Shopify (SHOP) Q1 2021 Earnings Call Transcript

Shopify (SHOP -2.37%)
Q1 2021 Earnings Call
Apr 28, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for standing by. This is the conference operator. Welcome to the Shopify first-quarter 2021 financial results conference call. [Operator instructions] After the presentation, there will be an opportunity to ask questions.

[Operator instructions] I would now like to turn the conference over to Katie Keita, director of investor relations. Please go ahead.

Katie Keita -- Director, Investor Relations

Thank you, operator, and good morning, everyone. We are glad you can join us for Shopify's first-quarter 2021 conference call. We are joined this morning by Tobi Lutke, Shopify's CEO; Harley Finkelstein, Shopify's president; and Amy Shapero, our CFO. After their 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 can cause actual results to differ materially from those projected. We undertake no obligation to update these statements except -- except as required by law. You can read about these assumptions, risks, and uncertainties in our press release this morning, as well as in our filings with U.S. and Canadian regulators.

Note that the adjusted financial measures we speak to today are non-GAAP measures which are not a substitute for GAAP financial measures. Reconciliation between the two can be found in our earnings press release. And finally, we report in U.S. dollars, so all amounts discussed today are in U.S.

dollars unless otherwise indicated. With that, I turn the call over to Harley. 

Harley Finkelstein -- President

Thanks, Katie, and good morning. It's been more than a year since the global pandemic began, which triggered e-commerce to grow at a rate that has transformed the traditional retail model. Shopify's continued focus on bringing the best tools to our merchants to help them thrive in this environment drove our strong performance in the first quarter. Our GMV growth accelerated year over year as merchants across cohorts and geographies thrived in our platform, backed by robust consumer spending.

And more entrepreneurs launched businesses on Shopify, trusting us with their livelihoods as they turn their ideas into reality. We continue to reduce friction from our merchants so they can find new buyers, build strong customer relationships, and more easily manage the increasing complexity of their back-office operations as they scale. Discovering new buyers is a top pinpoint for businesses. Multi-channel selling, which is one of our core value propositions, is becoming more critical as the costs of customer acquisition climbs and the lines blurred between online and offline commerce.

Our sales and marketing channels help merchants to show up where future buyers are spending time. We are ushering in a new era of social commerce and helping more brands and consumers engage in the Digital Main Street. The number of shops actively selling on Facebook shops has more than quadrupled since Q1 a year ago, as well as the GMV through Facebook. While still small, the launch of Facebook shops in May of last year is clearly starting to make a difference here.

In Q1, we expanded our marketing partnership with TikTok internationally to an additional 14 countries in North America, EMEA, and APAC. So far, we've seen good traction in the adoption of TikTok in the U.S. since we launched the integration last October. And we recently expanded our Pinterest channel into 27 additional markets, opening discoverability and sales opportunities worldwide.

More merchants are leveraging the value of Shopify Point of Sale, a true omnichannel solution, as a number of locations using our Point of Sale Pro increase substantially over the first three months of this year. Businesses new to Shopify, as well as existing merchants, started using Shopify Point of Sale, enabling them to expand their buyers' universe, seamlessly bridge their online and offline operations, and make shopping more convenient for their buyers with features like curbside pickup, which is offered through our Point of Sale Pro product. Driving targeted discovery and rediscovery is key for merchants trying to grow their business. Shop, our online shopping assistant, offers both these benefits.

We found in the mobile, reorder is 11% more likely when orders are tracked in Shop. This may be helped by the fact that the average buyer status checks their order in the app multiple times, vastly expanding the number of touchpoints for brands to connect with their customers. And we've increased potential touchpoints even further by adding discovery filters for local shops, Black-owned businesses, Asian-owned businesses, women-owned businesses in March, and most recently, over Earth Week, merchants practicing and promoting sustainable commerce. Shop is one example of how we are removing the friction from commerce and helping merchants build relationships with their customers directly.

In Q1, we introduced in-app buy buttons, so buyers don't have to leave the app to purchase the products that are recommended to them. Along with our accelerated wallet, Shop Pay; our buy now, pay later product, Shop Pay Installments, and end-to-end order tracking, these features help merchants increase the lifetime value of their customers. Our efforts to make commerce better extend beyond our merchant stores to services outside of Shopify such as the integration of Shop Pay as a checkout option with merchants selling on Facebook shops and Instagram Checkout. Merchants in the U.S.

are in the early stages of onboarding to this feature and buyers have already started to use Shop Pay on Facebook and Instagram to check out. In Q1, Shop had more than 107 million registered users, including both buyers that have opted into Shop Pay, as well as users of the app, of which more than 24 million were monthly active users. At the end of March, Shop Pay had facilitated over $24 billion in cumulative GMV since its launch in 2017. Ahead of general availability in the coming months, merchants' adoption of Shop Pay Installments accelerated with the rollout of one-click onboarding in Q1.

We give entrepreneurs the resources traditionally reserved for big business. Shopify's scale enables us to negotiate on behalf of our smaller merchants as we do with Shopify Shipping. Since its launch five years ago, Shopify Shipping has really come into its own for self-shippers with over half our eligible merchants in the U.S. and Canada now using it.

Revenue growth from Shopify Shipping accelerated in the first quarter with label volume at nearly the same level as in Q4. We are excited to bring Shopify Shipping to other parts of the world from merchants who aren't yet big enough to need to outsource fulfillment. For those who are, we are building the Shopify Fulfillment Network. Some merchants with greater volumes can trust their fulfillments will be handled the same care as if they were doing it themselves.

While this building process is not fast or easy, we are making good progress. More merchants join our fulfillment network in Q1, and we fulfilled similar volumes as in Q4 while maintaining the same high service levels. We are happy with this result given the strong holiday shopping period that drove fulfillment to record levels last quarter. Once merchants start making sales, capital is a natural follow-on to continue their momentum.

Shopify is creating better and faster access to capital through Shopify Capital, which has been a lifeline to our merchants during the pandemic and continues to be an important source of accessible funding. In our first quarter of 2021, we funded over $300 million to our merchants, up 90% year over year, and we are seeing larger merchants take on larger advances. This record level of funding brought us to an incredible $2 billion in cumulative capital funded since the launch of Shopify Capital in 2016. It took four years to fund the first billion and just a quarter of that time to fund the second.

Small businesses are underserved and overwhelmed by today's financial services. We know this because many of our merchants tell us they feel left out of today's banking system. And many of them use their personal accounts to run their business. Through Shopify Balance, we are breaking down the barriers to entrepreneurship by providing critical business banking tools for the unbanked.

Without stepping foot into a bank, a merchant can get immediate access to a no-fee account to hold their funds and a card that will give them fast access to their cash. They also get monthly cashback rewards and insights into their cash flow to help them manage their money more effectively, all from directly inside the Shopify platform. More merchants join our early access program in Q1 and we plan to roll out Shopify Balance to all eligible merchants in the U.S. over the coming months.

Shopify Plus had another fantastic quarter, signing on a record number of high-volume brands looking to adapt to the fast-changing retail landscape. In Q1, more Shopify merchants on standard plans graduated to Shopify Plus to continue scaling their business. And our focus on bringing Shopify Plus international is gaining traction as Q1 saw a record number of brands from outside North America join Shopify Plus. Brands that launched in Shopify Plus this past quarter include Japanese sports brand, Mizuno; Unilever's; Indian DTC store, the Ushop; and Lego.

So far, we've seen a great start to our efforts internationally and our momentum in North America is as strong as ever. Kraft Heinz launched Kraft Heinz Direct, a channel that sells directly to local retailers, convenience stores, and restaurant partners following the launch last year of Heinz To Home. Chrissy Teigen launched Cravings, a culinary store featuring recipes and products that inspire people to get comfortable in the kitchen and have fun cooking. WWE set up shop for their star wrestlers and the most recognizable sub-brands.

Tinder set up shop for their fans, selling Tinder-made apparel and accessories. General Mills has been easy to buy Chex cereal recipe kits directly. And finally, Fabricville here in Canada is capitalizing on the renaissance of sewing by making their full array of fabrics and patterns available over their newly launched online store. The department stores are brands as well, having built a special place in the hearts of shoppers for decades, and in one case, for nearly 200 years.

I'm excited to share that Lord & Taylor, America's first department store founded in 1826, has now launched on Shopify. Like so many merchants, speed to market, ease of use, integration capabilities, total cost of ownership, innovation, and Shop Pay were big reasons why Lord & Taylor selected Shopify. It is exciting to see their value proposition evolve into an excellent mobile and social experience for their shoppers to find what they're looking for on a future-oriented platform on which to build experiences that haven't even been thought of yet. With the sustained shift to digital, the need for innovation has accelerated as more businesses come online and seek right-fit solutions for their commerce needs.

Shopify's partner ecosystem plays a critical role here, influencing the success of our merchants and Shopify. In Q1, the number of partners setting business to us continued to expand as over 45,000 partners referred at least one merchant to Shopify over the last 12 months, up 73% year over year. The range of services our partners provide to our merchants from building apps and beautiful stores to marketing and accounting helped our merchants drive massive volumes of economic activity in 2020. Last year, our merchants generated over $307 billion in business activity, benefiting local economies around the world.

This includes our partner ecosystem, which made over $12 billion in revenue. To put this into perspective, Shopify made $2.9 billion in 2020, highlighting the amplified effect that we've had on local communities and the global economy. We believe that entrepreneurship is a powerful path to help people reach for economic independence. And that is why Shopify partnered with National Geographic to produce the documentary film, Own the Room, which premiered on Disney Plus in March.

I encourage all of you to watch it, especially with your children, as it's an incredible documentary showcasing youth in the relentless pursuit of entrepreneurship. It follows the journey of the next generation of young entrepreneurs from different parts of the world who are taking ownership of their futures by building businesses. Stories like the ones told in Own the Room make entrepreneurship more relatable and inspire Shopify to continue making entrepreneurship easier for future generations. This, in a nutshell, is why Shopify exists.

We are here to make it easier for anyone with an idea and ambition to launch a business. Entrepreneurship is thriving and trends like omnichannel shopping and direct-to-consumer selling offer even greater opportunities. But entrepreneurship is still harder than needs to be. And by building a future-proof retail operating system, we are more committed than ever to leveling the playing field for entrepreneurs and making commerce better for everyone.

Shopify is truly becoming the world entrepreneurship company. There is an inspirational story for as many merchants as there are in Shopify. We are sharing one today that illustrates just how profound an impact we can have when we put technology in the hands of everyone. Here's Satyajit Hange of Two Brothers Farm in India.

As we know, India is battling the worst of this global pandemic right now. We are telling this family story to bring some hope in a very difficult time. Here it is.[Commercial break]

Amy Shapero -- Chief Financial Officer

Of the millions of stories we could have shared, this one especially shows just how irrepressible and global the spirit of entrepreneurship is and how our merchants are persevering. And when our merchants do well, Shopify can bring more and better ways to help everyone compete and succeed. We're on the right track. Shopify experienced rapid revenue growth in our first quarter as the tailwinds from the acceleration of digital commerce continue to drive an acceleration of GMV and more merchants launch businesses on the platform and adopted more of our services.

Overall revenue growth accelerated from last quarter, up 110% year over year to $988.6 six million in our first quarter. To put this in perspective, our first-quarter revenue exceeded our fourth-quarter revenue, a remarkable achievement given we typically see a seasonal decline quarter over quarter coming off the holiday selling season. Subscription solutions revenue growth accelerated to 71% year on year in Q1 to $320.7 million, largely due to strong growth in monthly recurring revenue. MRR growth accelerated to 62% year over year to $89.9 million in Q1 as demand for Shopify remained elevated.

Q1 MRR also benefited from our first full quarter of incremental revenue from our retail POS Pro subscription although its contribution remains relatively small. Strong app and Shopify Plus platform fee revenues contributed to the nine percentage point difference between the growth of subscription revenue and MRR. Shopify Plus contributed $23.1 million, or 26% of MRR, compared with 28% in Q1 of 2020. While Shopify Plus MRR grew significantly, non-Plus MRR grew faster benefiting from a significantly higher number of merchants on standard plans joining the platform in 2020 and the first quarter as well as from our first full quarter of Shopify POS Pro subscription revenue.

Merchant solutions revenue growth accelerated to 137% over the same period in 2020 to $668 million. This outstanding growth was driven primarily by merchants' strong sales, with GMV growth also accelerating to 114% to $37.3 billion in the first quarter alone. Strong Q1 GMV versus last year was the result of a greater share of retail spend going to online purchases, higher GMV per merchant, and an injection from the latest round of stimulus in the United States introduced in March. While GMV growth across all regions accelerated, the strong growth in North America was outpaced by growth outside North America, which is gratifying given our focus there.

The strong growth in merchant sales combined with increased GMV penetration of Shopify Payments and merchant adoption of Shopify Capital and Shipping compared with the same period last year drove revenue from these products higher. $17.3 billion of GMV was processed on Shopify Payments in Q1, an increase of 135% versus the comparable quarter last year. Payments penetration of GMV was 46% versus 42% in Q1 2020. The majority of new merchants coming onto Shopify opted to use Shopify Payments and Shopify Plus and international merchants expanded their share of GPV year over year.

Adjusted gross profit dollar growth accelerated to 114% over last year's first quarter to $565.1 million, and outpaced revenue growth largely due to stronger Shopify Payments margins. The combined strength in revenue improved the margin profile of Shopify Payments and lower overall op expense as a percent of revenue contributed to strong adjusted operating earnings in Q1, compared to the same period last year. Adjusted operating income was $210.8 million in the first quarter, compared to an adjusted operating loss of $7.3 million in the first quarter of 2020 as our acceleration in revenue outpaced growth and spend. Adjusted net income for the quarter was $254.1 million, or $2.01 per diluted share, compared with adjusted net income of $22.3 million, or $0.19 per diluted share in last year's first quarter.

Adjusted net income in Q1 2021 excludes a $1.3 billion unrealized gain from our equity investment in Affirm, which we wrote up to its fair value upon and subsequent to the company's IPO. Finally, our cash, cash equivalents, and marketable securities balance grew $7.87 billion on March 31st, compared with $6.39 billion at year-end. The increase reflects $1.5 billion of net proceeds from our share offering in February, strengthening our balance sheet and providing flexibility to fund our growth strategies. Last quarter, we outlined three key areas of incremental investment for 2021.

I'll walk through the progress we made in our first quarter and provide an update on our outlook for the rest of the year. First to Shopify Fulfillment Network where, as Harley laid out, we made solid progress in our first quarter. We continued to build software to make fulfillment easier for our merchants introducing enhanced inventory management capabilities and better insights to manage orders. As we build the product-market fit of Shopify Fulfillment Network, we continue to focus on optimizing our software and network for accuracy, efficiency, and merchant delight.

6 River Systems plays an important part in this process, optimizing traffic flow within our partner warehouses to balance throughput, improved safety, and increased productivity. They're easy to deploy. Fulfillment technology is also enabling their customers to act with speed and agility, helping them scale as demand for their products has increased during the pandemic. The second is Shop.

The ecosystem of Shop's features that Harley described is attracting an audience of engaged followers for our merchants in the app. Although early, we're seeing promising levels of engagement with higher cohorts using the app for several months. We will continue to build more features into Shop that offer buyers a delightful shopping experience and strengthen their relationship with merchants. And third is international expansion.

More international merchants are joining and succeeding on Shopify as we step up our marketing and sales efforts to introduce more entrepreneurs to Shopify and continue to localize our platform in focus countries. The rest of world GMV growth outpaced that of North America and revenue from these international regions increased as a part of the overall mix in our first quarter. We are also expanding merchant solutions to work well for how commerce happens everywhere in the world. We have seen how merchants benefit when we make things like payments, shipping, capital, and retail easily available to them.

So we are excited to make the full power of our platform available to Shopify merchants in more geographies. We made Shopify Shipping an option to sell shippers in Australia last year and we'll continue to explore partners in geographies to give more merchants this option natively. And the reopening of non-essential retail businesses earlier this month in the U.K. coincided nicely with the marketing launch of our all-new POS there and in Ireland.

We are eager to bring independent shops that have survived an incredibly difficult year, omnichannel capabilities, as well as other cutting-edge commerce features that make them even more resilient. These longer-term investments are important to our merchants' success. To further future proof our offerings and capitalize on our position at the intersection of entrepreneurship and e-commerce, we are also stepping up our strategic partnerships. This includes investments in companies and technologies in our ecosystem that align with our mission and whose success at scale could positively impact our merchants.

We have several such investments now, Affirm being one example.Turning to our outlook. Our full-year 2021 outlook is guided by assumptions that remain unchanged from February. That as countries continue to roll out vaccines in 2021 and populations are able to move about more freely, the overall economic environment will likely improve. Some consumer spending will likely rotate back to offline retail and services, and the ongoing shift to e-commerce, which accelerated in 2020 will likely resume a more normalized pace of growth.

In March 2021, the U.S. government passed a coronavirus relief package and began processing stimulus payments in early March. The benefit to Shopify GMV from this latest round of stimulus ended in early April. In view of these factors, we continue to expect to grow revenue rapidly in 2021 but at a lower rate than in 2020.

For the full year of 2021, we continue to expect the following. Subscription solutions revenue growth to be driven by more merchants around the world joining the platform and a number lower than the record in 2020 but higher than any year prior to 2020. The growth rates of subscription solutions and merchant solutions revenues to be more similar to each other than in the recent past as we do not expect the surge in GMV that drove merchant solutions in 2020 to repeat. Merchant solutions revenue growth to be driven by continued GMV growth from existing merchants.

New merchants joining the platform, and expanded adoption of Shopify's growing menu of merchant solutions including established offerings such as Shopify Payments, Shopify Shipping, and Shopify Capital, both geographically and as merchants grow into them while newer solutions such as Shopify Fulfillment Network and 6 River Systems contribute nascent but incremental revenue in their early stages. While we expect that the first quarter will likely still contribute the smallest share of full-year revenue and the fourth quarter the largest, the revenue spread may be more evenly distributed across the four quarters than it has been historically if the rollout of the vaccine shifts more consumer spending to services and offline shopping toward the back half of the year. 2020 catapulted commerce into a period of incredibly rapid change, presenting Shopify with unprecedented opportunities in 2021 to accelerate innovation. We continue to expect rapid growth in gross profit dollars in 2021 and plan to reinvest back into our business as aggressively as we can with the year-over-year growth and operating expenses accelerating each quarter throughout the rest of the year.

We are seeing greater volume and velocity of new engineering hires over the last several weeks after putting the rails in place in Q1 to make this possible. Digital by design, our approach to a fully remote workforce that we're eager to keep building and improving on has also been helpful to hiring. As we continue to gain steam, we expect the bulk of our spending to happen in the second half of 2021. As such, we expect full-year 2021 adjusted operating income to be below the level we achieved in 2020.

For 2021, we now anticipate stock-based compensation expenses and related payroll taxes of $425 million, an amortization of acquired intangibles of $21 million. More than a year out since the onset of the pandemic, there are still many moving pieces in the commerce landscape and will be for the foreseeable future. What is apparent is that entrepreneurs are adapting and thriving. With our mission to make commerce better for everyone, our merchant first business model, and a strong balance sheet, Shopify is well-positioned to execute on our portfolio of growth initiatives and give our merchants the tools they need to compete in the future of commerce.

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

Katie Keita -- Director, Investor Relations

Thanks, Amy. I'm sure I don't have to remind you all to help us make time for everyone to ask a question on the call today by limiting yourselves to a single very good question. Ariel, can we start with the first question, please?

Questions & Answers:

Operator

Certainly, our first question comes from Thomas Forte of D.A. Davidson. Please go ahead.

Thomas Forte -- D.A. Davidson -- Analyst

Great. Thanks for taking my question. So, Tobi, you wrote a very thoughtful blog post about building a company to last a thousand years and executive turnover. How should investors think about the duration of your own tenure as CEO of Shopify?

Tobi Lutke -- Chief Executive Officer

Thanks for the question. Yeah, no, I'm -- I'm committed -- I'm long -- I'm in long-term here. I've never in my life come up with a bad idea other than the one of Shopify. So I'm -- I'm -- I'm all in.

And of course, as I said in my email, I did write this rather thoughtfully because, you know, I just wanted to -- like there's a lot of, you know, when people leave companies, it is always kind of hard to -- for everyone to figure out how to react to that. I -- I do think that it's rather something that should be celebrated because clearly incredible things have been done together. And then I think in the Shopify story, everyone sees that this team has done some really amazing things together. I'm deeply grateful to everyone who joined me on this -- for this part of the journey.

And leaving at the right time, it's something world-class executives do. And so, I think that this -- this is important for me. It would be way too early in the went-to-free way that I -- I laid out in this post.

Operator

All right. Thanks, Tom. Our next question comes from Siti Panigrahi of Mizuho. Please go ahead.

Siti Panigrahi -- Mizuho -- Analyst

Thanks for taking my question. Just, Tobi, you talked about this sharp increase of e-commerce adoption. Like you said before, it pulled forward adoption by 10 years. But how has the competition landscape changed mainly even from marketplaces? Are you seeing consumer more attracted toward marketplaces?

Tobi Lutke -- Chief Executive Officer

You know, it's -- that the growth is so big and -- just e-commerce that it really is hard to talk at all about sort of the -- the zero-sum-ness of the -- of the channels. They -- they honestly are all growing and consuming -- consumer mix is -- is changing as people are getting more comfortable just using the internet more broadly. There's certain categories and it's hard to know which one is supposed to wind up to be that people love to go direct for -- because you have this direct -- I mean, the -- we talk about that to active consumer a lot. Maybe -- maybe I'm not going to take us all the way from the top here because I think everyone is well -- well-familiar with the dynamics behind it.

But what we are finding is that I think -- I think the macro trend here is like the -- the past, the -- the limit -- the limited inventory of the channels and -- and the sort of departure store -- at department store would -- could carry just led to very poor quality of products and -- and very, very high turnover of products and people just sort of replace everything a lot. Now, because of being able to purchase directly from makers who are now highly incentivized not to win the channel but rather make the best products, you -- just the quality of price is going up. So, I think more and more categories of products are bought at higher-quality levels at for -- for -- for longer time periods and often in a direct way directly from manufacturer. Again, it -- I don't think that's necessarily competing with -- with this channel because it's -- it's really, really growing the market.

And the same person might buy from the Marketplace a bunch of things and -- and at 9 a.m. in the morning and then buy something direct 9:20 a.m. that they've been thinking about for -- for -- for months. So, like I -- it's -- I think everyone can do all of it and the e-commerce has -- has a lot of growth ahead of it.

Operator

Thank you, Siti. Our next question comes from Ken Wong of Guggenheim Securities. Please go ahead.

Ken Wong -- Guggenheim Partners -- Analyst

Hey. Thanks for taking my questions. Harley, earlier you mentioned seeing higher attach of shipping and how potentially fulfillment could -- could kind of follow in that -- in that path. Is -- is that 50% attach the right level to think about what fulfillment demand could look like.

And -- and as merchants adoption increases, how are you thinking about the need to supplement the partner model with your own distributions?

Harley Finkelstein -- President

Thanks, Ken. Thanks for the question. A couple of things. So, on the shipping -- Shopify Shipping, in particular, as -- as I said, yeah, adoption has grown significantly since we launched five years ago.

Now, more than half of eligible -- eligible merchants in the U.S. and Canada are adopting it. And I think Shopify Shipping has really proven its relevance. Now, self-shipping is a space that some merchants will continue to -- to do and others will kind of gross through which is why things like SFN is really important.

In terms of the update is SFN, I alluded to this on the -- in the opening remarks but more merchants join SFN in Q1, and volumes fulfilled in Q1 were actually similar to Q4, which of course is a very strong holiday season. What we really want to do with -- with SFN is we want to continue to build the foundation of -- of the network itself, we want to focus on optimizing the software and the network, we want to keep introducing new features that give merchants better insights. Now, you may have a merchant who may use Shopify Shipping for certain products and SFN for other products, you may have seen merchants that decide SFN is exactly where I need to be. But the SFN, you know, we are targeting customers in this product market phase who are self-shippers right now who are fulfilling anywhere from 10 to 10,000 orders a day.

Durable goods are -- is really important, and also brand experience is really key for their business. And so, we really are narrowing down exactly who is the right customer for SFN because we want to have the best -- we -- we want them to -- to have the best experience possible. But I don't think it's going to be SFN or shipping. I think that the idea of Shopify becoming the global retail operating system is that merchants get different choices depending on what they need for their particular business.

Operator

Thanks, Ken. Our next question comes from Colin Sebastian of Baird. Please go ahead.

Colin Sebastian -- Baird -- Analyst

Great. Thanks. Good morning, everyone. Maybe another one for Tobi here.

With respect to the technology platform and using Rails, I'm -- I'm sure you're happy with the scalability so far. But do you have any concerns about the next stage of growth and are you satisfied overall with the pace of product development? Thanks.

Tobi Lutke -- Chief Executive Officer

Yeah. Thank you. Yeah. No, it's -- I mean, part of the reason I have worked really well is because we made very good assumptions about the future across business and technologies, with the -- that very small team for first six years before we took our first outside venture investment.

And thanks to technologies like Rails and others, we were able to build a small team to move significantly faster than much, much larger teams on both technology stacks. So, we'll -- getting leverage from technology is very core to Shopify with maybe a -- a few thousand engineers, but I think we have the same -- the same ideas about getting productivity from using the best pieces of software, using open source as much as we can, and -- and maintaining good open-source products that help us, you know, increase the -- increase just -- just the productivity in the company, and also give back to the community that has given us so much. And we have absolutely word-class engineering team, and everyone knows exactly how to scale Shopify as far as it needs to go. So, no -- no really concerns, and I'm -- and I'm really, really happy with the productivity and progress on product and -- and engineering infrastructure front.

Operator

Thanks, Colin. Our next question comes from Trevor Young of Barclays. Please go ahead.

Trevor Young -- Barclays -- Analyst

Hi, thanks for taking the question. You flagged some impact from the stimulus payments in March which I think you indicated robust in early April. Maybe could you help us quantify that impact and then how should we think about how that impacted the growth differential you mentioned between international and domestic GMV? Thanks.

Amy Shapero -- Chief Financial Officer

Yeah. So, the U.S. stimulus did have a noticeable impact to our GMV in the quarter, but GMV was strong even without it. And let me give you a couple of data points.

So, looking at total GMV, we started to see the acceleration in growth in January and February before U.S. stimulus was even a factor in March. And in addition, for the quarter, our GMV outside of the U.S. accelerated at a faster pace than the U.S.

So, this isn't just a U.S. stimulus story, it was strength across the board and GMV, across every merchant type: standard and plus. There was an acceleration in every geography. So, strength across the board.

Operator

Thanks, Trevor. Our next question comes from Paul Treiber of RBC Capital Markets. Please go ahead.

Paul Treiber -- RBC Capital Markets -- Analyst

Oh. Thanks very much and good morning. Just a question for Tobi. Just -- I'm curious on your thoughts on leadership and culture in particular.

Can you speak about the importance of continuing to foster a culture of empowering and enabling employees against Shopify's increasing the ability to bring in proven management from the outside?

Tobi Lutke -- Chief Executive Officer

Yeah. I think -- the way I think about it is it's not an either/or. What you need is the right balance of teachers and students. And so, and some of the same people can be teachers in one context and -- and -- and students in another.

And actually, making this very explicit is a -- is a -- is a really, really, really important component of building a good culture. Like -- because for instance, some people have been with the company for a very long time and therefore have been in a lot of key situations and meetings for instance, where very key and subtle decisions have been -- have been made. You know, this is a -- this is context that's extremely valuable for -- for -- not for reasons of explaining the -- the outcome of the meeting but rather bringing and -- and -- and teaching someone who might have just arrived. What was considered to make the decision, right? Because the -- the one thing you have in a company that grows extremely quickly like Shopify has is, you know, it's a -- it's a -- it's a grand, old building that has, you know, a lot of things that might -- could be better in it, right.

Like it's -- like -- because we were in a hurry. We -- we -- we grew very, very fast and -- and very smart people come in later and -- and join the team and say, you know, everyone, this wall over here, is this something that -- like I can't figure out why that wall is there. And -- and so, the ideal thing to do then is potentially get -- like not have a wall there. Like -- do -- modify the building to -- to be better for the purposes.

Ideally, in this case, someone says -- puts up a hand and says, actually, you know, I remember putting this wall up, we were in a hurry and we just needed to get something done. Or someone puts up a hand and says, actually, you know, that -- that's load-bearing. And that -- that's a really good reason for us being there and we don't need to actually run this experiment of removal and -- and deal with the consequences. So, the way I'm thinking about this if you really want a good ratio, you -- you want there to be, you know, people who have high potential and ideally have someone who has seen the movie before and can -- because -- because that, in fact, leads to a faster personal growth.

And my belief is that companies really aren't anything other than the attitude, skills of every person in the company combined, potentially multiplied by the alignment of direction and then whatever number is that. That's -- that's really what the company is and how good the company is. And you up to keep the bonds, I think. You're -- you're build -- you're building a great culture.

And as long as everyone's honest, in which cases they can be the -- the teachers in this case and secondly the students then I think you have a really, really good culture.

Operator

Thanks, Paul. Our next question comes from Craig Maurer of Autonomous Research. Please go ahead.

Craig Maurer -- Autonomous Research -- Analyst

Yeah. Good morning and thanks for taking the question. I wanted to come back to the discussion of Shopify Balance and its rollout. Can you talk about the long-term revenue model for financial services offered as part of a commerce platform -- e-commerce platform? Is this long-term and interchange model, a credit, or net interest-income-driven model? Just a little thoughts on how you view the future of Balance would be really helpful.

Thanks.

Harley Finkelstein -- President

Hey, Craig, I'll take that question. So, to be clear, and Shopify Balance is really built -- excuse me, for independent businesses. We want to act as our merchant's financial partner. When a merchant signs up for Balance, they get you immediate access to an integrated account to build their funds, they get a card to access cash fast and be able to spend their money, they get monthly cashback rewards that are relevant to their actual business.

But they also get these great insights in terms of the business's cash flow. We're doing this really primarily because we think that right now, business banking, particularly for small businesses, is not working. A lot of merchant, a lot of small businesses still use their -- their personal bank accounts because it's so complicated. And so, in terms of the rollout of it, we've added more merchants to the early access program in Q1.

We are on -- on track for general availability to eligible merchants later this year. But that idea, whether it's Balance or Shopify Payments or Shopify Capital, it's just another way that we're trying to look at all the different barriers to success that a traditional small business might have and reduce those barriers. You heard earlier that we've now given a -- more than $2 billion worth of capital to -- to small businesses. That $2 billion mark is important because, obviously, it shows the growth of Shopify Capital.

But more importantly, these are small businesses that otherwise may not have access to their capital and they're using it to grow their business. And it's --it's -- it's an amazing thing to watch when you can actually democratize so much of the -- that the business challenges and make it available to, you know, over 1.7 million merchants. You will see us do more of these things in the -- in the coming years. But in terms of how we monetize each of those particular financial services, those will each be very different.

Operator

Thanks, Craig.

Craig Maurer -- Autonomous Research -- Analyst

Thank you.

Operator

Our next question comes from Josh Beck of KeyBanc. Please go ahead.

Josh Beck -- KeyBanc Capital Markets -- Analyst

Thank you for taking the question. I wanted to ask about shop app. Certainly, the origin seems centered around this idea of online shopping assistant. It -- it seems like it's -- it's expanding.

You talked about discovery filters to find local businesses of all sorts, which is great. But I'm just curious, maybe what is the longer-term ambition in terms of how you see this product fitting into the broader Shopify platform? Thank you.

Tobi Lutke -- Chief Executive Officer

Yeah. The number one goal is just to end-to-end tool up the process of commerce. And then this is buying from independent stores, pre shop. We had to rely on very sort of ad hoc organic prioritization of a process.

What I mean is like after you bought something, you then had to -- you've got emails with updates. I mean like we were internally prebuilding shopping by joking about imagine like Uber would work like this, you called a taxi and then they sent you emails every once in a while, just the location of the cab that's supposed to pick you up. You know, and then someone would heavily remark that that's exactly how taxi services actually work, and that seems pretty crazy. But this is sort of the way we solve problems, and we were -- enter in Computing & Shop.

We wanted to make it so that you buy something from independent business or direct from vendors and the process of getting it to you is much clearer. And hopefully, the aftersale of care is going to be something that we'll look into, as well in terms of reverse logistics and returns. And that's the primary objective. And with that, so this is very utilitarian, but actually really important and very delightful as a well-loved product.

There are more opportunities. As you see, we have some experiments, every once in a while. There's different -- like pointing you to different things you might be doing or could be doing -- could consider like look at shopping and supporting particular course of businesses. And we'll see where that leaves.

Katie Keita -- Director, Investor Relations

Thanks, Josh.

Operator

Our next question comes from Mark Mahaney of Evercore ISI. Please go ahead.

Ben Wheeler -- Evercore ISI -- Analyst

Thank you. This is Ben Wheeler on for Mark. Just a question on Shopify Pay, if I could. So Facebook and Instagram are the first places that Shop Pay is being used outside the Shopify ecosystem.

Can you just talk about the impact that has had on sales conversion in those channels? Are you actively working on similar integrations with Shop Pay in more social and digital channels? Thank you.

Harley Finkelstein -- President

Hey, I'll take that question. So to be clear, yes, Shop Pay is now available on Facebook, Checkout, and Instagram, and it's available to all Shopify merchants and buyers in the U.S. We are starting to see some GMV transacted via Shop Pay on Facebook checkout, although, obviously, it's very early days. So the levels are fairly low.

But really the implementation of Shopify payments, you know, and in Shop Pay as a processor across a bunch of different services is really because so many of consumers' favorite brands and their favorite stores are powered by Shopify. And so the idea of bringing Shop Pay to more services all over the Internet feels like a really great idea. And it makes not only the conversion rate is higher for -- on the merchant side. But from a consumer perspective, you're able to check out a lot faster and a lot more seamlessly.

So you will see Shop Pay in more services. But really, what you also are seeing is that, you know, the center of gravity really for retail right now has completely shifted to online. And as you sort of think about Shopify as a retail operating system, you're going to see us find ways in other services where people are hanging out sort of the virtual town squares like Facebook and Instagram, add more functionality to make shopping in those places a lot better. And I think the advantage that, of course, we bring is not just the technology of Shop Pay, but the fact that we have 1.7 million of the greatest, most interesting, and most important brands in direct-to-consumer and beyond.

Katie Keita -- Director, Investor Relations

Thanks, Ben.

Operator

Our next question comes from Brent Bracelin of Piper Sandler. Please go ahead.

Brent Bracelin -- Piper Sandler -- Analyst

Good morning, and thank you [Inaudible]. I guess I wanted to follow up on this thread here for Harley. I mean what really stood out to me this quarter was the acceleration in GMV, $20 billion higher year over year, GMV growth accelerating. I think you talked about all merchants and geographies even before the stimulus kicker hit in March.

So the question for you, Harley, what's driving this broad-based acceleration in GMV in January and February in particular? Is this just a broader behavioral shift in consumer preferences? Are you starting to see these social commerce tailwinds become material enough to drive an acceleration? Are we just seeing the software innovations reduce friction to buy online? Just trying to understand, you know, why now? Why would you see an acceleration in that cohort in January and February? Thanks.

Harley Finkelstein -- President

Well, first of all, I think to your point, consumer preferences has shifted permanently. Again, the center of gravity was offline. It is now online. And there's no going back to the pre-pandemic version of that.

I also think there's still massive runway in e-commerce in general. Remember, we are still sub 30% e-commerce penetration in North America. It's only slightly higher in the U.K., but it's still -- there's so much headroom, and there's so much room for e-commerce to grow. So again, when you combine consumer preference, with making it easier to buy online and buy on your favorite surfaces of which Shopify powers most of them, if not all of them, it makes for, obviously, more people buying from great brands that are on Shopify.

In terms of, you know, the pandemic and what that's caused if you actually look at Australia and New Zealand, which is not an exact proxy for the rest of the world, but certainly provides some interesting insights. In those places where things have really opened up post-pandemic, we're actually not seeing any slowdown whatsoever in terms of consumers buying from our merchants. In fact, online GMV remains in elevated levels beyond -- in those places. So I don't think the consumer preference shift that happened through COVID was a temporary thing.

Again, the center of gravity is now online. Consumers want to buy, and they're voting with their wallets to buy from independent direct-to-consumer brands of which Shopify has the majority of them. And I think that you're going to continue to see this trend continue well beyond the pandemic. Again, e-commerce is still really quite small relative to total retail, and it will continue to grow really nicely.

Katie Keita -- Director, Investor Relations

Thanks, Brent.

Operator

Our next question comes from Darren Aftahi of ROTH Capital Partners. Please go ahead.

Darren Aftahi -- ROTH Capital Partners -- Analyst

Good morning. Thanks for taking my question. Maybe just to piggyback on what you said, Harley. I'm curious if with the rollout in North America of more vaccines in April, and this is maybe more of a real-time question.

I'm curious if you guys have seen any change in terms of the cadence of your merchants business, say, versus the early months of the year?

Harley Finkelstein -- President

Yeah. So as I mentioned, we have not seen that at all. We have not seen a slowdown. You know, we mentioned merchant growth remained elevated in Q1.

We've seen -- you know, digital increasingly becomes a central gravity. Growth is strong across all our regions. We also had record plus ads driven by both upgrades, but also new brands joining Shopify and obviously, strong international growth in Q1 as well. So on the merchant side, we're not seeing any of that at all.

On the GMV side, obviously, with triple-digit growth in GMV year over year, that certainly not -- doesn't seem to be an issue. The reason I brought up Australia and New Zealand, again, it's not an exact proxy for the rest of the world, but it does provide some indication that this new trend, that this new buying behavior in the way that retail operates is a permanent shift long after the pandemic is over. I think between those two things, it's quite clear that this is not a temporary thing. We will continue to see both merchant ads and GMV continue to increase.

Katie Keita -- Director, Investor Relations

Thanks, Darren.

Operator

Our next question comes from Ygal Arounian of Wedbush Securities. Please go ahead.

Ygal Arounian -- Wedbush Securities -- Analyst

Hey, good morning, guys. I just wanted to ask on the drivers of merchant growth and how they've changed as you expect merchant growth to remain at a level, you know, not as high as last year, but higher than any other year, kind of how they flowed since the beginning of the pandemic. We've seen a lot of new business creation in the U.S. Is it larger merchants that have -- you know, were already online at this stage, right, that were already online before and now are taking the next step in investment? I know you're still getting a lot of new merchants coming on board.

What do you think are the big drivers as we go through the rest of this year? And what are the areas of investment that those merchants are the most looking toward for you guys to top them out with? Thanks.

Harley Finkelstein -- President

I think the advantage of the Shopify business model, it's not an or, it's an and. On the early side of merchant creation, again, we've been -- we've all been watching that business registrations are increasing, both in the U.S. but around the world. Certainly, we're seeing that with more merchants joining Shopify that are first-time entrepreneurs.

And, you know, one of my favorite stats to talk about is that every 28 seconds a new entrepreneur gets there for sale on Shopify. That is really important because that shows that we're not only growing our piece of the pie, but we're growing the pie itself. We are growing the actual market. On the other side, when you look at some of the brands I mentioned around Plus, whether it's Kraft Heinz, or WWE, or Fabricville or some of the large retailers -- excuse me, department stores that have been around for 200 years, we are seeing people enter this digital commerce realm, in some cases, that never participated.

In other cases, they migrated from some enterprise e-commerce provider that simply has not been able to be future-proofed, there's no integrations to the right platforms and services, and doesn't have things like Shop Pay integrated. So it's not one of those things. I think the advantage of the Shopify business model is all of those things. We are creating new entrepreneurs, and we're trying to make it as easy as possible for them to be more successful.

But also on the Plus side, we are seeing, for the first time, obviously, we have the upgrades, which are these homegrown success stories that start on our platform around their mom's kitchen table and grow to be category leaders. We love those stories. Those are some of our favorites, but we're also seeing very established brands, again, like Heinz or Chex from General Mills for the first time ever enter the direct-to-consumer model, and they're doing it all on Shopify. And so I think that needs to continue.

We don't just want to focus on the larger brands. We also want to help create the next larger brands with aspirational entrepreneurs that start on Shopify. 

Katie Keita -- Director, Investor Relations

Thanks, Ygal.

Operator

Our next question comes from Brian Peterson of Raymond James. Please go ahead. Brian Peterson of Raymond James, your line is live. 

Brian Peterson -- Raymond James -- Analyst

Sorry. Mute button caught me there. Apologies. So, thanks for taking the questions.

So, Amy, talking about the investments back into the platform. You know, I can appreciate that GMV was above plan this quarter. But just curious, you know, how is hiring trending the pace of investments, and can you redeploy a lot of that investment into the key growth areas in 2021?

Amy Shapero -- Chief Financial Officer

Yeah, Brian, that's certainly our aim, given the opportunities that Harley just pointed out, that's still in front of us. We see tremendous growth opportunities. And so we will continue to invest back into the business as aggressively as we can. As I said from my opening remarks, we do expect opex spend to accelerate each quarter for the remainder of the year.

We are seeing velocity in engineering, hiring, and sales and marketing hiring as we lean into the opportunities, and we resource those growth initiatives that I talked about earlier, Shopify fulfillment network, Shop app, international. You know, across the board, we have these opportunities, and we will lean into them. So yes, we did post-adjusted operating income this quarter, but we, you know, fully expect to continue to invest back into the business aggressively.

Katie Keita -- Director, Investor Relations

Thanks, Brian. We probably have time for only one more question, Ariel. So let's take this one last question.

Operator

Our final question comes from Deepak Mathivanan of Wolfe Research. Please go ahead.

Deepak Mathivanan -- Wolfe Research -- Analyst

Great. Thanks for including me, guys. Amy, I wanted to ask about your comments on the convergence and growth between merchant solutions and subscriptions? Obviously, you're seeing penetration gains in payments continue. Plus business is very strong.

And also, the sales volume for the merchants are growing, like Harley just mentioned. Are you thinking that volume reversal potentially from consumer spend on Shopify stores could offset some of these continued tailwinds for the growth rates to sort of converge? Can you give some additional color to that? That would be great.

Amy Shapero -- Chief Financial Officer

Yeah. I mean, that's purely driven by the fact that we don't expect the surge in e-commerce that happened in 2020 to repeat. We fully expect e-commerce to continue to grow but at a more normalized pace. You just won't see the surge.

So from a year-over-year growth perspective, that will impact the growth of merchant solutions. We do -- I fully expect increased adoption of our merchant solutions and a continued increase in our take rate for the year.

Operator

This concludes the question-and-answer session. I would like to turn the conference back over to Katie Keita for any closing remarks.

Katie Keita -- Director, Investor Relations

All right. Thanks, Deepak, for that last question. And thanks, everybody, for participating today and leaving time for everyone. We might have gotten to a record number of questions, and have a great day.

Bye-bye.

Operator

[Operator signoff]

Duration: 65 minutes

Call participants:

Katie Keita -- Director, Investor Relations

Harley Finkelstein -- President

Amy Shapero -- Chief Financial Officer

Thomas Forte -- D.A. Davidson -- Analyst

Tobi Lutke -- Chief Executive Officer

Siti Panigrahi -- Mizuho -- Analyst

Ken Wong -- Guggenheim Partners -- Analyst

Colin Sebastian -- Baird -- Analyst

Trevor Young -- Barclays -- Analyst

Paul Treiber -- RBC Capital Markets -- Analyst

Craig Maurer -- Autonomous Research -- Analyst

Josh Beck -- KeyBanc Capital Markets -- Analyst

Ben Wheeler -- Evercore ISI -- Analyst

Brent Bracelin -- Piper Sandler -- Analyst

Darren Aftahi -- ROTH Capital Partners -- Analyst

Ygal Arounian -- Wedbush Securities -- Analyst

Brian Peterson -- Raymond James -- Analyst

Deepak Mathivanan -- Wolfe Research -- Analyst

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