks, Ken. Your next question comes from Jesse Hulsing from Goldman Sachs.
Yeah. Thank you. You have almost $1 billion of cash now on the balance sheet. I'm wondering what your thoughts are with regards to uses of that cash, in particular M&A. I know you've done some smaller tuck-in acquisitions. Would you ever consider anything more transformational, or is the strategy gonna be focused more on acquiring smaller solutions and integrating those into your platforms? Thank you.
Yeah. So far we've done six acquisitions. As you talked about, they've been these small sort of tuck-ins that we've been very successful on integrating. With the amount of capital we do have on our balance sheet as well as our sort of market cap as well, I think we're in a position to do some bigger stuff. Nothing currently contemplated, but definitely that option is now available to us.
Thanks, guys.
Your next question comes from James Cakmak from Monness, Crespi. Your line is open.
Hi. Thanks. Good morning. Well, look, in looking at the results, I'd say this is probably one of the cleanest and most impressive growth stories I've seen in a very long time. It seems like, you know, it's virtually frictionless, you know, across the board, I mean, looking at your metrics, at all levels. Let's say, you know, with that in mind, you know, what would you characterize as your challenges, if any? Thanks a lot.
I mean, I think in the business that we're in, which is a trust business, operational elements are something we put a lot of attention on, and probably is one thing that does keep us up at night to make sure that we never do anything that sort of breaks that trust with our merchants. So that's a key part. The other thing is, in some parts of the world, credit card penetration isn't that high, so we need to think about other ways of allowing merchants to transact money with their customers, as well as in other places, the logistics system's not quite where it needs to be. It's those things that we also are keeping a focus on, and basically decide where we want to experiment based on those factors coming into play.
Your next question comes from Michael Nemeroff.
Thank you.
Your next question comes from Michael Nemeroff from Credit Suisse. Your line is open.
Congratulations on a good quarter. As Plus is it's clearly becoming a larger portion of revenue. Aside from focusing on the wholesale aspect, what other things are you going to do to feed this larger merchant growth? Then also, do you feel like the core product is robust enough or feature-rich enough to replace an enterprise solution, something like a Hybris or a Demandware? You know, could that be a direction of the company going forward to go after some of these really large commerce platforms that have, you know, cost a lot of money and have been installed for, you know, decades in some cases?
Hey, it's Harley here. I'll take that question, Michael. In terms of the additional functionality that some of these larger brands require, one of the reasons that we launched the technology partner program just a little while ago, was because some of the things that they're asking for our core base of merchants just simply don't need. For example, like ERP integrations or cross-border tax compliance. By creating a network of partners who are specifically geared towards these much larger brands, these much larger merchants, we think that helps us fill in a lot of the gaps that potentially have been missing. Beyond things that you mentioned, wholesale. I mean, wholesale really was demand generated.
We saw our existing base of merchants that were asking for it, and so it was an obvious thing for us. One of the things we are doing now that we have a bit of a better handle on who these Plus merchants are, is we're now asking them, you know, "What are the other things that you're not getting from us?" Fill in those gaps with these other partners. That's kind of the way we look at it. In terms of your question about big migrations, we've had migrations from every major platform, including the ones that you had mentioned.
Certainly the bulk of our migrations come from more of the mid-market, like the Magento, but we've had migrations from all the major ones as well. As I said on previous calls, the thing that we're noticing is that a lot of these big brands are acting a lot more like entrepreneurs these days. They want things that are easy to use, that are quick to market, that are very scalable, easy to customize. We think that as a package, Shopify Plus competes really, really well in that vein.
All right. Thanks very much.
Your next question comes from Deepak Mathivanan for Barclays. Your line is open.
Hey, guys. Congrats on a great quarter. Two questions. First, if you look at your total gross profit as a percentage of GMV, it's currently around 1.5% range. What do you think is the long-term opportunity in terms of economics, given that the value prop to some of the large merchants is very attractive with the cloud infrastructure and all the other features for payment processing? Do you think we can see it at much higher levels? One quick one for Ross. Payment volumes are growing strong consistently with the GMV growth. Can you talk about payment penetration in terms of the Shopify Plus program currently? Do you seeing pretty healthy demand from large merchants? That's it. Thanks a lot. Congrats again.
Maybe I'll take that second question first. In terms of the Plus side, what we're seeing is a lot of the new merchants that we're picking up as part of Plus are adopting Shopify Payments. Part of it is some of the changes we've done to pricing. More importantly, I think it's just from a product point of view, a much cleaner and integrated solution for the merchants there. We've also had a number of even Plus merchants move over to Shopify Payments just in order to be able to access Shopify Capital.
Again, the nice thing about Shopify is a lot of these things are interrelated, and so having strength in one area actually helps other parts of the business. In terms of your other question on the sort of the growth side, I mean, no specific guidance in terms of what that amount can turn out to be. I think we feel that there's still lots of good opportunity to grow both the subscription side of the business as well as the merchant solution side of the business.
I think it's worth also pointing out that like I always like getting these questions because you guys always suggest these really interesting, you know, ways to slice those growth metrics divided by something, you know, really novel. I just have to say, like, from a perspective of building a business, well, we never manage a company against these sort of financial ratios or goals. Like, the way we think about a business is that we have our core product, which is of enormous amounts of value to the people who use it. We are constantly working on thinking about how to make it better. We have a pretty clear-eyed view of what the future of retail might look like and what kind of software it requires.
All of these things go on the flywheel, which hopefully then, you know, spins faster and faster and faster. From that, we look at opportunities to, you know, like, get some revenue, especially in places where our customers are already spending money, like payment gateways and so on. That combination then creates, you know, a really, really robust growth story, where the revenue is then reinvested into allowing us to take advantage of more opportunities to build better products, and it all kind of feeds back into each other. You know, the financial statements at the end of the day are kind of our check-in this, that things are going in the right direction, but we don't manage directly against them.
Your next question comes from Brian Essex from Morgan Stanley. Your line is open.
Good morning, and thank you for taking the question. First of all, Russ, congratulations on your retirement. If you picked a quarter to announce it, this is a good one. I guess for the question, I wanted to follow up on Michael's question around Shopify Plus. You know, as you look to expand to more kind of feature functionality and broaden your depth with Plus penetration, how do we think about unit economics of those customers and what kind of value you might capture as opposed to passing through to your partners?
Then secondly, you know, are you seeing a greater percentage of exclusivity on that platform, you know, as opposed to, you know, I know when we first did the IPO, there was some pretty interesting use cases, for example, as CMOs get more of their budget, they don't have to involve their IT staff and, but they may be, their IT staff would have a solution like Demandware that they kinda went in parallel with. Are you seeing more exclusive opportunities? I think that would about do it on my end.
Yeah. In terms of exclusive opportunities similar to our core app partners, what tends to happen is they, they begin to build for Shopify and realize that Shopify is the best place for them to access customers of their applications, and they tend to go in many cases, all in on Shopify after that happens. The Plus technology partner program is still pretty new. Some of these partners obviously work with a variety of different platforms. Our hope is that they see that there's just a ton of value with Shopify, and that's where they invest their time and their R&D efforts to build on top of in that case.
On the first part of the question, just in terms of economics around Shopify Plus, the reason we made the change in Q1 on pricing is really future looking. The idea is that, as these new merchants grow up on Shopify, eventually graduate to Shopify Plus, get really big, we share in the economics of their GMV through the fee, the 25 basis points. Also for other brands that are migrating over that as they grow up on Shopify and in some cases bring on more of their properties to Shopify Plus that we share in that, in that success. Similar to what you'd mentioned, that we talked about a little while ago around these CMOs that are contacting us for a very small slice of their entire business.
We really like that 'cause it's a bit of land and expand opportunity. So they may bring us, you know, Sears brought us a very small pop-up that they did last year, and that was our first time engaging with Sears, and obviously, the hope is that that brings on more properties from them. Same thing with some of the other big department stores. So we don't necessarily need to get the entirety of every property from these big brands on right at once. We'd much prefer to get something on, prove to them that Shopify Plus is an ideal partner for their commerce and retail efforts.
Then slowly we watch them bring on more and more properties, which certainly has been the case with companies like Budweiser and a lot of other big brands.
That's helpful. Thank you.
Your next question comes from Richard Davis from Canaccord. Your line is open.
Hey, thanks. Look, I mean, it's self-evident that you guys have executed really well, and you've kind of touched around this topic of making the platform better near term. If, you know, let's step back and think. If you're looking back, you know, if we're looking back here, at least at a high level, say three or four years from now, you know, what initiatives do you see as kind of the most promising or interesting new growth vectors for the business? You know, you don't have to give us that we can, you don't have to give us the product roadmap explicitly. It'd just be helpful to kind of think about this thing a little bit more holistically. Thanks.
Yeah. I mean, a lot of our cards are in play already, right? Like, I don't think Shopify necessarily needs the, "Here's the massive unveiling of the strategy that no one's been seeing." You know, like, I think that kind of happened with multichannel. Like, it sounds so silly to say this now because it's so bloody obvious. You know, when we were taking the company public, we were worried a lot, talking in our decks about multichannel. Like, and specifically our insight that we knew everyone needed multichannel software, we weren't online for software. Our insight was, we are in the best competitive situation to get to be the multichannel system for our retailers, right?
We worried and said, "Hey, let's go public, but we need to explain this." The problem is then everyone knows what we're doing, and then everyone's gonna do this. You know, here we are two years later, and kind of no one did, right? That's kind of surprising. That just means how ahead we were with this kind of thing. In terms of, you know, the next couple years, like, the key there is really, like, is really with multi. You know, there's a lot of things. Multichannel has started this, but, you know, there's a lot of work going into, you know, being able to deal with the true complexities of, let's say, inventory. You know, like multi locations.
You know, like, we are talking like when you go to the rest of the planet, you say, "Okay, now multiple languages and so on." Really, I think these are, now we are going to add the parts of the platform which really, really allow the addressable market of Shopify to just expand in all directions. Every time we do one of those kind of things, it really compounds and acts on the flywheel and then increases the amount of people who can use us in both directions, and that's the really exciting thing.
You know, like the pyramid of our, like our addressable market is a pyramid. Like the demand is almost total. Like who wouldn't want like a business on the side that makes more money than it costs, right? The only thing that stops everyone from wanting like a Shopify store is that it's work, and that it requires learning, and there's a potential for failure. All these things we have inputs on. Like, we can make it less work, especially with technologies like machine learning, which we invest into. We can make the, we can manage a fear of failure to a certain degree, which, you know, frankly, macro culturally already kind of happens.
We can just like, push down the learning curve to building this entire thing and therefore, just massively increase the size of the market we have. You see a lot of these kind of efforts, you know, like just general like work on the platform, think our Kit and so on. I think the best way to think about Shopify like is, now we are on, like we put this train on the right tracks now and now we're gonna pick up speed into this direction.
Got it. No, that's super helpful. Thanks so much.
Your next question comes from Colin Sebastian from Robert Baird. Your line is open.
Great. Good morning, I'll add my congrats on the strong quarter and to Russ as well. Question on Shopify Capital. With the step up in cash advances in the quarter, if you could talk about how important the program is related to the contributing to merchants and revenue growth, including color on your ability to screen merchants for credit quality. As a quick follow-up on the bigger growth question, I wonder if you can tie the, the significant growth in share for platforms like Amazon as creating more urgency among merchants and retailers to upgrade, to get online and upgrade their existing technology platforms. Thank you.
In terms of the Shopify Capital, I mean, for a lot of our merchants it is very difficult, if not in some cases impossible, to get working capital financing. I think that we're meeting a real need there. Again, although it's its own revenue contributor, I think the bigger value is that it's helping these merchants expand their businesses, which we also then participate in through things like Shopify Payments. We're seeing a number of these merchants who paid off their first, second, sometimes now up to 5th advance. They're looking to refresh that. I expect as we sort of get ready for the Black Friday, Cyber Monday holiday period, you'll see more advances as they wanna sort of build up their inventory for that side.
I think using the tools that we now have at our disposal, as Tobi talked about, like machine learning, it's really allowing us to make sure that we're providing the merchant with the right proposal at the right time and making sure that we're not taking on due risk. Further to that, the fact that these have been insured almost for 12 months really reduces our exposure. In terms of what Amazon's doing and the urgency that creates, I would say that's definitely a factor. I would say the fact that mobile is such a big part of the business these days, that your existing solution may not have that capabilities. The fact that you now need to be multi-channel, I think all of those contribute to really a good time for Shopify and what we offer.
Thank you.
Your next question comes from Jonathan Kees from Summit Redstone. Your line is open.
Great. Thanks for taking my questions and I'll add my kudos to the quarter's results too. I just wanna ask about a couple things. One is regarding the sales hackers. I assume it's the trajectory for the sales hackers growth. I assume you grew that sales force this quarter and you'll continue to do that as we go through the year with the growth of Plus. Can you just talk in terms of the trajectory of that expansion if you're looking to really ramp up there? Second, wanted to ask about Russ's departure. Russ, congrats there. If I can ask, I'm only asking because more likely I will, I'll be asked this. Are you looking to just take some time off, spend time with family, and then reevaluate entering or looking for other opportunities, or are you truly retiring? Thanks.
Hey, it's Harley. I'll take the first part of the question and let Russ answer his own question about retirement. In terms of the sales hackers, we continue to hire them. The hacker count is certainly higher than where we were in Q1. It really is just a matter of getting them, getting the right hackers and getting them ramped up. As we've mentioned in the past, our sales hackers are not your traditional salespeople, so these are people that have a proclivity for technology. Many of them are quite younger and not necessarily as experienced, but we find that that's a much better way for us to bring them in and train them on exactly how to sell Shopify Plus. We will continue to grow that hacker team as needed.
Yeah, I'll take the I guess the, I'm the best one to answer the retirement question. Yes, it is a retirement. Sort of the normal stuff, travel, spend time with family. I have new, well, one grandchild and another one on the way. Probably do some golf, some reading. I haven't quite figured out the second week yet of retirement, I'll keep you in the loop.
Great. Congratulations there. Good luck there. Thanks a lot, guys.
Your next question comes from Sam Kemp from Piper Jaffray. Your line is open.
I have a question and congrats on the quarter. Harley, you talked about Shopify Pay being an intermediate step, and Tobi, you talked about a lot of things around hardware and browser combos to reduce payments friction. Can you kind of piece those together from what it looks like from a consumer standpoint, and where do you want to take payments and what kind of timeline we're talking about there? The second question is around Kit. You made Kit free during the quarter. Can you just talk about the strategic rationale there? Are you seeing Kit as more of an onboarding platform for? Further product rollouts or. Can you just talk about the rationale there? Thanks.
Hey, Sam, we're close to the end of the call, and we have a lot more people in line. Do you want the Kit one or the Payments one?
Payments.
I, with payments like, again, our ambition is, you know, you sometimes see people talk about, you know, sometimes you talk about, you know, one page checkout and all these kind of things. Like our ambition is no checkout. Like we think checkout is an anachronism, and we wanna get rid of it. We are looking for ways to do this now and get into this future quicker, and that's Shopify Pay. Maybe in the long term that ends up being the dominant perfect solution for this, depending on how, you know, high we can climb this particular mountain.
Again, I don't wanna do is say, "Hey, you know, like measure, you know, Shopify's progress based on how well Shopify Pay is doing." Because the truth is, we might be happily turning it off in two years if all the devices get, you know, like payments built in and credit cards and secure elements and so on. Like I'd love to remove all that code we wrote from Shopify and just rely on browser features. This is really how it stitches together.
We thought this would happen by way browsers would build in, payment transfers and credit cards and we were convinced this would be imminent after Shopify's release in 2006. Certainly was talked about, it just never happened. We kind of just gave up. We just said, "Let's pay, let's build pay, for now and then, we get all our customers into the proper future and, then we are not dependent on the browser vendors doing the right thing anymore.
Thanks for the color.
Thanks, Sam.
Your next question comes from Monica Tait from KeyBanc Capital Markets. Your line is open.
Hi. Thanks for taking my question. You had talked about entering B2B market last quarter. Could you update us how is that going? How do you see that ramping? Thank you.
Hey, it's Harley. I'll take that question. Yeah. As we discussed, we have rolled out a wholesale functionality for Shopify Plus. Still really early, but as I mentioned in the last call, I believe, we had some merchants who were kind of doing it on the side and they were having trouble bringing it into Shopify. Now we've made it a lot easier for them. Again, B2B was really something that our existing merchant base has demanded, we've been able to provide them with functionality there.
The additional piece of that is now we have merchants who exclusively sell B2B that are now coming to Shopify Plus that historically were not doing so. Again, I think that product is still pretty early and we're still iterating and making it better. But it certainly now allows us to go after a new type of Shopify Plus merchant that historically did not sell direct to consumer.
Thank you.
Your next question comes from Terry Tillman from SunTrust Robinson. Your line is open.
Thanks for taking my question. First, Russ, I guess we have some time to try to talk you out of retiring. This is too much fun. Yeah, my question just relates to the apps, the apps business and the third-party developer ecosystem. How big is that as a revenue generator? It would seem like you could really leverage machine learning there to actually recommend the next best app for your customers to use. Just kinda curious how you manage analytics around that business and the revenue size. Thanks.
In terms of the revenue size, I mean, the theme piece of the business is something that we record on a gross basis where the apps themselves are net. Relatively, the theme part is slightly bigger at this stage. We have started to already use some of the capabilities we have around machine learning to help the merchant really discover which apps are suited for them for whatever their particular task is. I think that's an area that you'll see grow. I mean, when you have 1,800 apps, it can be a little daunting when someone goes to the App Store and tries to sort of navigate. We think that is an area that we can really help with.
Hey, it's Harley. I'll just add on to that. One of the things that because we have, you know, so many merchants on our platform, what we're really trying to do is make sure the right merchants find the right apps at the right time. As they're sort of building their journey, you know, they don't need ERP applications when they're just getting started. We know what they need just to get up and running and get some first for sales on their, on their site, on their shop.
One of the things that we, as Russ had sort of alluded to, what we really want to do is ensure they're finding the right apps at the right time. Having so many merchants on our platform, one of the additional benefits is that, you know, anyone that's thinking about building new commerce functionality on the planet is thinking about Shopify's app program first, and we love that.
Your next question comes from Samad Samana from Stephens Inc. Your line is open.
Hi. Congrats on a great quarter. Thanks for taking my question. Can you help us understand what % of each CAD 1 of GMV from a merchant that you think Shop can address over time? In other words, what do you think the maximum take rate can be long term? What do you see merchants spend today in terms of their, as a % of GMV on their merchant solutions and what Shop could address over time? Thank you.
I think it depends on what particular merchant solution you're looking at. I mean, if you look at absolute dollars, people will spend more on shipping than payments, for example. We don't have a firm view of how high that number can be. We think it'll just continue to gradually increase over time, which is really what our objective is here.
Your next question comes from Todd Coupland from CIBC. Your line is open.
Good morning, everyone. I believe Shopify had plans for about 1,000 new staff in 2017, and I'm just wondering, with the acceleration of the merchant count, does that also require you to hire more than you expected at the beginning of the year. Any color on that would be appreciated. Thank you.
Yeah. We're still having lots of success on the hiring front. Where that merchant count has more of an impact is on the support group. You'll see us continue to ramp that side of the business. Q3 has always been sort of an investment period for the company, both on that as well as the infrastructure and preparation for the very high volume holiday period.
Your next question comes from Suthan Sukumar from Eight Capital. Your line is open.
Thank you, good morning, guys, congrats on an impressive quarter. In the past, you've spoken about the significant traction you've seen with Kit. I, you know, I kind of want to understand some of the strategic rationale in sort of making it a free service, kind of the, you know, I presume there's a strong business case in doing so. Beyond that, your thoughts on how you plan to evolve the offering and what other types of marketing capabilities do you plan to roll out to your base from a roadmap perspective?
Yeah, I mean, Kit is what we call a marketing simplification, right? It's, there's an entire industry of marketing optimization, which is sort of like, looks a little bit similar, but it's quite different in terms of its goals. The reason why we want Kit to be free is just because we wanted to remove obstacles from install, from installing it. We really want more people to use it because we see the data. If you can help a merchant get their first sale or second sale, these are, you know, it sounds a little bit hyperbolic, but like, those are life events, you know.
When they get the sale, especially, you know, as a result of a very pleasant experience of building, you know, a store based on their ideas and dreams, and then have a completely automated bot kind of help them find the audience. That's, you know, that sounds worthy of a 2017 technology kind of play, right? That's exactly what the experience we want people to have. Sometimes, you know, like people are like, even a CAD 9 a month kind of fee is really in the way of installing something that really might make a difference.
It's really the way we think about it is we are gonna, you know, every time someone gets a sale who otherwise wouldn't have because of, you know, Kit helped out, they're gonna have a new merchant that is going to be with us for the long term, and that's gonna be worth way more than the, you know, a couple of dollars that we otherwise would have made.
Okay. Great. Thank you.
Your next question comes from Kevin Krishnaratne from Paradigm Capital. Your line is open.
Hi, good morning. A question on net adds. I know that you still drive a good chunk of net adds organic, just any thoughts on more targeted campaigns on the low end? I'm thinking more about website builders, sites that are either free or cheap or free to build, easy to start, but might not offer the merchant all the benefits that you offer. Any plans on targeting the low end, potentially offering a free trial, a free plan, i.e., not a trial?
Oh, there's lots of discussions about it. I think it's important for us to say like we want to only suggest to people to use us for things that we know that we are the best in the world for, right? Because I don't think we deserve customers if for products that are not the best in their class. So I guess, like, we probably have thousands, probably tens of thousands of people who use Shopify as a CRM website builder because it's really, really good for that. Even if you just remove all the products, then it's a good content management system. In fact, it's a great one. I think we would really confuse the message to our customer, like, to our market if we start advertising this. It's just not our, it's not our jam, I think.
Okay, great. Thanks for that.
Your last question comes from Brian Peterson from Raymond James. Your line is open.
Thanks for squeezing me in, guys. First off, Russ, congrats on retirement and great job on the quarter. Tobi or Harley, just if I think about the merchant solutions business, and obviously from a functionality perspective with Shopify Shipping and Shopify Capital, et cetera, that's much larger today than it was at the time of the IPO. If I think about what you could potentially address for your merchants, how much room does that have to expand? Would you look to bring that in-house, or would you potentially address that with partners? Thank you.
Yeah, it's a good question for both of us. I mean, it's hard to even have a generalized statement. This is really, like, we slice every single thing that needs to happen in the businesses and then try to think of the long term and say, "Okay, in 10 years, what decision right now puts us into the best position?" Right? You know, frankly, very often this means leave something to a partner ecosystem because the partner ecosystem is such a key part of this company. It's so tremendously hard to build. It's already, we've been building this for 10 years, right, already. So it's very hard to say, "Hey, here's our, like, pre-sentence mantra, and that's the guiding principle by which we make all our decisions as it relates to merchant services."
We are really just working backwards from our merchants' needs and then figure out how to address them in the best possible way. This is actually, I would say, the most subtle part of this business, just from a strategic perspective. Because it is so simple in for us to pull future revenue forward by making choices that favor the short term. There's so many opportunities for doing this. We really, really, really don't want to, because again, we are very long-term focused. I wrote that in my in the prospectus. We really try to make decisions that put us in the best possible position long term. I think so far we've without fail done that.
Thanks, Brian.
Got it. Thanks, Tobi.
Okay, thanks everybody for the call. We have a few closing remarks from Tobi.
First of all, it's, I mean, hugely like 500,000 merchants. It's just such a crazy number. It's just for someone who has seen like every single stage of this company, every single version that existed over the years, it's, it's, you know, I've been, you know, I have lots of stories about being laughed out of VC offices because they told me the entire addressable market for my company was 40,000 stores. It's amazing to get here, and there's so much work left to be done. Like, if you walk the street, and ask someone if they want to be an entrepreneur, they say yes. If you ask them if they've heard of Shopify, they would say no.
There's so much. There's so many things we can put on this flywheel to make this go faster. It's just an amazing ride. I wanna just actually thanking Russ myself. You know, Russ joined in 2011. At that point, the finance department was a part-time bookkeeper, my mother-in-law and 2 Ruby scripts that I wrote. It's also amazing to be able to spend, you know, so many years to work alongside someone and just see the entire business grow around it. His fingerprints are on everything.
He's absolutely the source of, you know, this financial diligence that we have that we have this massive need to make every single dollar count. I think this is something which, especially with our friends from Silicon Valley, is just so rare in this industry and is absolutely the kind of thing he taught us. Russ has an approach to say that creativity comes from constraints and then an amazing hand at, you know, setting these constraints and always prioritizing what's best for the product and best for the company above the sort of more obvious quantitative metrics, which I, even in this entire field that Russ is in, is also like a rarity.
I think these are all the components that really, you know, just made this company work, frankly. Thank you very much, Russ. We are going to open a search for the position. I mean, we're not in a massive hurry here because Russ kindly gave us a lot of flexibility. What Russ, like on a more operational side of things, Russ built a enormously well-built financial accounting system here. There's so much optimization. Like I if the Shopify story continues on this trajectory for longer, at some point people will write books about how this all happened, has been put together. There's lots of fun things you should ask him about when you see him at a conference or so.
I would say, when we go out for research, this is probably going to be the best possible CFO position that's available out there. There's a no drama transition, coming into an enormously well-built system and a company with tons and tons and tons of potential. I just figure, might as well use this a little bit for recruiting purposes. Okay, that's it from us. Thank you very much.
This concludes today's conference call. You may now disconnect.