Shopify Inc.
Q3 2019 Earnings Call Transcript

Published: 29 Oct 2019

[Operator:]

Thank you for standing by. This is the conference operator. Welcome to the Shopify Inc. Third Quarter 2019 Financial Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Katie Keita, Director of Investor Relations. Please go ahead.

[Katie Keita:]

Thank you, operator and good morning everyone. We are glad you can join us for Shopify’s third quarter 2019 conference call. We are joined this morning by Tobi Lutke, Shopify’s CEO; Harley Finkelstein, our Chief Operating Officer; and Amy Shapero, our CFO. After prepared remarks, we will open it up for your questions. We will make forward-looking statements on our call today that are based on assumptions and therefore subject to risks and uncertainties that could cause actual results to differ materially from those we projected. We undertake no obligation to update these statements except as required by law. You can read about these risks and uncertainties in our press release this morning as well as in our filings with U.S. and Canadian regulators. Also, our commentary today will include adjusted financial measures, which are non-GAAP measures. These should be considered as a supplement to 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 websites. And finally note that, because we report in U.S. dollars, all amounts discussed today are in U.S. dollars unless otherwise indicated. With that, I turn the call over to Harley.

[Harley Finkelstein:]

Thanks, Katie, and good morning, everyone. We continued to make great progress this past quarter and I’ll get to this in more detail on that shortly. First, I’d like to take a minute to mention two major milestones. Last month, our counter hit the 1 million merchant mark. That means that 1 million businesses large and small have put their face in Shopify. For all of us working to build each day, it is incredibly validating and meaningful that we continue to help tens of thousands more businesses each quarter, launch and thrive on our platform. And earlier this month, we closed the biggest acquisition in our history when we welcomed 6 River Systems to the Shopify family. This is another milestone, not just because it signals our commitment to solving some of the most critical challenges our merchants face, but because it is yet another way in which we are evolving to continue making commerce better for everyone. So thank you, to all our merchants and partners, who continue to put their trust in us. As I mentioned previously, our momentum continued in Q3 as you can see from our third quarter results. Our international expansion efforts continue to pay off as merchants from outside our core geographies were once again the largest component of new ads.

[Amy Shapero:]

Thanks Harley, and good morning everyone. We delivered strong growth this quarter and continued to execute on our strategic initiatives. With more than 1 million merchants building their businesses on Shopify, we are more focused than ever on making entrepreneurship easier and helping our merchants succeed. Revenue in our third quarter was up 45% year-over-year to $390.6 million. Subscription Solutions revenue increased 37% to $165.6 million primarily due to strong merchant ads as well as level setting subscription pricing for legacy plans, growing monthly recurring revenue to $50.7 million which is up 34% over the same period last year, and the same pace as last quarter. Shopify Plus continued to increase its contribution to MRR accounting for $13.5 million or 27% compared with 24% of MRR in Q3, 2018. Subscription Solutions revenue grew faster than MRR in the quarter primarily due to strong growth in apps revenue, as well as from Shopify Plus platform fee revenue. Merchant Solutions revenue grew 50% over the same period in 2018 to $225 million. This growth was driven by GMV Expansion up 48% year-over-year to $14.8 billion with international being the fastest growing contributor. Both international and plus continue to grow their share of GMV mix, while POS Channel GMV growth gained momentum accelerating for the second quarter in a row. $6.2 billion of GMV was processed on Shopify payments in Q3, up 51% versus the comparable quarter last year. Shopify payments penetration of GMV grew to 42% in the third quarter, versus 41% in Q3, 2018 primarily due to increased Shopify Plus penetration as well as the addition of new Shopify payments geographies. Newer products like multi-currency are gradually being adopted, and adding further value to merchants using Shopify payments, contributing to year-over-year revenue growth as we continue to improve their product market fit. Gross profit dollars grew 45% from Q3 of 2018 to $216.7 million consistent with revenue growth in the quarter. Adjusted operating income in Q3 was $10.5 million or 3% of revenue compared with a loss of $2.4 million or 1% of revenue in the third quarter of 2018. We achieve better than expected adjusted operating results in Q3 due in part to strong revenue contributions from higher margin products and lower marketing spend. Note, that we have updated our definition of non-GAAP financial measures to also now exclude the impact of amortization of acquired intangibles and related taxes. In addition to the stock-based compensation and related taxes, we have always excluded. This is consistent with our peers and provides a clear view of operational results in the period.

[Katie Keita:]

Thank you Amy. Before we open the call up for your questions, let me remind everyone that we'd like you to limit yourselves to just one question so everyone can get a question in on the call this morning. Ariel , can we have our first question please.

[Operator:]

Thank you. Our first question comes from Colin Sebastian of Robert Baird.

[ColinSebastian:]

Good morning. Thanks for taking my question and congrats on the customer milestone. Shopify Capital, obviously a big step up in the merchant cash advances and loans as Harley mentioned. So how are you thinking longer-term about the role of Capital in customer acquisition and retention and the ability to manage that risk as you expand outside of the payments group? Thank you.

[Harley Finkelstein:]

Thanks for the question, Harley here. So it certainly was a record quarter for capital. We get it more than $140 million of advances to merchants. And again, as you as you mentioned, part of this is making sure that we have merchants in the entirety of their journey to success, certainly things like having additional cash for things like inventory and marketing are very important to them. And there's not too many place to get that with capital. So we think we're helping merchants by doing this. It also serves of course as a way to retain merchants because we're not only now their e-commerce platform or the point sale provider or the payments provider, we're also now in some cases playing the role of their capital provider. So this is a meaningful part of our business, and it keeps growing, and it's certainly something we're very proud of. And in terms of managing the risk, it's something we keep a close eye on. We do a ton of trade forecasting and ensuring that we look at the data to update our models as we see trends changing. That being said, it's important to remember that most of the capital that we put out there is insured by our partner EDC. So we think that we continue to grow the capital business at the same time manage the risk and so we're not doing anything that is outside of that loss ratio and risk exposure comfort zone that we think we have right now.

[ColinSebastian:]

Thank you.

[Katie Keita:]

Thanks Colin.

[Operator:]

Our next question comes from Matt Pfau of William Blair.

[Matt Pfau:]

Hey thanks for taking my question. Just wanted to ask on the fulfillment network, too. How is the supply of fulfillment partners been relative to the demand and fulfillment that you're anticipating and you know correlating to that, any updated thoughts on if you're going to need to operate some of your own fulfillment centers to help supplement the supply. Thanks.

[Harley Finkelstein:]

Hey, it's Harley again. I'll take that question. As of right now, the demand for SFN, it's coming from both sides of the coin. It's coming from our merchants who want to use it, but also coming from partners. It's important to understand that there are warehouses all over the US where, which is our first geography that have spare capacity that are looking to find a way to increase their business. And this is just a going by being part of this network. It's a great way for them to do that. As of right now, the seven nodes that will be operational by the end of Q1, 2020. All of those will be third-party Fulfillment warehouses. So whether or not we built our own, we hope we don't have to. And if we do, it is likely to be just to test to do some development work, but as of right now we feel we can do a lot with third parties and still achieve the type of service and cost that we want to get for our merchants. So into 2020, it will be a geared approach to SFN and we'll be adding more and more partners. But there has been significant amount on both sides from merchants and also from partners ever since the announcement of Shopify Unite in June. So we're quite pleased with the progress.

[Katie Keita:]

Great. Thank you, Matt. Next question please?

[Operator:]

Our next question comes from Ken Wong of Guggenheim Securities.

[Ken Wong:]

Great. Thanks for taking my question guys. So some of your e-commerce peers have called out softer than expected holiday trends. Can you maybe talk a little bit about what you're seeing across your merchant base as we head into the typically strong Q4?

[Tobi Lutke:]

Yes, sure. And Ken, this is Tobi. So far, I mean it's all trend forecasting at this point like we all are sort of looking at probably similar data’s. We don't see any weaknesses. Right now it looks pretty much on track to the previous years. Some dates are following on different parts of the year. So there is some changes to that in terms of seasonality, but right now we don't see anything that gives us an indication that there is a difference in purchasing behavior. There is some other segment of the board, we can see.

[Katie Keita:]

Great, thank you Ken. Next question, please?

[Operator:]

Our next question comes from Mark Zgutowicz of Rosenblatt Securities

[Mark Zgutowicz:]

Hi, Thank you. Maybe just a quick follow on to that last point, Toby. I think we have one, essentially one less week between Black Friday and Christmas this year. Roughly speaking, I'm just curious if there's -- that's contemplated in your guidance. And then maybe separately Harvey, you talked about capital and just curious, if you can provide any color in terms of the impact it's having on GMV growth? Thanks.

[Amy Shapero:]

I'll take the one last week. Yes, yes it is built into our guidance. We had a strong Q3 in terms of GMV growth. We’re pleased with our performance going into our peak selling season. And that is one of the reasons why we have our guidance on the top line.

[Harley Finkelstein:]

Yes, and the capital piece. We've now given out about $770 million of cumulative cash advances that continue to grow. It's up 85% since if you look year-over-year from last Q3 2018. So our capital business continues to grow. It’s good to have material sector on GMV, probably not a material effect on it. Obviously people will use this -- these merchants will use this money to do things like advertising inventory, which will have a correlation to GMV. But just given the amount of GMV happening across our entire platform in 175 countries, I don't think that's going to be a material increase in our GMV by itself.

[Tobi Lutke:]

It's also another -- on the capital side, we don't see any -- sometimes we keep it low and then people just accelerate our increase in inventory order and that has an immediate effect, what happens a lot more is that businesses, otherwise not access loans get them and therefore actually continue building the business. So the effects of -- on GMV of the loans and are being delayed, but we might end up with an additional customer, would never actually has taken, become a customer because of them. So it's hard to cause an effect that it's secondary, tertiary effects which end up from affecting the GMV in the long run.

[Mark Zgutowicz:]

Got it. Thank you.

[Katie Keita:]

Thank you, Mark.

[Operator:]

Our next question comes from Gus Papageorgiou of PI Financials.

[Gus Papageorgiou:]

Hi, thanks for taking my question. If I look at your numbers, it looks like the year-over-year growth in GMV per merchant is very strong kind of double-digits and looks like it's been double-digits all year long. I'm assuming that from an increased number of plus customers but also it seems like probably the conversion rates are improving for your merchant customer base. Can you talk about what are the kind of main features that you guys have implemented that have helped your merchants convert. And if you look into the future, how do you expect conversion improve with stuff like augmented reality, and whatever other features you think you or you're going to influence that?

[Harley Finkelstein:]

Yes. In terms of the conversion, look, the things that we're doing, we're trying to ensure that anyone, that any browser turns into a buyer for our merchants. So, things like augmented reality or three dimensional product listings, things of that nature. As I mentioned it not only makes a more fun experience for consumers, but also increase the conversion rate. But even beyond that, things like Shopify Pay more of our accelerated checkout options, what you're beginning to see more and more is, that we are trying to reduce the amount of friction that any browser has, so that they do become a buyer and hopefully buy a lot from these merchants. So I mean that's -- we've been doing that for 15 years now, trying to make it easy for anyone to checkout as it is part of from Shopify store. We'll continue to do that, of course.

[Amy Shapero:]

Yes. And I'll just add one point at the end, that the GMV per merchant growth is pretty much across the board, across all of our merchant segments. But yes, in particular cost has been very strong.

[Gus Papageorgiou:]

Great. Thank you.

[Amy Shapero:]

Thank you, Gus.

[Operator:]

Our next question comes from Deepak Mathivanan of Barclays.

[Deepak Mathivanan:]

Hey guys. Thanks for taking the question. So I wanted to ask about how we're approaching the fulfillment rollout. Are you using initiatives like early adopter discounts or volume promotions for some of the large merchants at this point already, as you prepare for the holiday season? Can you talk a little bit more about kind of the go-to-market strategy for fulfillment, you know near-term and maybe in 2020 as well? Thank you.

[Amy Shapero:]

Yes. So with respect to fulfillment, you know we're still in our early access program and we're onboarding merchants as we speak. We're happy with our progress and absolutely on track, each contract is competitively priced. We look at each merchant based on the size weight and complexity of their fulfillment. And that's largely, how we have approached it, and we'll continue to approach it moving forward.

[Katie Keita:]

Great. Thank you, Deepak. Next question please?

[Operator:]

Our next question comes from Brad Zelnick of Credit Suisse

[Brad Zelnick:]

Excellent, thanks so much for taking the question. So with take rate flat quarter-on-quarter how much of this was driven by mix shift and if we dig into the different segments plus and international, what does take rate growth look like on a segment level basis? Thanks.

[Amy Shapero:]

Yes. It if you look at the segment level, each of merchant segments has continued to increase take rate year-over-year. So the entire impact from Q3 to Q4 is a mix. We're still seeing strong growth in international, and that take rate is improving quarter-over-quarter, year-over-year it's just weighing down the average a little bit.

[Katie Keita:]

Great. Thank you, Brad.

[Operator:]

Our next question comes from Richard Tse of National Bank Financial.

[Richard Tse:]

Yes. With respect to the Fulfillment network, as it becomes a growing part of your mix, how should we think about the margin profile here for the business going forward?

[Amy Shapero:]

Yes, so. So let me just talk a little bit about Shopify Fulfillment network, and what we sort of expect here. So say Q3 to begin with. There was minimal impact to gross margin, given we're still ramping the early access program. As we enter Q4 and our peak selling season, and we start to ramp fulfillment volumes, we do expect to have slight dilution on our gross margin from that. This is all factored into our Q4, and full year guidance. We do have a path to profitability that we announced at Unite. And we expect to be in product market fit phase through early 2021. So we likely will be dilutive on the gross profit line for Shopify Fulfillment network, until we hit the scale phase, which again we expect early 2020. But we believe the short term dilution is the right long term decision for our merchants. We expect fast and affordable fulfillments will energize the flywheel by helping our merchants to sell more.

[Katie Keita:]

And that would be hitting the scale phase in early 2021.

[Operator:]

Our next question comes from Darren Aftahi of ROTH Capital Partners

[Darren Aftahi:]

Yes, maybe Amy could you expand on gross margins. It looks like subscription solutions gross margin dipped a little bit sequentially. I'm just kind of curious what's driving that and your thoughts going forward.

[Amy Shapero:]

Yes so on that subscription solutions margin line for Q3, quarter-over-quarter, we did see a slight dip, it was due to infrastructure investments, to increase the performance for merchants speed performance, and also some additional infrastructure in anticipation of our peak selling season. I will say for that for the full year for subscription solutions margins year-over-year we are still anticipating an improvement because of post cloud migration this year versus last year.

[Katie Keita:]

Right. Thank you, Darren. Next question, please.

[Operator:]

Our next question comes from Jonathan Kees of Summit Insights Group. Jonathan, your line is live.

[Jonathan Kees:]

Hi, can you hear me now? Hello, can you hear me now?

[Amy Shapero:]

Yes, go ahead.

[Jonathan Kees:]

Okay. Super. All right. Sorry about that. I really just want to ask for one topic and it was on during their call and talked about one day shipping, really materially had an uplift on their volume on their GMV. You know at Unite you guys talk about two day shipping. Does that change your planning, your table stakes offering in terms of what you're planning to roll out for your merchants? And if I may on the same topic here, I know you consider Amazon to be more of a partner, it's a sales channel for your merchants. I guess, at what point do they become a competitor especially as more merchants defect from their network over to yours? Thanks.

[Tobi Lutke:]

Yes, I’ll take it. Tobi, here. Again I said this before, it seems that resonated like, the Shopify and Amazon, we are partners, again we'll be -- of Amazon Pay to the customers who want it, doesn't mention who wanted. Often when you buy something on Amazon as a Shopify store, that particular order flows into and from which the merchant does their fulfillment and so on. It's a partnership, so we're not competing with Amazon, some of our customers are competing and some segments, we certainly help them with that. So in a very indirect way you can draw the parallel of, that we are competing, but like I don't think I will have things about it this way. But Amazon also said, surface a best practice like, they have kind of, I mean they are certainly the retailer on that, figured out how to sell perfectly on the internet. The things that people really, really need, they order from there because of the rise, often now next day as they announced. The product on Shopify are often the things that people really want rather than once they need, but it's -- but weekly kind of products. And there is a little bit more tolerance for the shipping, because of that. So we are not aiming at one day delivery, because that's just, it's been incredibly expensive kind of thing to do. And isn't -- like the return on investment and for the category of products that are on Shopify, it isn't there, like it will happen in some instances, because frankly a lot of our partner warehouses, they would be close to population centers and we'll be able to do this. But to create any kind of guarantees around this, that's not something we're planning on doing. So, now there is no change because of the announcements there.

[Jonathan Kees:]

Thank you.

[Katie Keita:]

Thank you, Jonathan.

[Operator:]

Our next question comes from Kevin Krishnaratne of Paradigm Capital.

[Kevin Krishnaratne:]

Hey there. Good morning. Congrats on the – on the milestone. You had strength in ads from international. I'm wondering if you could provide any color on gross ads in core markets sort of where the trends are like there, versus say a year ago or prior quarters stronger or weaker. Just trying to understand how this quarter might compare to other peak periods for gross ads, just trying to unpack the different markets. Thanks.

[Amy Shapero:]

We continue to see solid growth in merchants in our core geographies, merchants -- merchant count is something that we look at as a metric, but we're also looking at GMV growth. And the growth in our core geographies and GMV wise was quite strong. So the combination of the two of them, we're happy. And that's another reason why we upped our guidance for the year.

[Katie Keita:]

Great. Thanks, Kevin. Next question please.

[Operator:]

Our next question comes from Nikhil Thadani of Mackie Research Capital.

[Nikhil Thadani:]

Good morning. I wanted to go back to Harley's comments about your native 3D support and augmented reality. Maybe if you could help us understand how that would scale? Can merchants use their smartphones to scan different SKUs or do they need like specialized hardware or perhaps new partners to help them out in that area? Thanks.

[Harley Finkelstein:]

Hey, there. Thanks for the question. So in terms of new hardware, no, I mean, the great part about things like augmented reality is that never, anyone that has the new iOS has it built into the -- with AR kit. So there is not -- there is nothing new. Now in terms of getting the 3D modeling done that is something that we're actually helping merchants with. So if you go to our, our services marketplace where we connect merchants with experts and photographers and agencies and freelancers and developers to help them with their business, the specific needs and requirements of their business, that's an area where you now can find 3D modelers as well. So we are playing that -- we are matchmaking them with people that can help with that. But from a consumer perspective and the best part about this is that a consumer doesn't have to do anything. Consumer can now go to that particular merchant's online store and they can have a much better experience given the work that we're doing with 3D and AR. And we think it's going to lead to higher conversions ultimately. But there is no owners on the consumer and we're making really easy for merchants to adopt us.

[Nikhil Thadani:]

Great, thank you.

[Katie Keita:]

Great. Thank you, Nikhil. Thank you.

[Operator:]

Our next question comes from Chris Merwin of Goldman Sachs.

[Chris Merwin:]

Okay, thanks very much for taking my question. In terms of profitability it looks like you have flowed through the fiscal 3Q beat on non-GAAP EBIT into the full year guidance. I think you mentioned that the updated full year guidance also includes $10 million of OpEx. This is on the non-GAAP. And I guess just given all the runway ahead for Shopify Fulfillment Network plus International, maybe can you just talk a bit about flowing through kind of that level of profitability. And how you think about the pace of investments going forward? Thanks.

[Amy Shapero:]

Yes, let me talk specifically to our outlook that we just updated, because there are multiple factors going on with respect to 6 River as well as the change in definition. So if you think -- if you start with our outlook in August, they did not consider the 6 River acquisition. We were at $20 million to $30 million of adjusted operating income for the full year. If our outlook in August were adjusted to also exclude amortization of existing acquired intangibles of $7 million, so the new definition, it would have been $27 million to $37 million. So, apples-to-apples, our updated outlook for adjusted operating income for the full year under the new definition is essentially unchanged. And so, what does that mean? That means that the $10 million in OpEx from 6 River in the fourth quarter is essentially being offset by the organic performance of Shopify. So you know, we're going to continue to invest in these important growth areas and that will be something that we're working on in 2020 planning and we'll have more to say in February on that, but the performance of the overall company, including 6 River, for the fourth quarter we think is very strong.

[Chris Merwin:]

Great, thank you.

[Katie Keita:]

Thank you, Chris. Next question please.

[Operator:]

Our next question comes from Thomas Forte of DA Davidson.

[Thomas Forte:]

Great, thank you for taking my question. So, regarding your Shopify Fulfillment Network efforts, what was the rationale for purchasing 6 River Systems and do you believe you need to engage in additional M&A to advance the initiative.

[Tobi Lutke:]

Yes. Tobi here. No plans right now on more M&A, but it's definitely a possibility again, this is a completely new field for the Company and trying to do to this right. The rationale specifically is -- in this particular Fulfillment warehouses, like efficiency and quality metrics everything and also things that are massively improved by robotics. And the part of significant reason for a lack of robotics build out in this particular space has been that people have experienced like a great robotics provider coming on the market about a decade ago. Let's keep it and that then disappearing and the robotics, they are no longer available. So that treat as a good set of horror stories in the market, which make people just not want to go for this particular option, has bringing in 6 River Systems, that brings a lot of fantastic talent in-house of the people who have known the space for like and have build hardware, software in the space for many decades. And also you can go out to -- to the fluid and just say, hey, if you like it's -- demands to build that, we would want this to be available over the next decades and that people can do a long-term planning with robotics in mind and just keep it in the space and make it a part of the Fulfillment Network build out and that increases again efficiency and e-commerce taking ability of warehouse, which currently are doing this. And so it became pretty obvious that this would be a good move, and this is a significant part of a rationale of what we did.

[Thomas Forte:]

Great. Thanks, Tobi.

[Katie Keita:]

Great. Thanks, Tom.

[Operator:]

Our next question comes from Koji Ikeda of Oppenheimer.

[Koji Ikeda:]

Great, thanks for taking my questions. I had a question on the conversion of mobile eyeballs to mobile dollars. So Shopify does a great job with that mobile conversion rate. I think it's well above the industry metrics we see out there, but there is still a gap between mobile eyeballs and mobile dollars even for Shopify. Could you talk about what is the factor or factors that is causing that gap and what Shopify is doing to help close that gap over time? Thank you.

[Tobi Lutke:]

I don't think anyone. I mean this is really, really hard to know it's from like, I think the default devices just has shifted, like it's a massively more traffic on mobile. And people use mobile a lot more in sort of a cracks of a day. And sitting down in a computer is becoming more and more deliberate -- a deliberate act. So people may have -- it might be the same people who have bounced online store, will then sit down on the desktop to, then do the purchase. And these kind of things end up skewing the numbers a little bit. I think the correct way to think about the world of the internet really is, it exists for serving mobile devices, just a couple of fall back assistance for desktops. That was super clear long time ago. And it's actually -- some details that surprise me, I'm prepared for it. Mobile device have tons and tons of advantages, like the fact that we can do, use biometrics as a form of securing, access to credit cards on mobile devices have, payment systems directly build in on the platform level, which is again at the moment, the lack of two -- of the crowd that's doing this over the last decades, many times. And the mobile vendors have done such an amazing job, building secure elements into the hardware and then and bringing these ideas into reality. And it's like, I think the experience of purchasing on mobile on Shopify stores is now equivalent, like I don't think friction is a differentiator for conversion rate anymore. And so now it's purely based on intent. And so I think that must -- that took us a long time to get there but now I think we are there between Apple Pay, Google Pay, Samsung Pay and all these kind of things that have supported, and of course Shopify Pay sort of making up the difference in the software cases.

[Katie Keita:]

Great. Thank you, Koji.

[Operator:]

Our next question comes from David Hynes of Canaccord.

[David Hynes:]

Hey, good morning, guys. Can you talk about first year GMV for new plus accounts maybe versus a year ago. I'm trying to get a sense of the increasing contribution we're seeing there, is more a function of adding Plus merchants at a higher velocity or landing larger accounts. I suspect it's a bit of both, but anything you could provide to help quantify it would be helpful.

[Harley Finkelstein:]

Hey, it's Harley. I'll take that question. We certainly are seeing more complex merchants come into the Plus platform, the announced Staples Canada coming on couple of months ago. More recently, companies like JB Hi-Fi come on with some of the largest electronics retailers in the world and based in Australia. So we are seeing more of these complex merchants have traditionally -- we saw mostly homegrown success stories coming to Plus and upgrading through the different plans. Now, obviously we're seeing our merchants. Frankly even five years ago we didn't anticipate they'll be coming to us. They come with a whole bunch of nuances that we just weren't aware of, and I think now we're getting better at understanding what they require. And that even make sense, some of the government agencies we are working with employees with Canada for things Cannabis, where they come with a whole set of requirements. I think we're getting much better and much smarter and much more effective in onboarding them and getting them up and running. The lead part about this particular merchants as they come with an existing business. And so GMV obviously for them accelerates fairly quickly relative to a brand new direct to consumer brand that is trying to build up their business. That being said relative the entire stack of GMV across all of Shopify which again this $15 billion for the quarter, it's not necessarily going to be overly material. But I do believe you will continue to see more large complex very well established brands come on to shops like Plus in the coming years.

[David Hynes:]

Got it. Thank you.

[Katie Keita:]

Thanks, David.

[Operator:]

Our next question comes from Paul Treiber of RBC Capital Markets.

[Paul Treiber:]

Thanks very much and good morning. Just in regards to Shopify Pay, the adoption does seem quite strong. What's your thoughts on some of these more consumer facing services like Pay creating a consumer brand on Shopify itself? And then how do you, related to how do you think about striking a balance between any Shopify related for any of the consumers and the merchants on branding?

[Tobi Lutke:]

This is a perennial or ever green conversations within Shopify, right, like again we've grown up that sort of a total brand behind brands like even putting powered by Shopify on our -- on the stores that are hosted on Shopify, but something that people did manually at some point, and only then to be sort of created as an option. So the success of the Company has traditionally been just making other people looking at revenues that. So we are very, very careful if there is any exposed branding. I mean, we are certainly like agreeing with about customers who are saying that hey, you guys have a pretty good brand, let's use it. So this is why Shopify Pay was something we re-engaged in and suddenly was been very successful, but it's just going to be something, we're going to do very, very carefully. That's basically the best thing I can say about it. I think, this like this direction, it’s so far that the potential pitfalls and going all over Board, I think it's important that we stick to that we know.

[Katie Keita:]

Great. Thanks, Paul.

[Operator:]

Our next question comes from Ygal Arounian of Wedbush Securities.

[Ygal Arounian:]

Hey, good morning. I just -- I wanted to ask the macro question on holidays just from a different angle. And there's obviously been a lot more discussion around the macro environment, potential recessions and slowing growth and would seem to indicate from all your numbers that you're not seeing any real negative sentiment out of I guess particularly your SMB cohorts, but to any degree could you kind of talk about the overall business investment and sentiment you're seeing from merchants. And then real quick, you guys didn't touch on POS on this call, and you rolled out a pretty meaningful software upgrade at Unite earlier in the year. And I wanted to see if there's any early reads from that customer reactions, any lessons you've learned?

[Tobi Lutke:]

Yes. The particular hasn't hit yet. This is still coming out in the future we are super excited about it and generally the scenario we are building up part of service doing pretty well. Macro, we have visibility in purchasing behavior where we don't see any indication of diminishing confidence. We have visibility in new business formation, which seems strong. And it's not tracking in any meaningful way different from how it has through the last 10 years of a bull market. And so we are not seeing anything coming from our side as everyone would witness recessions, now as they usually come from the side where you don't expect them from. So it doesn't look like our side. Really, if something is happening, it doesn't look like our side, it's the thing that's causing it and is tracking ahead.

[Ygal Arounian:]

Okay, thank you.

[Katie Keita:]

Thanks, Ygal. Sure. Thanks.

[Operator:]

Our next question comes from Josh Beck of KeyBanc.

[Josh Beck:]

Thank you for taking the question. I wanted to ask about B2B. I think it's been approaching six months since you purchased handshake. So any updates you can provide us on what the key strategic objectives are for you within that opportunity?

[Harley Finkelstein:]

Yes, so as you mentioned, we did -- we did acquire a handshake about six months ago. It's an incredible team of people that have been thinking more about modern wholesale, modern B2B, probably more than anyone else in the planet. Remember that Plus historically had a very small B2B business that was sort of, we didn't necessarily go there, our merchants pulled us there. We were noticing that some of our merchants, had a very successful and thriving retail business, but also we're looking to use Shopify for their wholesale and B2B business. We felt that although we could probably get them ourselves, we wanted to accelerate that and we felt, with the team over a handshake, we'd be able to get a lot faster. So again, we're still working together to figure out exactly what the go-to-market will be for that, what exactly the final product will look like for that, but certainly we have the greatest team, we think on the planet thinking about modern retail and modern B2B and that will continue to grow over time, but it's not yet a material part of the Plus business or the Shopify business, but it does allow us eventually to get an entire different segment of the market to think about Shopify who currently they are not talking to.

[Josh Beck:]

Very helpful, thanks.

[Operator:]

Our next question comes from Brian Peterson of Raymond James.

[Brian Peterson:]

Hi, thanks for taking the question. So just wanted to hit on the success you've had internationally. And I'm curious if the merchant adds, you've seen have there's been more traditional Shopify merchants or have you also seen quicker than expected adoption for net new Plus merchants as well? Any color on that? Thank you.

[Harley Finkelstein:]

Hey, I'll take that question. From an international perspective, the interesting part about our expansion there is, it would be different by different countries. In certain countries, we're seeing a lot larger merchants, come on they look a lot more like the Plus merchant segment. They're coming out with GMV, they have dozens of employees, if not more working at their companies, in other segments we're seeing very small merchants, very similar to what we'd see signing up for $29 plan in North America. So the need part about our strategy there is that we actually tailoring our product and the go-to-market on a per country basis and that's the reason why we did things like country specific and language-specific applications. We need a partner ecosystem each country that differs from other countries and obviously language is something we're working on for a while. So we currently have Shopify now in national languages and obviously the diversification of the merchant base increases our talent, so we're excited about that. The other thing that obviously Amy had mentioned in her prepared remarks, was that GMV from International is actually going faster than in other segments. And that's really great. And we still have not penetrated international market with merchant solutions in the way we have in some of our core markets. So that remains an opportunity in the future for us.

[Katie Keita:]

Great. Thanks, Brian.

[Operator:]

Our next question comes from Samad Samana of Jefferies.

[Samad Samana:]

Hi. Thanks for taking my questions this morning. Amy, I think in your prepared remarks, you mentioned level setting subscription pricing for legacy plants. I was wondering if you could maybe help us understand how much legacy pricing there still is? What's the impact of that was on the quarter and maybe the philosophy around price increases now and what drove that? Thank you.

[Amy Shapero:]

Yes, the migration to standard pricing is largely done now and it was merchants -- legacy merchants that were not on our standard plans and for simplicity, we just wanted to clean that up. And we called it out, the MRR growth would have been significant without it but it did have about a 1 percentage point of growth year-over-year impact. So we wanted to call it out, but it is largely done now.

[Katie Keita:]

Great. Thanks, Samad. Next question please.

[Operator:]

Our next question comes from Todd Coupland of CIBC.

[Todd Coupland:]

Great. Just following up on the International questions, which countries did the best in the quarter and how do you expect that to trend in the fourth quarter? Thanks.

[Harley Finkelstein:]

So we've mentioned in the past, there are some countries we are focusing on, places like Germany and France and Japan, and other places like that. But in terms of, do invest against some of them are areas and geographies where we're going to see merchant growth, in other places, we're going to see higher GMV growth depending on the type of merchants that we have there. But we're constantly -- we're taking a very nuanced approach on these country based on what they actually require and then trying to find product market fit based on that. So I wouldn't say there's any one country that is eclipsing every other one, international.

[Katie Keita:]

Great. Thanks, Todd. Next question please.

[Operator:]

Our final question comes from Suthan Sukumar of Eight Capital.

[Suthan Sukumar:]

Good morning. Just wanted to touch on POS. So historically, this has been more of a cross-sell to your online merchant base, expanding into offline. Given that you're now making more focused investments in the segments with the launch of the new platform and new hires, how do you anticipate evolving your go-to-market plan going forward here?

[Harley Finkelstein:]

So in terms of -- in terms of the point of sale, our go-to-market efforts, we now have our current sales team around it, so we didn't have in the past. Now this is mostly inside sales. So we feel there still remains significant low hanging fruit inside the platform, people that are already using Shopify, but may not be using us for point of sale. And so that's where we're focusing. Now we are seeing some new merchants come to the platform just for point of sale. And as Tobi mentioned earlier as point of sale next rolls out in the future, we think that's going to be a very compelling reason to come Shopify strictly forward with POS product and then take more of products. But right now the majority of our sales efforts around point of sale are inside sales, selling to our existing merchant base.

[Katie Keita:]

Great, thanks for your time. Thank you. And then we will hand it over to Tobi for closing remarks.

[Tobi Lutke:]

Yes. So as you probably saw that, we also announced that we have a -- now a 1 million active merchants on the platform, which is roughly around this time, 15 years ago I launched store number 1, certainly didn't imagine to be able to say that one day. So this is kind of flowing my mind right now. I think it was an interesting thing a lot of what's looking about Shopify is two levels of, I don't have a good term for it, but it's more like I would say business model to customer needs, harmony. So, I think software as a service, as a business model is one of those things, which is I think a little bit under-appreciated because here's what's going on. The vast majority of our customers subscribing month-to-month. It keeps us as a company incredibly on its thread like they are talking to us, like we are getting a ton of suggestions, ideas. We are seeing a lot about the world of e-commerce. Harley pointed out earlier, that we actually have some data on the mobile question. Now that's 81% of our traffic is mobile phones and 71% of our orders complete on mobile. So I think about that compared to 15 years ago, the iPhone wasn't out there. Yes, right. So but SaaS compared to us to do is just really understanding what's happening and growing out always updates for everyone to appreciate then for free you rather than making big like additional charges for this. And so it aligns our interest with our customers and I think this is a dynamic which for just software off just simply higher quality, because again there is no long-term commitments that you can rely on. One thing let it down this is, like there is a similar dynamic around the D2C the duration, right, like that's our customers now selling without intermediation directly to their customers, also puts them into direct monetization with their customers and they create significantly better products. And of course that fit in a loop, fits back to us doing well as a company. For those of you who have been on a bunch of these calls as far as I -- at some point mentioned that I had a investor who ended up not investing, because they told me about the worldwide market for online stores was about 40,000 stores. So it's just amazing to zoom out and just see, hey, what happened, how many people actually building successful business from the -- from every downtown area and every city to the most remote islands in the middle of Atlantic and it's just all of them integrating themselves perfectly into the global network of commerce, and it's just really, really gratifying. So, those are some thoughts to leave you with, and thank you for joining us.

[Operator:]

This concludes today’s conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.