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    SHOP
    Earnings call· Mar 2025(Q1 FY25)

    SHOPIFY Q1 FY25 earnings call SHOP

    May 8, 2025 Source

    Executive summary

    Shopify Q1 FY25 — Strong Growth Across Segments and Continued Profitability

    Shopify delivered a strong Q1 FY25, demonstrating resilience and agility in an uncertain market. The company continues to prioritize merchant success through rapid product innovation, particularly in cross-border trade and AI, while maintaining operational discipline and healthy free cash flow margins. Strategic investments in key growth areas like international expansion, B2B, and enterprise are balanced with a focus on long-term growth over near-term margin optimization.

    Highlights

    5

    • Revenue was up 27% year-over-year in Q1 FY25.

    • Free cash flow margin hit 15% in Q1 FY25.

    • Offline GMV increased 23% in Q1 FY25.

    • B2B GMV delivered triple-digit growth, up 109% from last year in Q1 FY25.

    • International GMV grew 31% in Q1 FY25, with Europe's GMV up 36% year-over-year.

    Concerns

    4

    • Merchant Solutions gross margin decreased to 38.6% in Q1 FY25, down from 40.1% in Q1 2024.

    • Overall Q1 FY25 gross margin was 49.5%, compared to 51.4% in the prior year.

    • Subscription Solutions growth is expected to normalize to a rate lower than Merchant Solutions in 2025 due to tapering Plus pricing benefits and lengthening paid trials.

    • Q2 FY25 gross profit dollars are expected to grow in the high teens, a rate lower than revenue growth, due to a mix shift towards lower-margin Payments.

    Guidance & targets

    5
    CategoryTargetConfidence
    Q2 Revenue growth
    mid-20s year-over-year
    high materiality
    High
    Q2 Gross profit dollars growth
    high teens
    medium materiality
    Medium
    Q2 Operating expenses as % of revenues
    39% to 40%
    medium materiality
    High
    Q2 Stock-based compensation
    $120 million
    low materiality
    High
    Q2 Free cash flow margin
    mid-teens
    high materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Offline GMV
    Driven primarily by larger retailers joining the platform.
    		—23%——
    B2B GMV
    Delivered another triple-digit quarter of growth.
    		—109%——
    International GMV
    Continued strong growth across regions.
    		—31%——
    Europe GMV
    Showing strong traction and expanding presence, led by the U.K., Netherlands, and Germany.
    		—36%——

    Operational metrics

    27
    Free cash flow margin
    15%
    Q1 FY25

    In line with outlook, reflecting a balance between profitability and investments.

    GMV growth
    23%
    Q1 FY25

    Seventh consecutive quarter of GMV growth above 20%.

    Shopify Payments GMV penetration
    64%
    Q1 FY25

    Driven by strong performance of merchants utilizing Shopify Payments, increasing percentage of Shopify Plus merchants, and expansion into more countries.

    Shopify Payments countries supported
    39nearly doubled from 23 at end of 2024
    Q1 FY25

    Significant expansion in Q1, simplifying onboarding and streamlining payment solutions for merchants.

    Shop Pay GMV
    $22 billionup 57% from last year
    Q1 FY25

    Continues to be a key product offering driving upmarket enterprise-level growth opportunities.

    Shop App native GMV growth
    94%year-over-year, acceleration from 84% last quarter
    Q1 FY25

    Impressive acceleration despite Q4 seasonality.

    Sidekick monthly average users
    more than doubled
    since start of 2025

    Progress yielding strong results for merchants, both large and small.

    Subscription Solutions revenue growth
    21%
    Q1 FY25

    Driven by an increase in the number of merchants, benefit from Plus pricing change, and higher variable platform fees.

    Merchant Solutions revenue growth
    29%
    Q1 FY25

    Driven by continued strength in GMV and increased penetration of Shopify Payments.

    MRR growth
    21%year-over-year
    Q1 FY25

    With continued growth in Standard, Plus, and offline categories, all seeing an increase in the number of merchants.

    Plus plans as % of MRR
    34%
    Q1 FY25

    Reflects the increasing adoption of higher-tier plans.

    Subscription Solutions gross profit growth
    19%
    Q1 FY25

    Slightly less than the 21% revenue growth, driven by higher cloud and infrastructure hosting costs.

    Subscription Solutions gross margin
    around 80%plus or minus a couple of hundred basis points
    over the past 5 years

    Expected to remain stable in the near term.

    Merchant Solutions gross profit growth
    24%
    Q1 FY25

    Reflects strong performance in Merchant Solutions.

    Merchant Solutions gross margin
    38.6%compared to 40.1% in Q1 of 2024
    Q1 FY25

    Decrease primarily driven by lower noncash revenues from certain partnerships and the impact from the expanded partnership with PayPal, partially offset by strong growth in FX and tax products.

    Overall gross margin
    49.5%compared to 51.4% in the prior year
    Q1 FY25

    Reflects the combined impact of Subscription and Merchant Solutions gross margins.

    Operating expenses as % of revenue
    41%compared to 47% in Q1 2024 and 60% in Q1 2023
    Q1 FY25

    Continued discipline on headcount and increasing use of AI yielding strong operating leverage.

    Transaction loans and losses as % of revenues
    3%consistent with Q1 of last year
    Q1 FY25

    Stability largely due to higher volumes in the growing capital business.

    Operating income as % of revenue
    9%compared to 5% in Q1 of last year
    Q1 FY25

    Strong improvement driven by operational efficiencies.

    Stock-based compensation
    $123 million
    Q1 FY25

    Reported for the first quarter.

    Capital expenditures
    $4 million
    Q1 FY25

    Reported for the first quarter.

    US e-commerce GMV growth vs overall US e-commerce
    exceeding 2xapproximately 2x overall
    each of the past 5 quarters

    Demonstrates continued and strengthened outperformance of the market.

    Cross-border GMV from China subject to de minimis exemption
    1%
    Q1 FY25

    Only 1% of overall GMV is related to imports from China that were subject to the exemption, not expected to have a meaningful impact in the near term.

    Unique online shoppers
    875 million
    2024

    Spanning a broad range of income levels and brand loyalties, providing resilience.

    US buyers with incomes exceeding $100,000
    more than half
    2024

    Helps insulate merchants from potential swings in pricing or other market factors as higher-income consumers tend to be less price sensitive.

    Duties calculation price
    0.5%
    Q1 FY25

    Reduced price, making it one of the most affordable options in the market.

    Shops actively using duties calculation
    nearly doubled
    since January

    Reflects rapid adoption of the feature after price reduction and availability.

    Industry KPIs

    3
    MetricValueDetails
    GMV take rate payments$74.8 billionUSD
    Large customer cohortsmore than half%
    Software recurring arr21%%

    Product announcements

    11
    ProductTypeDetails
    Managed Markets productsexpansion
    Shop App filter by countrylaunch
    Duties calculation at checkoutupdate
    Duty-inclusive pricinglaunch
    tariffguide.ailaunch
    Prepaid shipping labels (DDP)expansion
    Shopify Fulfillment Network appexpansion
    Shopify Paymentsexpansion
    Multicurrency payoutslaunch
    Shop Pay Installmentslaunch
    Sidekick AI engineupdate

    Deals & partnerships

    5
    Vantage DiscoveryAcquisition to accelerate AI-powered search development.

    Closed the acquisition of Vantage Discovery in March, which helps accelerate the development of AI-powered, multi-vector search across Shopify's search, APIs, shop and storefront search offerings.

    VF CorpSigned agreement to bring 8 brands to Shopify.

    One of the largest apparel and footwear conglomerates, VF Corp, signed up to bring 8 of their well-known brands to Shopify, including Dickies, Altra Running, Kipling and icebreaker. JanSport and Eastpak have already launched.

    Follett Higher Education GroupSigned agreement to manage campus bookstores.

    The multibillion-dollar company managing campus bookstores at over 1,000 colleges and universities across North America signed up in late April/early May.

    Kering BeautéSigned agreement for beauty brand division of luxury fashion houses.

    The beauty brand division of luxury fashion houses like Alexander McQueen, Balenciaga and Creed signed up in late April/early May to unify their customer experience across channels leveraging Shopify's B2B, B2C and point-of-sale solutions.

    Uber and DoorDashIntegration to offer same-day delivery for merchants.

    Integrated with Uber and DoorDash to enable Alo, an athletic apparel brand, to offer quick same-day delivery options for customers near their retail stores.

    Risks & headwinds

    3
    Market uncertainty and potential slowdownsOngoing

    Little evidence of slowdown through April; cross-border GMV remained consistent at 15% of total GMV; over half of U.S. buyers have incomes exceeding $100,000.

    Mitigation: Shopify's agility, diverse merchant base across industries and geographies, rapid product innovation (e.g., cross-border tools, AI), and focus on higher-income consumers provide insulation.

    Tariffs and trade environment changesNear-term, ongoing

    Only 1% of overall GMV is related to imports from China that were subject to the de minimis exemption, which expired recently.

    Mitigation: Rapid product development and deployment of tools like Managed Markets, duties calculation at checkout, duty-inclusive pricing, and tariffguide.ai; merchants are adjusting inventory strategies, pricing, and sourcing selections.

    Gross margin pressure from product mix and partnershipsQ1 FY25, expected to persist into Q2 FY25

    Overall Q1 gross margin decreased to 49.5% from 51.4% YoY; Merchant Solutions gross margin decreased to 38.6% from 40.1% YoY. Q2 gross profit dollars expected to grow in high teens, lower than revenue growth.

    Mitigation: Strength in higher-margin products like FX and tax; Subscription Solutions gross margin remains stable around 80%; temporary headwind from paid trial changes for Subscription Solutions growth expected to resolve next year.

    What to watch in Q2 FY25

    5

    Q2 Revenue Growth

    Q2 FY25
    Current27% in Q1 FY25
    TargetMid-20s year-over-year

    Why it matters

    Indicates continued top-line momentum and market outperformance in a dynamic environment.

    First, on revenue. We expect Q2 revenue growth in the mid-20s year-over-year driven by many of the same factors that supported our strong revenue growth in Q1.

    Q&A highlights

    5

    How is Shopify mapping merchant inventory sourcing locations and true tariff exposure, and how is potential demand destruction balanced against average order value increases?

    Harley stated that tariff impact varies by merchant, but net-net, no meaningful impact on GMV seen so far. Jeff added that this is factored into guidance, and GMV strength continued through April and early May. Shopify's diverse merchant base and higher-income buyer base (over half of US buyers have incomes exceeding $100k) provide insulation.

    “What I can tell you is that we have merchants everywhere of all sizes across pretty much every geography and pretty much every vertical. I mean, that is the benefit of the Shopify business model. There's no -- our merchant base is not concentrated in one area. So in terms of where they make their products, exposure really does vary by merchant. Some are impacted more than others. But net-net, we're not seeing any meaningful impact on GMV.”

    asked by Samad Samana · answered by Harley Finkelstein

    2 min read6 chapters

    Detailed Narrative

    01

    Merchant Resilience and Market Outperformance

    Shopify highlighted the exceptional resilience of businesses on its platform, noting that 38 out of 39 quarterly merchant cohorts since 2015 have outperformed the overall e-commerce market. This consistent outperformance, coupled with Shopify's operational excellence, positions the company strongly to navigate current market uncertainties. The diverse merchant base, spanning various industries and verticals, provides a stable foundation, with over half of U.S. buyers having incomes exceeding $100,000, insulating merchants from potential market swings.

    02

    Rapid Product Innovation for Cross-Border Trade

    In response to the dynamic trade environment, Shopify rapidly deployed several product enhancements. These include improved Managed Markets products for U.S. merchants, a new Shop App filter for local products, and a reduced price of 0.5% for duties calculation at checkout. The company also launched tariffguide.ai, an AI-driven tool for duty rate calculation, and is enabling the purchase of Delivered Duty Paid (DDP) shipping labels directly from its platform, demonstrating unmatched agility in adapting to global trade changes.

    03

    Shopify Payments and Shop App Expansion

    Shopify Payments significantly expanded its global footprint in Q1, launching in 16 new markets and nearly doubling its supported countries to 39. Multicurrency payouts were also introduced in 20 European countries. Shop Pay GMV surged 57% year-over-year to over $22 billion, attracting major brands like Purple and Tapestry. The Shop App continued its momentum, with native GMV accelerating to over 94% year-over-year growth, and Shop Pay Installments launched in early access in Canada.

    04

    Internal and Merchant-Facing AI Integration

    AI is a cornerstone of Shopify's operations, with an internal culture of 'reflexive AI usage' to enhance team effectiveness and drive operational efficiencies. On the merchant-facing side, Sidekick, Shopify's AI assistant, underwent a complete rearchitecture to improve reasoning capabilities and language accessibility, leading to its monthly average users more than doubling since the start of 2025. This dual focus on internal and external AI integration aims to provide merchants with an 'unfair advantage'.

    05

    International and Offline Growth Momentum

    Shopify reported strong international growth, with Europe's GMV increasing 36% year-over-year in Q1, driven by key markets like the U.K., Netherlands, and Germany. The offline business also saw robust growth, with GMV up 23%, fueled by mid-market and multi-location merchants. The company continues to attract larger brands, including VF Corp, Follett Higher Education Group, and Kering Beauté, leveraging its unified commerce solutions across B2B, B2C, and point-of-sale.

    06

    Operational Discipline and Balanced Investment Strategy

    Shopify maintained its operational discipline, achieving a seventh consecutive quarter of double-digit cash flow margins and significant operating expense leverage, with Q1 operating expenses at 41% of revenue (down from 47% YoY). The company emphasizes a balanced approach, prioritizing strategic investments in core platform, international, B2B, enterprise, and offline growth areas, rather than optimizing for near-term margin, to capitalize on immense future opportunities while delivering healthy profitability.

    AI-generated summary of the company’s earnings call. Not investment advice.