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Shopify Inc (NYSE:SHOP)
Q2 2019 Earnings Call
Aug 1, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, my name is Heidi and I will be your conference operator today. At this time, I would like to welcome everyone to the Spotify Second Quarter 2019 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Katie Keita, Head of Investor Relations, you may begin your conference.

Katie Keita -- Investor Relations

Thank you, operator and good morning everyone. We are glad you can join us for Shopify's second 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 our 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 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 the 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 a substitute for GAAP financial measures. Reconciliations between the two can be found in our earnings press release which is available on our website. And finally, note that because we report in U.S. dollars all amounts discussed today are in U.S. dollars unless otherwise indicated.

And with that, I will turn the call over to Harley.

Harley Finkelstein -- , Chief Operating Officer

Thanks Katie, and good morning everyone. This past quarter, our momentum certainly continued. Our efforts to expand internationally accelerated with new global additions to our partner network and the largest ever mix of international merchant store base. Our merchants reached new levels of success with year-over-year GMV growth accelerating from Q1. In fact, merchant sales reached a major milestone selling on average $1 billion per week in Q2, an impressive number considering it was not very long ago that it took our merchants an entire year to sell $1 billion worth of their products. And more than 1,500 partners and developers from more than 50 countries joined us for our soldout Shopify Unite Conference, our largest ever where we announced many of the features we've been working on it.

I want to highlight a few of these new features before updating you on our progress for Shopify Plus and our partner ecosystem as we continue to level the playing field for entrepreneurs. We announced a new online store design experience, making it easier than ever for merchants to design and update their stores, while creating their own unique brand and buyer experience. We're adding new functionality to enable businesses of any scale to showcase their products in 3D, AR, and through video creating a more immersive browsing experience. This also makes Shopify the first major platform ever to natively support 3D. And based on our early tests, buyers interacting with 3D were more than twice as likely to complete a purchase.

We announced our long awaited order-editing feature, an API, which will enable both merchants and partners to create flexible solutions for managing upsells and changes during the post-purchase process. We announced checkout app extensions allowing partners to integrate new functionality into Shopify's checkout so that buyers can choose things like recurring payment transactions seamlessly. We made big steps toward connecting merchants and buyers around the world with the announcement of our translations API and multi-currency for all of our merchants. We're incredibly excited with all these announcements, but our biggest news of the day was the Shopify's fulfillment network.

We expect to spend $1 billion over the next five years to democratize fulfillment, making it accessible and affordable for merchants of any size to offer what used to be reserved for only the largest companies in the world. No other company is as well positioned as Shopify is to offer this. By leveraging our scale with machine learning, demand forecasting, smart inventory allocation across warehouses, and intelligent order routing we expect merchants will be able to get their goods to buyers, faster and cheaper than any other option they have today while keeping their own brand front and center.

We're also focused on an increasingly important part of our business, offline commerce, which we're enhancing so merchants can provide a far better in-store buyer experience. We announced our new point-of-sale software which is faster, more intuitive, and more scalable point-of-sale software for retailers to grow their brick-and-mortar businesses. Following the launch of our new retail hard-work [Phonetic] in April, we released the card app extension, which let merchants apply loyalty points and discounts directly into their point-of-sale. Another way we'd help merchants sell more and improve the buyer experience is Shopify Pay by removing friction at checkout. Shopify Pay's popularity continue to grow in Q2 with millions more buyers opting in. This led to Shopify Pay's order volume doubling compared to the same period last year, and reaching nearly $1 billion in GMV for the quarter.

In Q2, we released new features for Shopify Pay like giving buyers the ability to add discount codes and edit saved shipping addresses. Shopify Capital and Shopify Shipping, both experienced robust growth year-over-year. Growth in these areas are particularly important to us because these are products that our merchants increasingly use as they become more successful. Shopify Capital exceeded $630 million in total merchant cash advances in the second quarter, and more than half of that was distributed in the past 12 months alone. Simply put, merchants have a better shot at success when they have timely access to affordable capital, and that's why this July we introduced Shopify Capital to non-Shopify payment merchants in the U.S., expanding our eligible market and helping even more entrepreneurs accelerate the growth of their business.

Shopify Shipping adoption continue to grow with more than 42% of eligible merchants using shipping in the second quarter, which was up from just one-third of eligible merchants in the same period last year. Merchants now have access to shipping profiles which gives merchants the flexibility to define shipping rates by product and source location while improving the accuracy of shipping prices. And of course, Shopify Plus, which had another phenomenal quarter; the agility and flexibility of the platform gives these large merchants the ability to move fast, offer exceptional buying experiences, and grow their business.

Some of the brands that launch this quarter include fashion labels; BB, APC, and Frances Valentine, which was founded by the late fashion icon, Kate Spade. International electronic brands including Dolby, Sony, Unit-in, and Palm. More brands from some of the largest and influencers on the planet like Kylie Jenner's new skincare line, Kylie Skin; and Katy Perry's new footwear line, The Katy Perry Collection; one of Canada's largest sellers of office supplies retailer, Staples Canada; footwear brand, Clarks; Beer Company, Heineken; and we continue to see more launches from the world's largest consumer packaged goods companies. Shopify Plus is set to become an even more compelling solution for complex and large scale businesses when we release our new Shopify Plus product later this year. The only Shopify Plus will give merchants an overview of the performance at every single one of their stores with the ability to manage all stores, staff accounts, user permissions, and automation tools like Shopify flow in a single place.

Finally, let's turn to our partners. As I mentioned, Shopify held it's 4th Annual United Partner Conference this June, where we shared glimpses of our product roadmap with our partner community. This event gets bigger and better every year as we surface all the opportunities available to our ecosystem to help build the world's best multichannel retail operating system. The Shopify Fulfillment network, our international expansion, and the continued growth of our sales channels like point-of-sale or just some of the exciting areas where our incredible partner ecosystem plays a vital role. And our partner ecosystem has been busy; 22,000 partners referred merchants to our platform in the last 12 months, up from 19,000 in Q1, and this is primarily driven by international growth. Our partners play an important role in helping us localize the platform internationally. In fact, I've been on the ground meeting with partners from around the world, and I always come home energized by their enthusiasm to enable our merchants from every corner of the globe.

Our app store also continues to grow with more international partners building new functionality for Shopify. We added another 200 apps, bringing the total number to 2,900 at the end of Q2, and translated to Shopify app store into 18 languages that our non-English speaking merchants can add the specific functionality they need regardless of where they're located. It's incredible what we're getting done at Shopify; we're shipping important features at a strong pace. As we invest in feel great products enabling more capabilities I'm confident that we will continue to unlock unprecedented opportunities for merchants around the world, making commerce better for everyone, everywhere.

Amy Shapero -- Chief Financial Officer

Thanks, Harley and good morning everyone. We delivered a strong second quarter. One that highlighted both the power of our business model as well as the strength of our execution. We grew revenue 48% year-over-year to $362 million. Subscription Solutions revenue increased 38% to $153 million dollars driven by monthly recurring revenue growth of 34% to $47.1 million. Shopify Plus increased its contribution to MRR, accounting for $12.4 million or 26% compared with 23% of MRR in Q2 2018. Subscription Solutions revenue grew faster than MRR in the quarter, mainly due to strong growth in app and plus platform fee revenue, which is not included in MRR. Merchant Solutions revenue grew 56% over the same period in 2018 to $208.9 million. This growth was driven by GMV expansion, which accelerated to 51% year-over-year to $13.8 billion.

Our merchants are selling more than ever, as our investments across international Plus and POS are paying off. $5.8 billion of GMV was processed on Shopify Payments in Q2, an increase of 51% versus the comparable quarter last year. Shopify Payments penetration of GMV grew 42% in the second quarter versus 40% in Q2 2018, primarily due to increased Shopify Plus penetration as well as the addition of new Shopify Payments geographies. Gross profit dollars grew 50% from Q2 of 2018 to $204.8 million outpacing revenue growth in the quarter, principally due to new payment partner pricing terms, which included a one-time benefit. Adjusted operating income in Q2 was $4.8 million or 1% of revenue compared with a loss of $4.3 million or 2% of revenue in the second quarter of 2018.

We achieved better than expected adjusted operating results in Q2, due in part to the one-time payment partner pricing benefit I just mentioned and timing of brand spend with Q2 underspend shifted to the second half of 2019. Early indications are that the brand campaign has nearly doubled unaided awareness in our test markets while there was minimal increase in similar control markets. This has resulted in an increase in traffic to the platform. How and when that takes effect down the funnel and impacts conversion remains to be seen but this is certainly a positive early read out. Adjusted net income for the quarter grew significantly to $15.8 million or $0.14 per share over income of $2.5 million or $0.02 per share for the same period last year. Finally, our cash, cash equivalents and marketable securities balance was approximately $2 billion generally consistent with the balance at the end of 2018.

The appeal of entrepreneurship is universal, attracting entrepreneurs around the globe to Shopify. Why Shopify? Because our merchant's centric business model is inclusive ensuring that multiple voices contribute to the future of commerce regardless of scale or location. Investing in their aspirations and growth keeps our flywheel in motion, leading to a diversity of merchants joining the platform, more channels and capabilities to help our merchants succeed and greater opportunities for merchants to grow their sales and reinvest in their businesses. Harley discussed our achievements and continued investments in platform and plus. I will provide updates for international and Shopify Fulfillment Network starting with international.

We made great headway, improving our product-market fit across a number of regions in the second quarter, adding 11 more languages to the platform enabling more merchants to start using Shopify in the language they're most comfortable. We also translated the partner dashboard into 11 additional languages as we leverage our growing international ecosystem to support our localization efforts. We introduced more product solutions to fuel merchant growth. In Q2, we launched Shopify Payments in Denmark and the Netherlands, which features an integrated local payment method that allows for bank transfers in addition to credit card payments. Multi-currency is now available to eligible core merchants using Shopify Payments with a full rollout planned for later this year. Early signs of growth are promising since launching this feature to Plus merchants in Q1. Optimizing product-market fit on a localized basis is clearly the right approach.

While still early days we are pleased with our progress. Our mix of international merchants continue to grow relative to total new merchant adds. International also contributed to the reacceleration of GMV with its contribution relative to overall GMV continuing to expand in the second quarter. Moving to Shopify Fulfillment Network, a major new product expansion area for our merchants. As I discussed at our Investor Day, our merchants need for fast reliable affordable fulfillment is clear and growing and can be the difference in whether a merchant makes a sale or not. In other words, the success of our merchants depends on it, which is why it is among our top investment priorities. Since announcing Shopify Fulfillment Network at our Unite Conference, we have received an incredible amount of interest that has exceeded our expectations. Thousands of merchants have expressed their desire to be a part of our early access program and dozens of partners are eager to join us in being a part of the solution.

We have spent the past 6 weeks on boarding merchants we've approved so far. Are in discussions with thousands of other merchants and are assessing interested partners. Given that the uptake and interest for Shopify Fulfillment Network has been much stronger than anticipated, our plan is to accelerate investing so we can move fast and execute on this opportunity for our merchants. All in, we are pleased with our second quarter results. The top line momentum continuing in the back half of the year and are committed to investing for the long term. As a result, we are raising our revenue expectations for the full year to be in the range of $1.51 billion to $1.53 billion with an adjusted operating income ranging between $20 million to $30 million. For the third quarter, we expect revenue of $377 million and $382 million and an adjusted operating income between $0 million and $3 million.

Stock-based compensation in 2019 is expected to be approximately $175 million for the full year with about $47 million of this in the third quarter. This is higher than originally expected, primarily due to an anticipated increase in payroll taxes related to option exercises resulting from Shopify strong share price performance this year. In closing, we're excited about the future of commerce and Shopify's to level the playing field for entrepreneurs everywhere. Given the success of our merchants, we are confident that we are making the right investments that will continue to energize the flywheel and deliver strong and sustained growth well into the future.

With that, I'll hand the call back to Katie.

Katie Keita -- Investor Relations

Thank you, Amy. Before turning it over to the operator to open at up to everyone's questions, let me remind you to please try to limit yourselves to just one question and that way everyone can get a chance to ask a question on the call today. With that operator, do we have anyone in queue?

Questions and Answers:

Operator

Certainly. [Operator Instructions] And your first question comes from the line of Brad Zelnick with Credit Suisse. Please go ahead.

Brad Zelnick -- Credit Suisse

Excellent, thanks so much and congrats on another fantastic quarter. My question is for Tobi or perhaps Harley. As we look out on the horizon. What can you do with all of the rich and insightful data that you have to drive merchant's success perhaps in ways you're not already doing?

Tobi Lutke -- Chief Executive Officer

Yes, I will take this. Tobi here. It was an interesting type of data. Right like I want to be careful because that's a really, really strong principles in this company like which around that the data is the merchants and we use it to their exact benefit, right. And you see like I think grades implementation of this with our plans for the cycles in the network because there -- we talked about this on stage. We can based on historics of be it sales, demand and so on we can predict. Right now we're about 85% accuracy from which region in the next or is going to come and where demand is going to be needed and so on. So it's these kind of things. It's taking data to either make something that was -- would previously have been impossible for the merchants possible for them or take something that would otherwise be incredibly difficult or full of manual labor and to simplify it. Most of it kind of use cases we are looking at. And so it's going to -- I haven't got anything terribly concrete to point out because I think we also just gave a good example of the kind of thing that we can do but it's important to say that what Shopify want to do is take the sort of aggregate total of and act on build earnings to our benefit. This is sort of -- we see this in the history of retail. A lot of their large vendors go and create retail brands based on -- or in-house brands based on the insights that they are only marginally entitled to and this is just not the right move for a platform such as us.

Brad Zelnick -- Credit Suisse

Thanks so much.

Katie Keita -- Investor Relations

Okay. Thank you, Brad. Next question, please.

Operator

Is from the line of Colin Sebastian with Baird. Please go ahead.

Colin Sebastian -- Baird

Great, thanks, good morning. I guess in terms of the interest that you're seeing for Fulfillment Services, I wonder how much of this is coming from merchants that are not currently on the platform? Meaning, could we anticipate this to be an incremental driver of new customer adds and in any other observations you have from the channel as well. Thank you.

Harley Finkelstein -- , Chief Operating Officer

Hey, thanks for the question. Harley here. Certainly, with the way we're looking at SFM, we have more than 800,000 merchants that many of which are shipping, particularly in the US where SFM will be rolled out first that we think we can certainly help with and add value to their shipping and fulfillment practices. In terms of new merchants that may not be exploring entrepreneurship because of all the different challenges. It's just one more place where we can reduce the barrier to entry into entrepreneurship. So that in the same way they don't have to think about designing or coding up their own website. They don't have to think about integrating some sort of complex payment system. They don't have to think about any new functionality. They can just go grab it from our app store. The Fulfillment Network is just one more piece of the puzzle that people may be risk adverse about in terms of jumping into entrepreneurship and the more we can level that playing field, the more people will participate in entrepreneurship and more and more that is happening all on Shopify.

Colin Sebastian -- Baird

Thank you.

Katie Keita -- Investor Relations

Thanks, Colin. Next question, please.

Operator

Yes. Your next question is from the line of Ken Wong with Guggenheim. Please go ahead.

Unidentified Participant

Hi, good morning. This is Atto [Phonetic] geared on for Ken. I just had a question about some of your merchant adds in the first half of this year. Just given the focus you guys have placed on filling the top of the funnel, we think that merchant adds are kind of consistent with the first half what you've seen or what you saw in the first half of last year becoming in better? Thanks.

Amy Shapero -- Chief Financial Officer

Yes, let me just kind of talk about the first half and kind of what we're seeing. We obviously had a record Q1 in terms of net merchant adds and when we think about Q2 relative to Q1 we attribute the movement largely due to seasonality. So you're seeing some of that. We saw a consistent pattern from Q1 to Q2 this year in terms of funnel gross adds and net adds that we saw last year Q1 to Q2 2018. In fact, we think we saw it a little bit magnified. As we get larger our scale gets greater and our international presence is greater. So we're seeing a very consistent pattern year-over-year. Our Q2 adds were in line with our forecast and expectations and we continue to be very optimistic about long-term growth of our merchants globally with our investments internationally as well as brand. The early indications as I said earlier from the brand spend are great. We just concluded this first brand campaign a couple of weeks ago. So, it's still early and we're still analyzing and we did see an increase in traffic to website at the top of the funnel. But as I said, it's too early to tell how that's going to translate into merchant adds going forward, but we're very encouraged.

Unidentified Participant

Great, thank you.

Operator

Your next question comes from the line of Samad Samana with Jefferies. Please go ahead.

Samad Samana -- Jefferies

Hi, good morning. Thanks for taking my question. Amy, maybe this is for you, but I guess expanding Shopify Capital to non-Payments customers, how should we think about that maybe in terms of expanding the dollar opportunity or the rate of change in terms of capital and the dollars that you guys have been putting out? And does it also change the risk dynamics since non-Payments customers are a little bit -- have -- tend to have a little bit higher churn? Thanks for taking my question.

Amy Shapero -- Chief Financial Officer

So, yes, with capital, I'll just kind of give you a little bit of context here. We've actually managed our loss ratio in a very, very tight range. In fact, it's lower than the top of the range where we think we could go with this, which says, the power of our algorithms are working. And so it's one of the reasons why we felt comfortable offering the capital product to non-Shopify payment merchants. We feel like we're in a good position. With respect to non-Shopify Payments merchants, we still have significant visibility into their operations. We see their order as we see their engagement with the platform. And so we are very comfortable moving in that direction. It does expand our addressable market about 10% and we see other opportunities to increase our addressable market over time as well. If you recall, we're only in like 14 states right now and we're -- we've got some initiatives under way to take that nationally. Timing is to be determined, but we certainly see opportunities to continue to grow that business aggressively over time and in a smart way. We'll do it prudently and pull those growth levers and watch the loss ratio, but we're very comfortable where we're at right now.

Samad Samana -- Jefferies

Great, thanks for that.

Amy Shapero -- Chief Financial Officer

Thanks so much.

Operator

Your next question comes from the line of Ygal Arounian with Wedbush Securities. Please go ahead.

Ygal Arounian -- Wedbush Securities -- Analyst

Hey, good morning. Thanks for taking the question. So to sort of get into the retail POS a little bit more and maybe get your take on how much we're selling point the POS software has been since you launched it. In particular how the kind of cross integration between the e-commerce platform and the POS software helps drive merchant growth especially on the plus side when merchants are debating between your platform and maybe a different one. And then as you think about going further into retail and you've obviously put a lot of effort into the POS and the software there, how do you think about kind of pain points and areas where you can solve for that might be lacking in the marketplace today? Thanks.

Tobi Lutke -- Chief Executive Officer

Hey, it's early. I'll take that question. So as I mentioned in my prepared remarks, we are certainly focused in a new rejuvenated way in terms of point of sale. We already have more than 100,000 physical retailers using our point of sale product but we feel like new hardware and new software just our point of sale offering can be best-in-class. So part of what we're doing now is obviously making sure that anyone who is currently using Shopify for e-commerce begins to use Shopify as well for point of sale and there is some low hanging fruit there for us as well. But also if you think about what we talked about with channels, point of sale is just another entry way into Shopify. Some merchants come to us to sell online, some are coming to us sell offline as well and as their business grows they are able to take more channels and expand with us. So we are excited about our point of sale offering -- our new point of sale offering. We think with the hardware kit which is proprietary, which is something that we're really proud of coupled with a brand new software, which we think is the best out there right now, we can really win in this particular market. The other thing that we're working on with the point of sale is a sort of -- a new go-to-market strategy. Obviously, the way that merchants and small businesses purchase point of sale is different than the way they purchase e-commerce and so by having the right marketing, the right salespeople and the rig go-to-market strategy we think we can do a really great job of increasing that 100,000 merchant market to much more than that.

Katie Keita -- Investor Relations

Thanks, Ygal.

Ygal Arounian -- Wedbush Securities -- Analyst

Thank you.

Katie Keita -- Investor Relations

Next question, please.

Operator

It's from the line of Thomas Forte with Davidson. Please go ahead.

Thomas Forte -- Davidson -- Analyst

Great, thanks for taking my questions. So, I had a question for Tobi. So Tobi, with the four horseman of big technology Amazon, Apple, Facebook and Google facing increasing scrutiny on a global basis as evidenced recently by their testifying in front of the House Judiciary Committee. So to what extent is this potentially a problem for Shopify to the extent you partner with some of those companies? And then more importantly, to what extent of this create an opportunity for Shopify? Thanks.

Tobi Lutke -- Chief Executive Officer

Yes. Thanks, Tom. Well, I guess first of all, I think it's a very, very healthy debate for every country society to just at least meditate on how the largest companies fit into society and what roles they should play and so on. So I think this is all good. More about Shopify -- But I think Shopify -- Again, the thing that's so great about this company from -- I mean, from my perspective, frankly, it makes my job easier is that Shopify is really -- we are on the same side of the table of all the stakeholders all the way down, not just partners merchants and buyers and so on. It's like even the externalities of Shopify that there is more entrepreneurship which leads to more successful small businesses. And when I talk about politicians and I do the thing that we get to a pretty quickly is that the future need the small businesses creating good jobs for 10 to 50 people or maybe beyond in certain cases. So it's super comfortable that's -- how Shopify fits into this picture. And so to the extent of like working with these other companies, I do think again they are so large in scope and some of them beneficial for the same thing, for the SMB space. And so they are the -- they collaborate with them and try to create a situation where the Internet is a place which is beneficial to entrepreneurship which then leads to all the good side effects to society that we'd like to see.

Katie Keita -- Investor Relations

Great, thanks Tom.

Thomas Forte -- Davidson -- Analyst

Thanks, Tobi.

Operator

Next question comes from the line of Darren Aftahi with ROTH Capital Partners. Please go ahead.

Darren Aftahi -- ROTH Capital Partners -- Analyst

Hey, good morning. Thanks for taking my question. Just when you look at your international merchant base today and kind of look at it compared to your domestic base when it was similar size way back when. I'm curious how much faster is that international basis reaching kind of the same GMV benchmark level is there achieved? Thanks.

Harley Finkelstein -- , Chief Operating Officer

Hey, Darren, it's Harley. It really depends in the same way that there is no way for us to get product-market fit in every country at once so we actually have to go and understand the nuances of each geography, understand what they need from a product perspective, what they need from an ecosystem like a partner perspective. The same sort of thing happens in terms of merchant type. So we will see a very different type of merchant in a place like Japan than we would in a place like France as well. That being said, there are opportunities for us to not only get more merchants in each of those countries but also for those merchants to grow really successfully. And the way that we think we can do -- we can help them with that is by making sure they have all the tools they need. So when you -- As I mentioned in my prepared remarks translating the app store into way more languages than we initially had, making sure we have third parties in each country, building new apps from -- for country specific merchant needs. Those are all ways that we think we can not only get more merchants on the platform but make those merchants internationally way more successful at a faster clip.

Katie Keita -- Investor Relations

Thanks, Darren.

Operator

Your next question comes from the line of David Hynes with Canaccord. Please go ahead.

David Hynes -- Canaccord

Hey, good morning. Maybe for Harley. Harley, how do you think about the relationship between the Fulfillment Network and Shopify Capital? I mean obviously, the goal is to help merchants be as efficient as possible in enabling faster delivery but I also assume for most, it's going to require a degree of inventory build. So is it right to think that a scaling Fulfillment Network is going to be a tailwind to your capital business?

Harley Finkelstein -- , Chief Operating Officer

Thanks for that question. And look, obviously, what you're seeing with SFN with Shopify network and capital and shipping and payments and all these sort of different Merchant Solutions is we want to complete the picture of what merchants require to not only started business but to go really, really big. Obviously the more services and solutions that the -- our merchants take from us, the easier it is for us to provide them with assistance. So if we know how much inventory they have in the SFN, we obviously can't make faster, smarter, more intelligent capital decisions. But all these things fit together. But what are beginning to see here it is --you're beginning to see what we have been talking about, this first global retail operating system where a merchant comes to Shopify and whether it's housing their inventory, shipping out their products, part of them capital, for them is shipping labels or payment opportunities. We want to do more for these merchants once they come onto the platform. And so you're seeing more of that now.

David Hynes -- Canaccord

Got it. Thanks.

Katie Keita -- Investor Relations

Thanks, David. Next question, please.

Operator

Your next question comes from the line of Deepak Mathivanan with Barclays. Please go ahead.

Deepak Mathivanan -- Barclays

Hey guys, thanks for taking the question. Amy, can you elaborate on the one-time benefit to Merchant Solutions gross margin? You noted one-time partner payment, is that incremental revenues? How should we think about the magnitude of that and also going forward? Thank you so much.

Amy Shapero -- Chief Financial Officer

Sure. In the normal course of business as we've scaled we obviously were able to negotiate volume discounts with our various partners and the second quarter, we concluded a contract renegotiation with a payment partner where we were successful in negotiating future volume discounts. Along with that came a one-time benefit that was recognized in the second quarter. If -- if we had not had that one-time benefit in Q2 merchant Solutions margins would have been roughly flat quarter-over-quarter and year-over-year. So that should give you a sense of the magnitude. So on a go-forward basis, this obviously is a benefit to our payment margins and recognizing the greater volumes that we'll be bringing on overtime.

Katie Keita -- Investor Relations

Great, thanks, Deepak. Next question, please.

Operator

Koji Ikeda with Oppenheimer. Please go ahead, your line is open.

Koji Ikeda -- Oppenheimer

Hi, good morning. Thanks for taking my questions. I had a quick question on the Fulfillment Network. Obviously, big news coming out for the Unite Conference and I know it's really, really early here. But any sort of commentary on the initial demand from the customers out there or maybe how has signup requests been for the early access program? Was it about as expected maybe higher, maybe a little bit lower? Any sort of color there would be helpful. Thank you for taking my question.

Tobi Lutke -- Chief Executive Officer

Yes, so in terms of progress, we've made since the announcement we've received a ton of interests from merchants and partners. I can just say this bluntly, we exceeded expectations on that. So we spent the last six weeks on boarding merchants we've approved so far and we're currently in discussions with thousands of other merchants and assessing interested partners. So generally, we're really pleased with where things are at right now. As we've mentioned, we've signed on seven nodes for 2019. Each of those nodes are in various stages of implementation, there certainly may be more coming on as well. But the idea really is -- we think we can provide this Fulfillment Network to provide lower costs, to allow merchants to keep the brand and allow them to have a much smoother business. So we're really happy where things are at right now. But these merchants that we're bringing on now, it's still really access and again, this announcement was made less than two months ago.

Katie Keita -- Investor Relations

Great. Thanks, Koji. Next question, please.

Operator

Chris [Phonetic] with Goldman Sachs. Please go ahead, your line is open.

Unidentified Participant

Okay, thanks very much. Let me just keeping on the theme of the fulfillment. You mentioned a very strong uptake so far and with the seven Fulfillment partners you have to date. Do you think that's enough to kind of handle the near-term demand or could you potentially be starting to build your own in the near future and just at a higher level to the extent that GMV in revenue continues to exceed your expectations for Fulfillment? Should we think about you mostly reinvesting all of that into growth given the magnitude of the opportunity? Thanks.

Amy Shapero -- Chief Financial Officer

Yes. I'll sort of tackle the last part of the question about -- e obviously saw greater demand than we expected coming out of Unite for our early access program, so yes, we want to be able to accelerate some spend, as I said earlier in my remarks. Largely the way I would look at the $1 billion that we said that we would spend over five years, the timing of that is going to be driven by a variety of factors. It's going to be merchant, demand, merchant on boarding, our ability to bring on our partners, the capacity and so those things are going to some extent determine how we spend. We'll continue to give you progress, updates as we go. It's too early I think to make generalizations other than the early indication is that there is significant demand and we want to make sure that we meet the demand of our merchants, especially through the FCN. So there'll be a lot more coming in the coming quarters on SFN and how that's going to roll out in terms of the -- you said seven partners. Actually what we announced that Unite was seven nodes not seven partners that we expect to have online in 2019 and they're all and kind of various states of implementation. But we expect that will be sufficient for this year but again, we'll be assessing it as we move through this early access program.

Unidentified Participant

Great, thank you very much.

Operator

Next question please. Nikhil Thadani with Mackie Research Capital. Please go ahead. Your line is open.

Nikhil Thadani -- Mackie Research Capital

Thank you. Maybe for Amy, could you -- could you just remind us of your FX hedging program and how that changes with all of this ongoing sort of interest rate and Fed drama. Thanks.

Amy Shapero -- Chief Financial Officer

Yes, I mean I don't think it really changes our FX program. As you probably recall, we currently bill most of our revenue in U.S. dollars, so there is almost no impact on that and where we hedges on the expense side, significant amount of our operating expenses denominated in Canadian dollars. So to mitigate fluctuations in our results, the short-term and longer term, we do have a pretty mature hedging program that we've utilized in. So the FX impact, in fact, for the first six months of this year, was minimal because of that hedging program, so we expect that will continue. And I don't see those other factors playing much of a role here.

Katie Keita -- Investor Relations

Great, thanks Nikhil. Next question, please.

Operator

Mark Zgutowicz with Rosenblatt Securities. Please go ahead, your line is open.

Mark Zgutowicz -- Rosenblatt Securities

Good morning and thank you. Just a follow-up question on SFN. I was hoping you could maybe quantify that accelerated investment there and what it potentially means for new timing in terms of an official launch and then how do you see SFN sort of pulling CPG volumes off Amazon, and then you've talked about CPG, DTC initiatives. So in that regard, if you could comment on sort of that dynamic? Thank you.

Amy Shapero -- Chief Financial Officer

I'll take the accelerated spend piece of that. So we just -- for our forecast, we took revenue up for the year reflecting how optimistic we are about our continued growth opportunity. And none of that is dropping to adjusted operating income, we kept our guidance flat from last quarter. So obviously, when I said accelerated spend, that's -- what I was referring to is that a good chunk of that spend will go to accelerate SFN and do a larger early access program than we anticipated.

Tobi Lutke -- Chief Executive Officer

Yes, I can add to on the CPG side of that. So as I mentioned earlier on, Q2 was quite strong for Shopify Plus, and we continue to see more brands come on from the likes of Johnson & Johnson and Procter & Gamble and Unilever, whether or not they levered the SFN or not, we will see in time, but we certainly are seeing more the CPGs creating brand specific stores on Shopify Plus. We're also seeing much larger, more established companies like Staples Canada build their entire retail -- online retail operations on Shopify Plus as well. So we are beginning to see a lot more of these established and more complex retailers, which is one of the reasons that we're excited about the new Plus product.

Katie Keita -- Investor Relations

Great. Thank you, Mark. Next question please.

Operator

Todd Coupland with CIBC. Please go ahead, your line is open.

Todd Coupland -- CIBC

Yes, good morning everyone. I was wondering if you could just comment and granularity on international success so far this year. Which countries are you seeing the strongest take up and where are the bottlenecks that you'd like to work out? Thanks.

Harley Finkelstein -- , Chief Operating Officer

Hi, there it's Harley. I'll take that question. In terms of what we had mentioned, is being sort of our priority countries, they remain our priority countries and all of them are growing at a different clips. That being said, I think the most important thing that we've discovered in the last year or so is that as I mentioned earlier as well, that these different -- these merchants in different countries require different functionality from Shopify. They require different payment methods in some cases, they require different types of partners to help them get onboard and build their custom integrations as the case may be. So one of the things we are -- we've been focused on and you've sort of seen this just from the partner referral number is growing to 22,000 referring merchants in the last 12 months, is we are leaning heavily on more of that ecosystem internationally, which we had not historically done and by translating both the partner dashboard into 11 languages and translate in the app store into 18 languages. We think that we can help -- better help these merchants internationally fine product market fit, which inevitably will make them more successful. So I wouldn't say that there's any one country that is doing way better than the other country, they're all growing at different paces. And again, the size of the merchants in each country does differ depending on where they're at, but it's been a --i t's been a really exciting new initiative for us. And again, it's been about just over a year since we began to focus on international merchants translate in the admin and so far so good.

Todd Coupland -- CIBC

Thanks.

Katie Keita -- Investor Relations

Thanks. Thanks, Todd. Next question please.

Operator

Terry Tillman with SunTrust. Please go ahead, your line is open.

Terry Tillman -- SunTrust

Yes, thanks for taking my question. Harley, kind of building on a question earlier about Plu. Is you're increasingly enterprise hardening the Plus platform and seeing bigger brands and well-established merchants actually coming? Looking at it, does it change the go-to market and also when you're seeing these bigger brands, are you replacing something that's usually a homegrown system or is it a prior generation commercial system? Thank you.

Harley Finkelstein -- , Chief Operating Officer

Thanks for that question. In terms of the go-to-market strategy, it remains generally the same. We're still not going out for golf games with any want to commence in the kind of Shopify Plus, that's just not our strategy. We obviously understand now a lot better than we did in the past, how to speak to these larger -- these larger merchants the CPGs. Clarks Shoes was founded in 1825 and convincing them to leave a home-grown system to come to Shopify Plus, obviously take some -- it takes a different type of model than going after Allbirds, which started on Shopify in 2015. So I think we're building sophistication inside our go-to-market strategy for Shopify Plus and we're able now to approach these different variety of merchants in new ways. To the big -- the first part of your question in terms of enterprise hardening Shopify Plus. Look, these merchants require things that smaller merchants just don't. Whether it's multi-store, multi-currency, multi geographies, whether it's things that Shopify flow provides in terms of putting more of their business operations on rails. We are really focused on making sure that we can provide them with product market fit and the announcement of the new Shopify Plus product that we made at Unite we think provides a way more opportunity for us.

And so even as I mentioned, some of the examples of stores that have come on, you're seeing a lot more established retailers that either have had a homegrown system in the past, we're on an enterprise platform that have migrated over or have never sold direct to consumer before as is the case with some of the CPGs. So generally, we're filing -- firing on all cylinders when it comes to Shopify Plus and we think the new Plus product will give us far more ability to help us type the merchants.

Terry Tillman -- SunTrust

Thank you.

Katie Keita -- Investor Relations

Great. Thanks, Terry. Next question please.

Operator

Ronald Bookbinder with IFS Securities. Please go ahead, your line is open.

Ronald Bookbinder -- IFS Securities

Good morning. And yes, congratulations on another great quarter. The new POS system. Could the new POS system be used by businesses outside of retail, such as restaurants? Have you been talking to new merchants outside of traditional retail? And how does the new POS system and the distribution initiatives expand your TAM, which you used to estimate at being around $50 million?

Tobi Lutke -- Chief Executive Officer

Yes, I'll take this. So it depends on how far you go with this. I think it's important to understand about Shopify and aggregates that be more interested in going deeper rather than wider. And so we are not looking to go after restaurants because that's really -- I think that's like data model up; that's a completely different kind of business to model. There are some used cases of one point -- around point of sale in the B2B space that are interesting and we sort of went away all of it and then we make sure about both worked really well. But as always a little like our customers internally stretching Shopify into all directions for us, sometimes very successfully because it's very flexible hopefully by crafted software. And in many of those cases that opportunity -- there is an opportunity for us to learn about some place where Shopify is of value, which previously didn't realize as you'd point -- we either encourage this or we make product adjustments to make that particular idea really even better, but we want to take this area of physical ship of products and make it so that entrepreneurship around that idea is going to be very, very simple and then we are really interested on full life cycle scalabilities where Shopify can stay with you from that first sale all the way to running tens or maybe hundreds of millions of dollars of businesses, and grow our ROA within both businesses, the things such as -- I mean capital and all these other things we talk about being probably the best example of that.

Katie Keita -- Investor Relations

Great. Thank you, Ron for your question.

Ronald Bookbinder -- IFS Securities

Thank you.

Katie Keita -- Investor Relations

Next question, please.

Operator

[Indecipherable] with Eight Capital. Please go ahead.

Unidentified Participant

Good morning guys, and congrats on the quarter. Just wanted to touch on Fraud Protect. It's been more than a few quarters now that you've rolled this out. I'm kind of curious to know what type of results and feedback you're getting with the offering and how has that been helping drive payments adoption?

Harley Finkelstein -- , Chief Operating Officer

Hi, it's Harley here. So it's been about, it's been less than a year since we launched Fraud Protect. It's shown promising growth across key metrics like merchant adoption, eligible GPV and protected GPV. Now, Fraud Protect is still only available to shop by payment merchants and only in the US. So obviously there's a lot of room for us to grow there, but generally it's one more thing that we can do to help our merchants and over time, the more merchants adopt Fraud Protect, the smarter our algorithms become, the greater our ability to make decisions for them or show them good decisions become. So we're generally happy with where Fraud Protect is right now, again, it's still in a limited geography for a limited set of merchants and that will continue to grow, but it's been less than a year and so far, we're quite pleased with where it's at.

Unidentified Participant

Great, thank you.

Katie Keita -- Investor Relations

Great, thanks. Next question, please.

Operator

Brian Peterson with Raymond James. Please go ahead, your line is open.

Brian Peterson -- Raymond James

Hi, thanks for taking the question. So maybe one for Harley. Just on the Plus business. I know one of the legacy solutions in the space will no longer be supporting their product at the end of next year. I'm curious, how much of that has been a factor in acquiring new merchants on the Plus side and anything that you can share on how the new merchants coming to the platform on the Plus business are trending? Thanks guys.

Harley Finkelstein -- , Chief Operating Officer

Yes, thanks. In terms of migrations from legacy e-commerce system, some that are being supported, some that are being deprecating, we've always gone fairly aggressively to migrations and have had fairly aggressive migration campaigns. You don't often see Shopify calling at competition but when we know that there is an opportunity for us to bring on a whole bunch of wonderful merchants to our platform, because either their existing platform just doesn't work properly or because it's being deprecating, we go after those opportunities with gusto. So we'll continue to do that as well. In terms of them coming on, again as I mentioned, the reason I go through different categories of merchants in my prepared remarks is, I think it's important to understand the types of merchants that are coming onto our platform, whether it's new businesses from Kylie Jenner or its companies like Sony or Heineken. And generally, we're just becoming more sophisticated the way we are onboard these merchants in the way we're able to attract them. And you're seeing Shopify Plus shop at places that we may have not showed up in the past, like enterprise e-Commerce trade shows which traditionally wasn't our thing and we now -- we feel that there are some places we want to be because there is an opportunity for us to migrate a lot of these larger more legacy brands on the Plus and frankly, make their lives 10 times better.

Tobi Lutke -- Chief Executive Officer

It's fun to be here [Phonetic] because I think one thing which is kind of important to understand about Plus story is that -- let me give you a talking about now enterprise trade shows and about large consumer packaged goods companies and so on; it's not really, I mean, we certainly are stretching up but it's really that the approaches that work in retail are just different from approaches that people should work in the, like the last decade and that realization means that actually was companies often giving up on the enterprise approach of software. All right. They need something to significantly more agile, I talked about this in previous calls, but really it's important when looking at the Shopify Plus success story, that what we offer is something that works really, really well, is super agile, exists and functions at the speed that even the most ambitious marketing department wants to move that. And so it's that I think a lot of companies are not like -- it's not what we come around to the world of enterprise, it's a lot of companies coming around to our world view and so that's what's driving a lot of the other option.

Brian Peterson -- Raymond James

Great color. Thank you.

Katie Keita -- Investor Relations

Thank you, Brian. Next question please.

Operator

Richard Tse with National Bank. Please go ahead, your line is open.

Richard Tse -- National Bank

Yes, thank you. With a fairly tight labor market and tech I'm kind of wondering if that's creating any challenges for you from a hiring perspective given your heavy investment mode and if so, how do you navigate that?

Tobi Lutke -- Chief Executive Officer

It's tight. I talked to my board members, they certainly can be found sometimes complaining about how hard is to -- high engineers and then they tell me that Shopify for one company they own about which complains about how hard it is, everyone else tells them it's impossible. So I think we might even be in better shape than most. I mean, better, better confidence of things that have to happen right now and luckily, we are really well prepared like we started outside the major labor pool market in the company so yes, extremely adopted to hiring people for potential and then getting them trained up like toward the potential of much, much faster than like you will find when looking at the buyers, even the executives at Shopify and a lot of us. And this is the first job so there's a lot of precedent here of people just sort of growing into the roads that Shopify needs of them; and so that's a big component. Just -- again, we are sort of drawing people from a very, very far reaches. I mean, people are moving from all parts of the world for jobs at Shopify, but also our home markets are exceptional like we have -- they maybe sort of see Canadian EST as like our absolute core and there is a lot of talent here, so it's tight but it's possible as long as you're not trying to just -- not just look at hiring in San Francisco and hiring only fully formed engineers that happened to have exactly [Indecipherable] need as if you're willing to compromise on those things, which I think everyone should because I actually think that looks better than in building more sophisticated systems of hiring -- then it works, that's good.

Richard Tse -- National Bank

That's great, thank you.

Katie Keita -- Investor Relations

Great. Thank you, Richard. I think we're out of time today. So I just like to say thanks to everybody for dialing in and we will talk to you throughout the rest of the quarter.

Operator

[Operator Closing Remarks]

Duration: 57 minutes

Call participants:

Katie Keita -- Investor Relations

Harley Finkelstein -- , Chief Operating Officer

Amy Shapero -- Chief Financial Officer

Tobi Lutke -- Chief Executive Officer

Brad Zelnick -- Credit Suisse

Colin Sebastian -- Baird

Unidentified Participant

Samad Samana -- Jefferies

Ygal Arounian -- Wedbush Securities -- Analyst

Thomas Forte -- Davidson -- Analyst

Darren Aftahi -- ROTH Capital Partners -- Analyst

David Hynes -- Canaccord

Deepak Mathivanan -- Barclays

Koji Ikeda -- Oppenheimer

Nikhil Thadani -- Mackie Research Capital

Mark Zgutowicz -- Rosenblatt Securities

Todd Coupland -- CIBC

Terry Tillman -- SunTrust

Ronald Bookbinder -- IFS Securities

Brian Peterson -- Raymond James

Richard Tse -- National Bank

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