Spotify(SPOT.US)FY25Q2 conference call: Strong European and North American markets are the main reasons for exceeding GMV expectations.

Recently, Spotify (SPOT.US) mentioned in its FY25Q2 conference call that the company has not observed any significant phenomenon of advanced consumption demand. The consistency between the company's performance in the second quarter and its performance guidance indicates that business performance remains steady. From a tariff perspective, there have been no significant changes in cross-border activities or buyer behavior. The company's business is in excellent condition, with no internal data indicating advanced consumption. Currently, business performance remains strong, with significant growth in the European and North American markets, as well as outstanding performance in the total gross merchandise volume (GMV) range and various product categories. Shopify is actively preparing to ensure that Shopify and its merchants are positioned at the core as Agentive Commerce and more traffic flow towards AI. The company is introducing several innovations, such as Catalog, Universal Cart, and Checkout Kit, with the aim of becoming the best partner for AI companies and agents. It is still too early to judge whether traffic is shifting to AI assistants from other channels. Q&A Q: Regarding the macroeconomic situation, how would you describe the current demand condition, and is there a phenomenon of consumers advancing consumption to avoid tariff increases? A: The company has not observed any significant phenomenon of advanced consumption demand. The consistency between the company's performance in the second quarter and its performance guidance indicates that business performance remains steady. From a tariff perspective, there have been no significant changes in cross-border activities or buyer behavior. The company's business is in excellent condition, with no internal data indicating advanced consumption. Currently, business performance remains strong, with significant growth in the European and North American markets, as well as outstanding performance in the total gross merchandise volume (GMV) range and various product categories. Q: Considering the strong growth of Shopify's international business, how do you assess the progress of the company in localizing products and merchant solutions in the international market, and besides the current success, are there still significant opportunities for further expansion in the international market? A: Shopify has been continually updating its international business products and expanding merchant solutions. For example, Shopify Payments has expanded to 60 new countries, multi-currency functionality has been introduced in 20 countries, and Capital services are now available in Germany and the Netherlands. He emphasized that the results of the international business (international GMV year-on-year growth of 42%) are the result of the synergy between product optimization and market promotion engine (including the understanding of product-market fit of system integrators and internal teams). The company's performance in the Asia-Pacific region has also been significantly successful, while the European market continues to be strong and show accelerated growth. Although Shopify dominates in the English-speaking world and North American markets, international business is still considered a significant growth opportunity for the future, with ample room for expansion. Q: Considering that Shopify continues to maintain organic growth as it scales, how does the company view its long-term growth strategy? Do you believe it can sustain growth in the range of 25% to 30% in the coming years? A: Shopify's continued growth is a result of investments over the past few years, and the company believes it will continue to perform well in revenue and profitability. He pointed out that merchant acquisition is accelerating, especially in international markets, while new "entry channels" for large enterprises and B2B sales points are driving growth. Shopify's growth runway is still long, including entering new verticals such as drilling and mining, and adding value to subscription services through Audiences, Plus, and B2B. Although specific long-term growth data is not provided, the sustainability of this growth is the result of all the new product features introduced by the company in recent years, such as tax, B2B, and sales point revivals, as well as international expansion. He emphasized that broader entrepreneurial trends and market changes are driving more merchants to choose the Shopify platform, while the growth rate and penetration of e-commerce continue to increase. The company is confident in the sustainability of growth for the coming years. Q: Regarding Universal Cart and Checkout Kit, given that large language models have become shopping gateways, will these features be widely rolled out before the holiday season? How do you see their potential impact in the second half of the year? A: Shopify has been building infrastructure aimed at seamlessly integrating the native shopping experience into every AI interaction. He mentioned that Universal Cart is part of Checkout Kit, which allows consumers to consolidate products from multiple stores into one place. Checkout Kit was launched last year, and Copilot from Microsoft Corporation is currently using this feature. Shopify aims to ensure consumers have a personalized, conversation-guided shopping experience and enable partners to easily integrate. This also means that Shopify merchants' products and brands will be showcased on all AI platforms. Harley emphasized that Shopify's "unfair advantage" is that the majority of brands consumers love are on the Shopify platform, making it the preferred partner for all AI companies seeking collaboration. He noted that most of the products discussed by the company, including Checkout Kit, have already been launched, and there are companies already collaborating. Q: Shopify has shown excellent performance in product innovation, how do you view its long-term product pricing strategy? Is there an opportunity to price the various services added in the past 18 months on an a la carte basis? A: Shopify's business model is based on the success of merchants, with the better merchants perform, the better Shopify's performance, it is a revenue model based on GMV. Regarding specific product pricing, he pointed out that Shopify has introduced Commerce Components, allowing merchants to choose different products modularly, such as selecting only checkout or Shop Pay. This not only provides independent pricing for standalone products but also creates more "entry channels" for Shopify. He mentioned that the addition of large retailers like Burton, Starbucks Corporation, and Canada Goose is partially due to starting partnerships through these components, and Shopify believes over time they will adopt more products and services. The company's goal is to have as many merchants as possible use Shopify and its services and products, achieve growth through shared success, and believes this pricing model is very effective. Q: Regarding the collaboration between Shopify and OpenAI, do you believe this represents a new opportunity for gross merchandise volume (GMV) growth, or a shift in existing purchase channels towards Agentive Shopping? A: The company is very excited about the potential of AI in discovery and shopping. Shopify was born for collaboration, one of the best collaborative companies in the tech industry, so it maintains good relationships with all AI companies. Just as Shopify historically integrated with platforms like Instagram, Snap, TikTok, YouTube, and Spotify to adapt to social and video commerce, Agentive Commerce is another area where commercial activities may occur. The company is preparing for this to ensure that merchants on Shopify are better prepared if this happens, and Shopify will be at the core of these changes. Shopify's innovations and product and partnership pace in Agentive Commerce are second to none. Shopify is a robust, powerful, and disciplined platform designed to help businesses of all sizes succeed and explore new growth areas. Q: Regarding the example of drilling and mining services you mentioned, could you provide detailed insights into their specific applications and how this model can be applied to other potential clients in the industry? A: Mentioning new verticals like drilling and mining (such as Boart Longyear) is to emphasize that Shopify is entering industries historically unexplored, such as automotive, education, food and beverage, and industrial sectors. He pointed out that this significantly expands Shopify's total addressable market (TAM) and the types of merchants it can attract. These new areas represent opportunities for companies to modernize their business technology, whether directly to consumers (D2C) or B2B. Many industrial brands are transitioning from outdated technology stacks to Shopify's innovative, user-friendly business stack. Diversifying into new industries helps improve merchant fundamentals and buyer stability, and enhances the company's ability to serve large enterprises and global brands. Both parties believe this is a new opportunity for Shopify to achieve great success. Q: Regarding the increase in marketing spend in the third quarter, what specific factors are driving this growth? Is it driven by improved return trends, new customer acquisition opportunities, or more focus on the high-end market? A: Shopify has observed strong performance in gross merchandise volume (GMV), merchant base, and revenue growth. The continued investment in marketing is partly due to ongoing improvements in internal models, allowing them to identify signals from data faster and optimize investments. The continual improvement of these models is a key factor in Shopify's leading position in marketing effectiveness. The company is continuing to increase marketing spend to support markets showing strong performance and with specific successful products. The marketing engine is currently running well, investments are broad, covering different regions and products, with no specific submarkets needing strategic catch-up. Q: How has the performance been since the initial increase in marketing spend one year ago? Can you provide any latest information on investment payback period or return lines? A: The company is currently observing strong growth in GMV, merchant base, and revenue, indicating that the investment in marketing is working well. About a year ago, the company made some adjustments and updates to marketing effectiveness and, through continuous improvements in internal models, became more efficient in viewing and quickly analyzing data. He emphasized that these models continue to improve and perform better, which is one of the reasons the company believes it can continue to maintain its lead in marketing effectiveness. Q: Regarding the significant success Shopify has achieved in the high-end and enterprise markets, what are the main driving factors behind it? Have there been any changes in the market promotion, especially in channel strategies, and has the involvement of system integrators (SIs) been helpful? A: The success of Shopify in the high-end and enterprise markets is the result of a combination of multiple factors. The product is excellent, and the value-to-cost ratio is extremely attractive. The company continues to add new features, such as Agentive Commerce, allowing large retailers to "future-proof" their choice of Shopify. Collaboration with system integrators (SIs) and ongoing product improvements both play a positive role. Commerce Components allow merchants to choose only functions like Shop Pay, seeing improved conversion rates, opening the door for further collaboration with Shopify. Shopify has the largest ecosystem in the business domain, outstanding innovation capability, and a growing network. The speed at which the company releases products every quarter even exceeds the releases of some competitors over a five-year period, attracting the world's most important brands through rapid innovation. Q: Regarding AI assistants, given your in-depth understanding of merchant traffic patterns, could you elaborate on how traffic is shifting towards AI assistants? What are the main limiting factors for AI assistants in commercial or shelf use cases' growth currently? Or what conditions are needed for them to become a larger channel? A: Shopify is actively preparing to ensure that Shopify and its merchants are positioned at the core as Agentive Commerce and more traffic flow towards AI. The company is introducing several innovations, such as Catalog, Universal Cart, and Checkout Kit, aiming to become the best partner for AI companies and agents. Currently, it is too early to judge whether traffic is shifting to AI assistants from other channels. However, Shopify is prepared if this scenario occurs, and Shopify merchants will be better prepared, with Shopify at the forefront of these changes. Shopify's pace of innovation, products, and collaborations in Agentive Commerce are leading. Shopify is a stable, robust, and disciplined platform designed to help businesses of all sizes succeed and explore new growth areas.