Shopify (Minutes): Optimistic about the enterprise market + AI development in e-commerce

The following are the Minutes of the$Shopify (SHOP.US) FY25Q3 earnings call organized by Dolphin Research. For earnings interpretation, please refer to "Shopify: Imperfection is Unacceptable, The Original Sin of High Valuation?"

I. Review of Core Financial Information

1. Third-quarter equity incentive expenses amounted to $116 million, with capital expenditures at $6 million. Free cash flow for the third quarter reached $507 million, accounting for 18% of total revenue. The free cash flow profit margin for the first nine months of this year remained consistent with the same period last year at 16%; transaction and loan losses this quarter accounted for approximately 5% of revenue.

2. In terms of costs and expenses, operating expenses for this quarter were $1 billion, accounting for 37% of revenue, continuing significant optimization from 45% in 2023 and 39% in 2024; strict control of personnel size is key to enhancing operational leverage. Over the past two years, the company has continuously redeployed talent to high-value areas, keeping the total number of employees stable or even decreasing quarter by quarter. Through automation, tool optimization, and deep application of artificial intelligence, team productivity has continuously improved, thereby creating more value for merchants.

3. At the segment and product level, merchant solutions revenue grew by 38%, with strong GMV growth contributing the majority of the increase. Shopify Payments penetration rate increased relatively slightly, reaching 65% this quarter, with GPV penetration rate improvement mainly due to more global merchants continuously adopting payment services, their strong performance, and expanded cooperation with PayPal and Klarna.

4. Subscription solutions revenue grew by 15%, mainly due to an increase in the proportion of high-priced packages, followed by an increase in platform variable fees. Recurring revenue for the third quarter grew by 10% year-on-year, mainly due to the growth of Plus packages, accounting for 35% of this quarter's recurring revenue;

5. Shop Pay processed approximately $29 billion in GMV this quarter, a year-on-year increase of 67%, with cumulative processing scale exceeding $280 billion.

6. In terms of regional and channel structure, international markets continue to be a source of increment: European GMV grew by 49% (42% at constant exchange rates), with revenue from Europe in Q3 accounting for approximately 21% of total revenue; in offline channels, GMV grew by 31% year-on-year; in B2B, GMV grew by 98% year-on-year, maintaining high-speed expansion for two consecutive years.

7. In terms of capital expenditures and balance sheet, capital expenditures for this quarter were $6 million; after the quarter ended, the company completed convertible bond settlement on November 2, holding approximately $6 billion in cash and marketable securities at the end of the period with no debt, maintaining a robust financial structure.

8. Outlook

Revenue growth rate: Expected year-on-year growth of 25% to 29% (mid-to-high range). Several background factors need to be explained: First, last year's fourth quarter was the highest growth quarter of 2024, with a relatively high comparison base; second, we will complete the comparison cycle of the expansion cooperation with PayPal (which drove last year's fourth-quarter revenue growth); third, we have included the "foreign exchange tailwind" factor in the fourth-quarter guidance — the tailwind impact is expected to be slightly higher than the third quarter.

Gross profit: Expected gross profit amount to grow by 20% to 25% year-on-year (mid-to-low range), with influencing factors basically consistent with those I mentioned when discussing third-quarter gross profit.

Operating expenses: Expected operating expenses as a percentage of revenue to be 30% to 31%; fourth-quarter stock compensation expenses are expected to be $130 million.

Free cash flow: Expected fourth-quarter free cash flow profit margin to be slightly higher than the third quarter (18%). Two factors will have a combined impact of approximately 2 percentage points on the fourth-quarter profit margin: First, the "payment losses remain above historical levels" I mentioned earlier (although they are declining, they are expected to remain high in the fourth quarter); second, "tax receivables" (the timing of their receipt is beyond our control, expected to adversely affect fourth-quarter working capital). Despite these two factors, based on the fourth-quarter guidance I provided, we are still expected to achieve a free cash flow profit margin for the full year 2025 similar to 2024.

II. Detailed Content of the Earnings Call

2.1 Executive Statements of Core Information

1) Around "e-commerce assistant," seamlessly embedding "discovery—add to cart—checkout" into conversation scenarios with Catalog, Universal Cart, and Checkout Kit, and have already integrated the shopping process within conversations with partners such as ChatGPT, Microsoft Copilot, and Perplexity.

2) The adoption of the platform's intelligent assistant Sidekick accelerated, with over 750,000 stores using it for the first time in the third quarter alone, with cumulative conversations approaching 100 million (8 million in October alone), gradually becoming the default way for merchants to handle daily affairs.

3) Internationalization and multi-channel dimensions maintain high growth: European GMV grew by 49% year-on-year (42% at constant exchange rates), offline GMV grew by 31% year-on-year, B2B GMV grew by 98% year-on-year.

2.2 Q&A

Q: Your integration with OpenAI has started. Please share initial observations of these transactions, the incremental contribution pace compared to other channels, and the expected way to scale through AI platforms in the future.

A: Since January this year, AI-driven store traffic has grown approximately 7 times, and orders attributed to AI search have grown approximately 11 times. Our consumer research before Black Friday/Cyber Monday shows that about 64% of shoppers may use AI during the purchase process. We are laying the infrastructure needed for "agent-based e-commerce" and have partnered with leaders in this field to ensure Shopify merchants are better prepared and benefit first; our business model is highly aligned with merchant success, the more merchants sell, the more we share increment through GMV and Payments; cooperation with OpenAI in conversational e-commerce is just another new "surface" for merchants to reach customers.

Q: In the "instant checkout" scenario, there will be many accelerated checkout solutions presented side by side in the market. How do you think these solutions should be prioritized? As a merchant platform, how do you ensure Shop Pay takes advantage in such scenarios?

A: The core lies in the value of Shopify and these partnerships. Whether it's OpenAI, Microsoft, or Perplexity, the fundamental reason we can become priority partners on these platforms is that these intelligent agent products need to connect with "quality brands," and quality brands are all on Shopify.

As for Shop Pay's performance: In the third quarter, Shop Pay processed nearly $29 billion in GMV, a year-on-year increase of 67%, with cumulative transaction volume exceeding $280 billion. As the number one accelerated checkout tool on the Shopify platform, Shop Pay is favored by "consumers with high recognition of preferred brands" — and these brands happen to be on Shopify.

Q: Regarding the trade-off between market placement/marketing efficiency and growth; and your views on next year's placement and MRR trends?

A: This quarter is the first time Standard package MRR achieved sequential growth (it has been flat for the past few quarters), with a sequential increase of 4%. This change is purely the result of "trial policy adjustment" — the third quarter is the first time we can see a "clear sequential comparison of the trial policy." In the first quarter of this year, we basically completed the "transition from other trial policies to a 3-month trial policy," so the comparison between the second quarter and the first quarter is not clear, while the comparison between the third quarter and the second quarter is completely comparable.

Q: Can you talk about how we should view market share in this segment as you expand in the enterprise market and replace some existing suppliers? How should the take rate in this field be viewed?

A: Enterprises are migrating to Shopify. Brands like e.l.f. Cosmetics and Estée Lauder have joined, while Michael Kors, David’s Bridal, Goop, Mejuri, and others have fully launched. Our GTM in international markets like Europe is more complete, and partner-led transactions are also increasing;

As for the take rate for enterprise users, we are in the early stages of "enterprise customer funnel conversion." Many enterprise customers may initially only use our payment business, but over time, they will gradually adopt more products such as point of sale (POS), installments, and cross-border solutions. Therefore, although the take rate may face some pressure in the short term, from a long-term perspective, this is a positive signal for our business — the more products enterprise customers adopt, the higher the long-term value. We are optimistic about this trend.

Q: Please talk about the consumer situation in different regions and the impact after tariff changes.

A: For us, the core measure of "consumer confidence" is "conversion at the checkout stage" — and the data shows that consumers on the Shopify platform continue to purchase and repurchase, with demand across channels and categories remaining resilient. Of course, I can only comment based on Shopify platform data, but whether from GMV or other indicators, the current consumer characteristic is "more selective" — they tend to buy brands they love, and these brands happen to be on Shopify. Our fourth-quarter guidance also reflects this trend.

From a regional perspective, the growth momentum in the European market is particularly significant (as I mentioned in my speech), and it is expected to continue. But ultimately, if "checkout conversion" is used as a measure of consumer behavior, the $92 billion GMV this quarter says it all.

A: Compared to the previous two quarters, there is not much change; since the U.S. tariff adjustment in April, we have observed a slight decline in the extent of merchant price increases. Regarding factors such as the duty-free amount for small packages, from our perspective, the overall situation is relatively stable; the merchant base remains strong, adapts quickly, and we are actively supporting cross-border aspects.

Q: Can you elaborate on Shopify marketing activities? How do merchants participate in these activities? How does its economic model operate? What revenue opportunities do you expect this initiative to bring in the coming years?

A: First, it needs to be clarified that "customer acquisition" remains one of the biggest challenges merchants face — we have invested a lot of resources in this area. Currently, we mainly address this issue through two directions: one is the Shopify Campaigns (marketing activity tool) you mentioned, and the other is "product discovery and marketing empowerment" (the Shop app plays an important role here, helping merchants increase traffic and customer lifecycle value; Shopify Collective (merchant alliance) is also working in this area).

Specifically for Shopify Campaigns, our core goal is "running 'commerce-native' performance ads on high-intent platforms." Our strategy has always been "reinvesting the revenue obtained from the advertising business into business growth" — ensuring the continuous expansion of ad inventory size and business scale.

Currently, the results are very significant: this quarter, merchants' budget commitments on Campaigns grew 9 times year-on-year; comparing Q3 2024 to Q3 2025, merchant adoption of Campaigns grew 4 times year-on-year.

On the product level, we are also continuously optimizing: for example, we launched the "Gross Sales" metric — the default "high coverage target" in Campaigns; we also just released the "AI-driven ranking optimization" feature, early data shows it can significantly improve ad effectiveness.

Q: You mentioned last quarter that there will be more advertising opportunities; if merchant ad spend is approximately 20% of GMV, what part do you hope to capture in the long term? Additionally, regarding ChatGPT, is there a possibility of advertising revenue sharing in the future (such as sponsored/promoted listings)?

A: Regarding the economic terms of specific cooperation, I cannot disclose them. But it can be clarified that our profit logic is always tied to "merchant success" — the higher the merchant sales, the higher Shopify's revenue (whether through GMV commission or through Shopify payment business). This logic applies to all new channels, and any additional economic terms of cooperation are not disclosed externally.

Regarding advertising business strategy: "customer acquisition" remains the biggest pain point for merchants, and we believe we have the ability to do better — we have massive data and large scale, with unique advantages. Our goal is "to achieve larger-scale growth in the advertising field," the specific way is "testing, measuring, reinvesting," ultimately bringing better long-term results for merchants.

The advertising business is still in its early stages. If you are interested in the advertising business, it is recommended to pay attention to our next Shopify conference (Shopify Edition) — we will specifically introduce relevant progress at that time. In addition, from our current initiatives (such as Campaigns tools, Shop app, and Collective's product discovery and marketing empowerment), you can also see our layout ideas in the advertising field.

We are fulfilling our promises quarter by quarter — last year we built intelligent agent tools, and now we have reached cooperation with all key partners; two years ago we launched the AI assistant Sidekick (far ahead of industry popularity), and this quarter alone, 750,000 stores used it for the first time, with 8 million conversations in October alone; nearly five years ago we built an entry channel for enterprise customers, and now brands like Estée Lauder, David's Bridal, Aldo, Michael Kors have chosen us.

We are not "guessing the future of commerce," but "building it with our own hands." At Shopify, what I am most proud of is that we balance three key goals simultaneously: first, actively investing to seize opportunities, second, maintaining profitable margins to reflect control, and third, achieving sustainable performance quarter by quarter. This is a "compound execution capability" — currently, few companies can achieve these three points simultaneously at our scale, and we are doing it.

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