Good morning. My name is Denise, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Shopify's Q3 2016 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
I would now like to turn the call over to Shopify's Head of Investor Relations, Katie Keita. Please go ahead.
Good morning. Thank you all for joining us for Shopify's Q3 2016 conference call. On today's call is Toby Lutke, Shopify's Founder and CEO then we'll be hearing from Harley Finkelstein, our COO and then Russ Jones, our CFO will review our Q3 results and our expectations for the rest of the year. Then we will open it up for questions. And now for the most riveting part of today's call.
During today's discussion, we will make forward looking statements, which 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, and information about these risks and uncertainties is contained in our press release this morning as well as in our filings with securities regulators in both Canada and the United States. Also, our commentary today will include adjusted financial measures, which are non GAAP measures and should be considered as a supplement to and not a substitute for our GAAP financial measures. Reconciliations between the 2 can be found in our earnings press release, which is available on our website. And finally, note that we report in USD, so all amounts discussed today are in U.
S. Dollars unless otherwise indicated. And with that, I will turn the call over to Toby.
Thanks, Katie. Good morning, everyone, and thanks for joining us today. Before I get started, I'd like to welcome Gail Goodman to our Board of Directors. Gail was always full of fantastic advice over the years when we interacted and talked about Shopify, and she has built one of the SaaS companies that I've always admired most. I'm really looking forward to working with her more closely.
And because Russ and Harley are here to talk about the things that make headlines, like revenue growth and new brands joining Shopify Plus, I'd like to use my time on these calls to talk about the things that sort of fly under the radar, but which are actually very important parts of implementing our strategy. So since our IPO 18 months ago, we've been pretty clear about the strategy. We focused on entrepreneurs and by making product decisions that facilitate their success, a lot of good things follow. Today, I want to talk about 3 of those things we shipped in this quarter, and I think most will make a big difference for our merchants. It's no secret that we're all spending a lot of time on mobile and usually in apps.
And to have merchants take full advantage of these trends, last quarter we shipped mobile Shopify, sell on messenger and Apple Pay. First, we launched our new mobile Shopify app. This was in September. The Fit merchants can now do much more than they ever could on their phones. They can now start a business directly on mobile Shopify, view financial reports, communicate across the team members with our timeline feature and get insights on just how to grow their business through our home cards.
These new mobile apps are a milestone for us. We will build them from the ground up to be more than just simple companion apps. They are important and full featured as our web interfaces. This means that anyone can now start and run an entire new online business from their pocket, which I think is really cool. 2nd, this past quarter we took our integration with Facebook Messenger beyond customer service and order notifications and build the ability to sell directly on Messenger.
Messenger as a channel is unique. When we integrated Messenger onto the Shopify platform about 6 months ago, it gave our merchants the ability to connect directly and personally with their customers. Since then, tens of thousands of merchants have started actively using the Messenger channel. Such conversations are formed within which commerce can happen really naturally. In many ways, this conversational commerce recaptures what we miss about in person buying and selling, having the seller on hand to answer questions and guide us through the purchasing process.
Finally, Apple Pay on our web and live for Shopify merchants in September. I talked on our last call about the difference this should make for conversion rates and that's exactly what's happening. Our merchants are seeing up to twice as many conversions on mobile than without Apple Pay. The shift of payments to Apple Pay is powerful for commerce, but it's just one of what will be many alternatives for online transactions. For too long these transactions have been unnecessarily hurdle to e commerce adoption.
As bizarre as it is, commerce on the Internet has always been an afterthought. What I mean is this, web browsers had exactly zero helpful features for e commerce. They could play music, render 3 d graphics, random musical notations and other bizarre niche features that they couldn't like that they had, but they couldn't transfer money. You can see the effects of this history everywhere. Look at the publishing industry and all the paywalls that they have to put up as an afterthought.
Every online store had to invent its own checkout and ask for credit card and address over and over again. We believe commerce is one of the primary uses of the Internet and so we are working hard convincing social platforms, web browsers and messengers and even operating system vendors to adopt transaction brokering into their systems to make it easier and more secure for everyone. We work with them to make it happen and support it with our collective merchants. Because Commerce Online essentially has been an afterthought, it's been kept kind of small. Ever now that people are increasingly spending their online minutes on platforms that support it, we see new momentum for e commerce.
Momentum will not be limited to apps. We believe commerce over web browsers will also benefit due to Apple Pay and others soon to follow, partly thanks to the efforts of the W3C standards body, which we are actively involved with. Our thesis is that commerce per hour is going to be higher when people engage platforms that support commerce natively. This is what we see happening with Apple Pay and it's still early days. The good news is that Shopify merchants should always be amongst the first to benefit from any of these moves, given our focus on the future and our strong desire for them to thrive.
With that, I'll turn the call over to Harley.
Thanks, Toby. Good morning, everyone, and thanks for joining us on our call this morning. I'm excited to talk about this past quarter as we added a record number of new referral partners to our program, a record number of new merchants to Shopify Plus and our Shopify Plus partner program is off to a great start. First, I want to talk about our most recent acquisition. We now have some incredible new talent at Shopify Plus with the acquisition of BoltMaid, a Waterloo based software development agency we had the pleasure of getting to know over the past year.
This acquisition brings a strong group of designers and developers that we expect will play a large role in building out Shopify Plus and help world class brands offer exceptional retail experiences to their customers. The BoltMate team is already off and running in our Waterloo offices. In service of our partner ecosystem, we continue to expand this incredible community globally. This past quarter, these partners not only referred a record number of new merchants at Shopify, but the merchants that they brought on joined at higher value plans than in previous quarters. This is due in part to the new Shopify Plus focused partner program that we launched in June.
We initially launched that program with more than 40 partners and experts and we now have grown to more than twice that number today. We really understand how important our partners are to our ecosystem and we're always looking for ways to further engage them and further support them. Not only do we have a dedicated team of region specific partner managers, we also provide a host of programs, meetups and education each quarter to support their growth. This past quarter, we went a step further and expanded our Shopify partner accelerator program from New York to now include Montreal, London and Austin. This partnership with WeWork gives our network of developers and designers office space to grow their businesses.
It's an incredible opportunity for our partners and we're excited to be part of their journey. This is but one of many things we do to keep building out a knowledgeable, loyal and highly effective network of Shopify centered professionals. It is important not to overlook the value that our 3rd party app developers bring to Shopify. These partners extend the functionality of what the Shopify platform can deliver beyond the core mission critical e commerce capabilities. The average monthly spend per merchant on apps has grown consistently over the past couple of years, which tells us merchants are deriving greater value from our app ecosystem.
This isn't because we're offering more apps, but because we continually strive to lead merchants to the apps that will make them more effective and successful in running their businesses. Since launching Shopify Plus almost 2 years ago, about half the Shopify Plus merchants have been homegrown businesses that started on Shopify. And this is something that we're very proud of. This quarter, while the number of upgrades to Shopify Plus continued to increase, notably more than half of the new Shopify Plus merchants were brand new to Shopify. This is the result of a number of new growth initiatives, including our new Shopify Plus partner program and our most recent marketing campaign for Plus which successfully helped merchants migrate to us from legacy e commerce platforms.
The Shopify Plus program itself is expanding nicely with GMV and revenue from Shopify Plus merchants growing even faster than overall Shopify GMV and revenue. Our expanded team of sales hackers was a strong source of new merchants with many of the recent additions to the sales team now fully ramped up. Their efforts along with those of our partners brought us some recognizable brands in the quarter including the Game of Thrones store from Penguin Random House, the American Kennel Club, T Mobile, CrossFit, Seth Godin, Macy's cosmetic brand Blue Mercury, Lady Gaga and one of my wife's favorite shops Fred Siegel. We also signed a global agreement with Nestle that makes it easy for any of their 200 plus brands to spin up a store on Shopify Plus quickly and easily. As an update to our Amazon channel integration, we moved into beta in Q3 and we'll be making it publicly available to our merchants in late Q4.
This integration is a great example of how we're helping merchants expand their audience directly through Shopify's platform. Regarding shipping, we established a solid foundation for Shopify Shipping in its 1st 12 months with 1 in 5 of our U. S.-based merchants using it. And more recently, we expanded Shopify Shipping with the addition of Canada Post in September of this year. Even with all our success to date with Shopify Plus and our partner ecosystem, we feel like we're just getting started.
We continue to expand the capabilities of our platform through our partners and feel strongly that the vast majority of the opportunities for us and for them lies ahead. This is what makes Shopify so great for merchants, partners and employees alike. So a quick thank you to all of you who are building alongside us and taking our mission of making commerce better to heart. With that, I will turn the call over to Russ to finish up. Russ?
Thanks, Harley. We're pleased to report another strong quarter all around where we again delivered rapid growth, continued leverage and steady progress on our strategic and product initiatives. Starting with revenue, we grew revenue in the Q3 89% over Q3 of last year to $99,600,000 split approximately equally between subscription solutions and merchant solutions. Subscription solutions revenue grew 69 percent to $49,800,000 due to the continued expansion of the monthly recurring revenue which stood at $16,300,000 on September 30. This represents an increase in MRR of 67% over last year's Q3 as new merchants continue to join the platform.
We surpassed 325,000 merchants in the quarter. MRR per merchant also went up as more merchants either joined on or upgraded to higher price plans in the quarter. Merchant Solutions revenue grew 114 percent to $49,700,000 in the quarter. A 100 percent growth in GMV to $3,800,000,000 of which $1,500,000,000 was processed on Shopify payments accounted for the majority of this revenue increase. Revenue from Shopify Shipping and Shopify Capital also contributed to the growth.
In the 12 months since launch, Shopify Shipping's penetration has established a solid foundation with approximately 20% of U. S. Merchants using it. Shopify Capital also reached an important milestone recently surpassing $20,000,000 in cash advance since inception. At the quarter end, this number stood at $15,500,000 with a sharp increase since the end of Q3 likely due to merchants preparing for the holiday season.
Approximately 70% of merchants that have fully remitted in advance have opted for a second one indicating the central role Shopify can play in facilitating our merchants growth that might otherwise be crippled by traditional working capital financing constraints. Our agreement signed in September with Export Development Canada will help us to expand this program while maintaining appropriate levels of risk. Gross margins improved year on year for both subscription solutions and merchant solutions, which was aided by shipping and capital as these incremental revenue streams are recorded on a net basis. The continued results of these improvements was an acceleration in the growth of gross margin dollars to 82% from 77% in Q3 of last year. Adjusted operating expenses as a percentage of revenue came down both year on year and quarter on quarter.
Overall adjusted operating expenses as a percentage of revenue declined to 55% versus 58% in Q3 of 2015 and 57% in Q2 of 2016. As a result of our improved performance and leverage, our adjusted operating loss for the quarter was $2,200,000 or 2% of revenue compared with an adjusted operating loss of $2,000,000 or 4 percent of revenue for the Q3 of last year. The adjusted net loss for Q3 was $1,800,000 compared with $2,400,000 for Q3 a year ago. On a per share basis, this was $0.02 for Q3 of this year, an improvement from the $0.03 loss for Q3 of last year. We ended the quarter with $400,000,000 in cash, cash equivalents and marketable securities with our successful follow in offering in August adding net cash of approximately $224,000,000 to the company.
Looking at the 3 major investment areas we outlined at start of this year starting with Plus. Some of the biggest investments in Plus this year are the new Waterloo office, the establishment of the Plus partner program, hiring and marketing programs and the acquisition of Boltmain. R and D spending in Q4 will reflect the impact of this acquisition which further strengthened surplus product development team. As we said last quarter, we continue to evaluate our data center infrastructure options with the plan for this year to only increase the capacity of our existing ones to meet the demands for the holiday season. On the merchant and partner engagement we are wrapping up our retail tour in the U.
K, which we coordinated with the launch of our EMV reader there in Q3. With this in mind, turning to the 2016 outlook, we now expect to report full year 2016 revenue in the range of $379,000,000 to 3 $81,000,000 Given the improved operating leverage in Q3 and the stronger revenue outlook for the full year, we expect to report a full year adjusted operating loss in the range of $12,000,000 to $14,000,000 This excludes stock based compensation expense and related payroll taxes of $26,000,000 dollars which are $1,000,000 higher than our previous forecast due to the impact of the higher share price on our employee equity grants as well as the acquisition of Boltmain. This means that for the Q4 we expect to achieve our first $100,000,000 quarter which we came close to in Q3. We expect revenue in the range of $120,000,000 to $122,000,000 and adjusted operating loss in the $1,000,000 to $3,000,000 which reflects the Boldmate acquisition and excludes $9,000,000 of expected stock based compensation expenses and related payroll taxes. We'll talk about our outlook for 2017 with our Q4 report in February, but I'll share a few closing thoughts on how we see the future shaping up.
Certain industry trends have been very favorable for us. We see continued strong demand by merchants looking to leverage our multi channel commerce platform.
On top
of this, there has been and we expect to continue to see very rapid growth trends in online retail, which has driven GMV per merchant higher quarter after quarter. While these provide reliable tailwinds for continued strong growth, we believe the primary reason we will continue to gain share of this growing pie is as both Toby and Harley referenced, our strategic focus on merchant success. This means continually reevaluating the platform capabilities necessary for merchants to thrive at every stage of growth and also investing in the partnerships and projects that we believe will help future proof their success. Although these will require investments, some with longer payback periods than other, we continue to feel comfortable with our profitability target for the Q4 of 2017. And with that, I'll turn it back over to Katie to start the Q and A.
Thank you, Russ. Because we have so many listeners wanting to ask a question in order for everyone to get a question in, we ask that questioners limit themselves to one question. So with that, Denise, could we please open the line for questions?
Your first question comes from Kevin Krishnaratne with Paradigm Capital. Your line is open.
Good morning. A question for you is great numbers. Wondering if you could speak to trends on ARPU and on subscription revenue. It looks like the revenue revenue per merchant is going up nicely. I'm wondering based on your comments in the quarter, would there have been notable impact from Plus?
Is that from uptake of more apps? Or would that be simply from merchants upgrading into a higher tier plans? Chair plans? Thank you.
Hi, this is Russ. Yes, it's really all of those factors. As Harley mentioned, Q3 was a record quarter for new plus merchants coming to the platform. In addition to that, we are seeing with the higher pricing of the advanced program, some merchants coming and picking that plan as well. And then just in general, lots of new merchants.
In the quarter, we also seen the revenue from the sale of apps, themes and domains a little bit stronger as well.
Thank you.
Your next question comes from Monika Garg with Pacific Crest Securities. Your line is open.
Thanks for taking my question. Russ, on the yearly guidance, revenue guidance, you were raising midpoint $15,000,000 but operating loss is going lower by only $1,000,000 So maybe reasons why we are not seeing more leverage. And then bolt made, how much is operating expense it's adding in Q4? Thank you.
Yes. I mean, I think consistent with what we said in the past, like we're still in a fairly heavy investment mode. Q4 in particular, we need to make sure that we have all the infrastructure and the people in place to support the merchants through that holiday period. The main change from our previous guidance is the BoltMate acquisition, which will result in about $1,000,000 to $1,500,000 of expense hit in Q4.
Thank you.
Your next question comes from Jesse Hulsey with Goldman Sachs. Your line is open.
Yes. Thank you for taking my question and good morning. I have two quick questions on Plus. First, you mentioned your team is becoming ramped to productivity. I'm curious what your forward hiring plans are for Plus?
And then second, when you look at the legacy platforms that have been shared owners to Plus over the quarter or the last couple of quarters, I'm wondering there's anyone that stands out. Thank you. It's Harley. I'll take this question. So I'll start with the second question, just about legacy platforms.
We did have a marketing campaign going for the majority of Q3 that really targeted Magento migrations. And so that was really the primary focus of that campaign. Although we are now expanding our migration campaign to include some other legacy platforms, it is really the initial one was geared towards Magento. On the first question about how many sales people do we have, certainly that sales team continues to grow. We also now have a better sense of how long it takes fully onboard a salesperson so they get to capacity fairly quickly.
So you will see that team continue to grow, but currently it sits around 30 people on the sales team.
Your next question comes from Kenneth Long, Citi. Your line is open.
Hi, guys. Thanks for taking my question. I'm just wondering, have
you guys taken a look into just your customer metrics heading into holiday season? Just wanted to get a sense of how it might compare to last year since I think last year was a little softer, not necessarily from you guys, but just retail in general. So just wanted to see what the macro and retail backdrop is heading into the busy season?
Yes. I mean, we're seeing very good growth in GMV. I mean, again, in Q3, we doubled year over year. Interesting enough, the GMV for Q3 was greater than the total amount that we did in 2014. 14.
And so we continue to see very strong growth of our merchant base. So I mean it's with 325,000 merchants now on the platform, it's difficult to predict the exact number, but definitely nothing that we're seeing would indicate a slowdown there.
And your next question sorry, go ahead.
Thanks, Ken. Next question please, Denise.
Your next question comes from Michael Nimerov with Credit Suisse. Your line is open.
Hey, guys. Thanks for taking my questions. I'm just curious, Russ, the payments penetration spiked this quarter. I'm wondering what caused that? And then just also when I look out in Q4 for merchant adds, last year was a fairly strong quarter of merchant net adds.
Do you think that the merchant adds in Q4 of this year could outperform what you did last year? Or is there something special about last Q4? Thanks.
Yes. So I'll take the first question on the payments penetration rate. I mean, we've had now more merchants being added in all the core geographies that we have payments. And so penetration continues to move up in the North American market. UK now we're at around 75% of the merchants using Shopify Payments.
In Australia, which we launched in Q4 of last year, we're already now at roughly 60%. So that penetration is really just as these are available in our key markets and we're on boarding lots of new merchants, we'll see that number to continue to grow. In terms of the merchant adds, I think it'll again be strong in Q4. The thing to be a little bit careful of there is during the year, we just announced when we achieved milestones and then we provide a more indicative number of the at the end of the year. And so depending on when we passed a particular milestone within a quarter, the Q4 number could look larger or smaller based on that.
Thanks, Michael. Next question please.
Your next question comes from Gail Luria with Wedbush Securities. Your line is open. Hello, Gail Ray, your line is open. Your next question comes from Terry Tillman with Raymond James. Your line is open.
Good morning. I got one question, 6 parts. No, I'm kidding, Katie. My question relates to the Plus business. I mean, can you all quantify a little bit more in terms of how material it is now?
And related to this, as you're having partners, whether they're referral partners or actually agency partners that sell it, is that actually allowing you to not have to invest as much in direct sales resources for that Plus business? Thank you.
I mean, on a relative basis, Plus in terms of the merchant count is a small piece of our 125,000 merchants. But in terms of the MRR that we drive from them and the GMV that they process through the platform, certainly a higher impact on that. I think on the partner side, in a lot of cases, we still will work with that partner as we want to get them up to speed. And it does reuse the amount of effort on our part, but we're still in the early stage of that partner program. And so definitely still some effort required there.
But a lot of these partners are the same partners that would have maybe years ago got them up on Magento and now they've moved to the Shopify platform. And so it really is going to help us ramp that program.
Thanks, Terry. Denise, next question please.
Your next question comes from Gus Papageorgiou with Macquarie. Your line is open.
Good morning. Thanks for taking the question. Just on my calculations here, it looks like the average revenue per merchant in the quarter was up about 28% year over year. I'm wondering, is that a fair representation of what's going on for your average customer? Or is it that there's a cluster of customers that are doing really well and a bunch of and then everybody else is suffering?
And if you have time for a second question, I'm wondering if you could quantify how many how much of your customer base came from Amazon's web stores? How significant was that? Thanks.
Yes. I'll let Harley take the Amazon question. In terms of your first one, it's really the whole merchant base continues to perform. I mean, one of the key elements of our business model is 1, the subscription piece and then secondly, once we have those merchants, we can gain a greater share of their wallet. So whether it's payments where in the quarter we processed $1,500,000,000 worth of payments, whether it's shipping, whether it's capital or cash advances, all of those add to that.
And so I think that's really the strength of Shopify.
It's Harley. I'll take the Amazon migration question. So as you know now that migration is over and we've received all the merchants we could from Amazon. As a percentage of total merchants on our platform, it is of course a very small percentage, but what it did do is it did 2 things. It was an endorsement to the industry that Amazon thought us we were a great product, which was fantastic.
We also got merchants on to Shopify that may have not otherwise came on to Shopify as well. But as a percentage of the total 325,000 merchants is fairly small.
And would it have influenced the Q4 ads last year?
It really took place this year. So, I mean, once the original announcement, we started to get merchants away. And it should also be noted that we as part of our partnership with Amazon they will continue to refer us other merchants as well.
Okay. Thanks for answering the questions.
Your next question comes from Brian Essex with Morgan Stanley. Your line is open.
This is Ivan Holman pitch hitting for Brian. Thanks for taking the question. Could you help us understand what the uptake of Shopify Capital is? Are we seeing a meaningful contribution there as winter the holiday season? And how do you anticipate it will impact your balance sheet?
And how do you decide how much risk to take on? Thank you.
Yes. So good question. In part because of the successful following offering, I think we can do a little bit more on Shopify Capital with our own balance sheet. The addition of the insurance by EDC allows us also to ensure that we're not taking unduly risk on that side of it. I think what you've seen as we talked about even since the end of Q3 is a lot of additional cash advances were provided to the merchants.
The key for us on the Shopify capital is not so much that we can make a good return on that, although obviously that's an important piece of it. It's more that for a lot of these merchants, it's difficult to get working capital financing. And so we're meeting a real need there. Those merchants are then growing their businesses, which make them stickier on the platform. And because they're using Shopify Payments and in a lot of cases now Shopify Shipping, we also partake in that as well.
Thank you.
Your next question comes from James Kaczmaki with Monness Crespi. Your line is open.
Hi, thanks. As you guys ramp up your efforts in Plus, how should we think about the metrics? Will there be kind of a change in the growth profiles across merchant base and MRR basis we put what seems like a lot more emphasis on Plus, so potentially a slowdown in the customer count number, but uptake in MRR. And then secondly, just real quick on the follow on offering. If you could just talk about how you're thinking about you mentioned the Shopify capital, but just how we should think about using that?
Thanks a lot.
Yes. In terms of our core metrics, I don't see Plus really changing that. Really the ones that we care most about is the MRR. Obviously, having a Plus merchant at a much higher price point helps to grow that MRR number. And then because of the sort of nature of these large brands, the GMV, which is our other key metrics, we'll see growing as well.
And so I think what you'll see is good growth there, in part due by adding some of these larger merchants. In terms of the follow on, I mean, it was designed to strengthen our balance sheet, which a good use of that cash is for the merchant cash advances. But it also gives us flexibility to do acquisitions similar to the BoltMate one that we did in the quarter and the kit 1 earlier this year. So we're constantly looking at the sort of founder led companies that have a great team that can help advance our roadmap.
Thank you. Thank you, James.
Your next question comes from Richard Davis with Canaccord. Your line is open.
Hey, good morning guys. It's D. J. On the line. So not sure if this is better for Russ or Harley, but we occasionally get questions around customer churn, just given your SMB core and this is generally a higher churn market.
I know this is a bit of a misleading metric for you guys as you have some really small customers. But I guess my question is, is there a certain GMV threshold that a merchant gets to where you see a step function improvement in retention? And then any way you can kind of approximate what percent of your 325,000 customers are over that threshold?
Yes. I mean for a lot of merchants, they just like the platform as their sort of web presence as well. So I wouldn't say that there's any threshold. But the thing we find, is if there is going to be people leaving the platform, generally it's because they're closing their business and that happens within that sort of first 3 to 6 month period. Once you as a merchant start getting some sales and so time to that first sale is something that we're always looking at how do we improve that for the or help the merchant improve that.
The churn potential goes down significantly.
Got it. Thanks.
Your next question comes from Ross MacMillan with RBC Capital Markets. Your line is open.
Thanks for taking my question and congrats on the quarter. Hey, Ross, I was just curious, the Merchant Solutions gross margin was actually down sequentially and I would have thought that as capital and shipping pick up in the mix that that would have driven a higher gross margin. Was there anything to say there as to why it was down sequentially? And then just one quick follow on. We've noticed in the filing that your marketing dollar spend on AdWords and social actually has been down sequentially for the last couple of quarters.
And I just wondered if that was seasonal or whether there was any shift in spend as you begin to drive more investment into partner programs or similar? Thanks.
Yes, I would say in terms of your second part on the advertising, we continue to invest in acquiring more merchants. That's kind of the key for us, particularly since we can then partake in a greater wallet share. I would say in Q1, the Unite program is one that drove up some of the spend there. So that didn't happen in Q2, Q3. So that would be my only sort of rationale there versus deliberately us cutting back on the spending.
And sorry, can you repeat your first question?
Just on the gross margins for Merchant Solutions, those were down sequentially. They've been going up since the Q3 of last year sequentially. And I would have thought that maybe as the net revenue line items, I. E. Shipping and capital expand in the mix that we would have seen merchant solutions gross margins up sequentially, but they were actually down sequentially.
I was just wondering if there was any color as to why?
Yes. So I mean there's some real tailwinds that will help that margin. As you mentioned shipping and capital are key parts of that. The other one is internationally, we do get a higher margin on the payments business. And so as the UK and Australia continue to ramp and now we've launched in Ireland that will help there.
In terms of the headwind, we are getting a little bit more aggressive to get Plus merchants on Shopify Payments. And for these larger merchants who have larger volume, it is more competitive. But it's something that we think is the right thing in terms of the gross profit dollars. So you may see quarter to quarter a little bit of fluctuation as the opportunity to get some Plus merchants on there is something that we target.
Great. Thank you.
Your next question comes from Tom Forte with Maxim Group. Your line is open.
Thank you for taking
my questions. On social, how should investors think about the adoption rates for consumers when it comes to the buy buttons and social networks? How has that progressed to date? And then do you see any catalysts for that in the future, such as improving take rates for mobile payments? And what other catalyst could there be to drive adoption for the buy buttons in social?
Thank you.
Hey, this is Toby. Thanks. So, the main reason why Kathy asked for like one question only is because I sort of have one of those one question brains. So I'll try my best to take that from the top. I think so generally what you're looking for is like how we are feeling about social and buy buttons and all these kind of things.
They are all growing. They are all growing like every one of these channels we launched has been growing faster than the online store, which means they are catching up in some cases like completely admittedly but some small numbers, especially when you compare them against the full platform. But like we mostly concern ourselves as trend lines and both are looking fantastic. So the like sort of zooming it out a little bit, the amazing thing that's going on, on the platform, and I think this is kind of the more important point, The amazing thing that's going on is like a year and a half ago, not even on the platform, a year and a half ago in Florida industry, almost everyone who fits the profile of our customers chose a channel for the business, like that shows a go to market strategy for the product. And that we've completely removed that choice.
And it's now I'm going go Facebook, I'm going to do Instagram, I'm going to give Twitter a go, because why not? And then I also will have my website. And I think this has been leading a significant percentage of people on the platform to success. So because every product has kind of a different sort of native idiomatic place for where it will connect best with its customers. And again, as I said in the intro, the Messenger platform is just really, really promising.
I don't think if like have it completely figured out and if we, I mean not just Shopify but also Facebook and like the people who make these platforms. But it's such a powerful idea because in a lot of ways, the development of internet actually took away this sort of going into a store, having a conversation with a shopkeeper who understands the product and then making purchasing decisions. Like all the messaging platform efforts are doing, we are actually reintroducing the thing we took away from people and there's no need to validate a demand for this. Everyone intuitively understands that this is the way people want to do this. We are just sort of negotiating exactly the form this is going to take.
And so, I'm actually feel like I'm really happy. I'm looking at all these platforms. There's a ton of our customer base now selling across multiple channels as a percentage, which is really important. And so things are looking I'm really really thrilled with what's going on there.
Thank you, Tobey.
Your next question comes from Brad Fields with Bank of America. Your line is open.
Hey, guys. Thanks for taking my question.
Just one on the App Store. Could you provide a little color please on which categories you're seeing more traction and if any of those categories would make sense for at some point Shopify to offer in the platform itself? Hey there, it's Harlan. I'll take that question. So in terms of core functionality that we would do ourselves, Shopify's core offering will always do what most people need most of the time, but that definition is dynamic.
For example, years ago, there would have been apps in the App Store that allowed you to mobile optimize your site. Today, mobile is just something that needs to get baked into the core functionality of Shopify because it's such a mainstay feature for our merchants. So we're constantly reevaluating what the product needs. But the idea really is that the core offering does what most people need most of the time and everything else you're able to get via the App Store. In terms of the first part of the question around app categories, if you look at the App Store today, the categories are vast.
It ranges everything from shipping to analytics to things like marketing, And it really does depend on the particular needs of the particular merchant. So there obviously, when you're just getting started, you may be playing around with a bunch of marketing apps. And eventually once you have an email list or a list of customers you may decide to do some email marketing which comes sort of after that. You really need analytics and more reporting once those apps, once you start selling at scale. And so it really depends on the period of time and where the merchant is in their own life cycle.
And that's the reason why we need to offer apps that really do are really important for particular merchants' needs and not something that is a one size fits all. Great. Thanks.
Your last question comes from Todd Coupland with CIBC. Your line is open.
Yes. Good morning, everyone. I wanted to ask about Nestle. I thought it was interesting you've added a large enterprise there. Are you able to expand into other large enterprises?
Is this something we should expect in the coming quarters?
Hey there, it's Harley. I'll answer that question. The way things work with Nestle and what we've been seeing is that one of these large brands, one of these multinationals comes to us because they need to get something up and running fairly fast, but it has to be robust and it has to be easy to customize. And so they'll start with some sort of smaller store with Shopify Plus. What tends to happen is they enjoy the experience so much.
They tend to bring on more of those stores and more of their other properties as well. In the case of Nestle, they just had a great experience. Shopify Plus is unlike anything they've encountered from any other enterprise platform in the past. And so they wanted to make it really easy and extremely fast to get any of their other brands up. Nest is a great one, of course, because as I mentioned in my opening remarks, they have more than 200 brands.
So this sort of model is something we're experimenting with Nestle, but certainly something that I suspect may happen with other big brands as well. Thank you.
From Dundee Capital.
Your line is open.
So just a quick question from from Dundee Capital. Your line is open.
So just a quick question for you on the Apple Pay pickup. It looks like you guys have seen pretty good pickup from the merchant base. I'm just wondering from an actual merchant solutions standpoint, how should we think about from a revenue for Shopify?
Yes, that's the nice thing about Apple Pay is, as Toby mentioned, the conversion rate is higher and it also is much quicker to complete the transaction when the customer has Apple Pay. From the Shopify platform, that's just like any other credit card coming through the platform. And so if that merchant is on Shopify Payments, which the majority of them are, then we see that like any other revenue.
Okay. So you don't have to split that piece or I guess a portion of it, you just now split with Apple Pay instead of, I guess your other 3rd party suppliers?
That's right. So all of the from our point of view it's like any other credit card transaction.
Okay, perfect. Thanks.
There are no further questions at this time. I'll turn the call back over to Katie Cattellier.
Thanks, Denise. Thanks everybody for dialing in today. We have a few closing remarks from Tobey.
Thanks for joining us again. I think we demonstrated again that we release a lot of product. We are thinking a lot about what things will become important in the future in our industry. Increasingly, of course, we are trying to influence this because I think we have a little bit of a clearer vision for where all these things have to go, this sort of move of getting transactions built into the operating systems we use every day and how much like just even pointing out how much of an afterthought commerce has been on the Internet is something that has been very clear to us for a long time, but it's actually fairly surprising to people that I mentioned it to them first time. And so this is sort of a role we want to play.
We are like step by step, bit by bit. We are going to make it so that in 5, 10 years, everyone's going to ask why were things this way at beginning of a decade? Why did we not develop all these things which are clearly used every day by 100 or maybe even billions of people? Why were they not there from the beginning? So that's the direction we are working towards.
In a more immediate sort of short term, we're going to go into Black Friday, Cyber Monday time of the year, which is of course a big deal in our North American market, which is still a very large percentage of our customer base. This is always like it's fun. Like we all get together in big rooms and look at massive screens of all these telemetry data. It looks sort of like It looks sort of like a company getting together for like a nerdy version of Super Bowl, if you will. And we make sure everything is going to run really well and everything is fast and people are going to have good sales and that's sort of the next thing on the plate for us and we'll speak again, I guess, next quarter.
Thank you.