Thank you for standing by. This is the conference operator. Welcome to the Shopify Inc. Third Quarter 2021 Financial Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. 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.

Thank you, operator, and good morning, everyone. We are glad you can join us for our earnings call this morning. We are joined this morning by Tobi Lütke, Shopify's CEO; Harley Finkelstein, Shopify's President; and Amy Shapero, our CFO. After their prepared remarks, we will take 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 assumptions, risks and uncertainties in our press release 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 measures. Reconciliations 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.

Thanks, Katie, and good morning. Shopify delivered a strong third quarter as the need for modern commerce tools that keep merchants ready for anything and everything is only expanding. The uptake of our newer offerings alongside the growth of our established ones indicates just how eager merchants are for better ways of doing business in this new world where the lines between online and off-line are increasingly blurred and commerce everywhere is possible. Over time, our growing suite of capabilities, channels and partners have fueled our merchant success and encouraged more entrepreneurs to reach for their independence. In the space of just 16 months, our merchants cumulative GMV has doubled, going from $200 billion in June 2020 to crossing $400 billion at the beginning of October. We are incredibly proud of what we have helped our merchants to accomplish in the short time span. Shopify always has and always will work to make commerce easier for everyone by building what merchants need now and what they will need in the future. Today, I'll run through some of the hard problems we're solving and how Shopify is keeping merchants ahead of the curve. First, merchants need to be where their buyers are. This past quarter, more buyers were in stores as brick-and-mortar reclaimed some of its share of retail. With Shopify's all new point-of-sale software supporting in-store retail like no one else, merchants can transition seamlessly between online and off-line selling to give their customers an omnichannel shopping experience that's simple and that's convenient. And now that Point of Sale Pro is available on Android devices, more merchants around the world can benefit from our most advanced point-of-sale features. This past quarter, GMV through our point-of-sale once again expanded its share of our overall GMV. The launch of our integrated point-of-sale hardware in Germany and New Zealand in Q3 contributed to this momentum. With point-of-sale supporting the irreplaceable in-person channel and keeps our physical main streets and town squares vibrant. Digital town squares and main streets can be enriched in much the same way by embedding commerce into more services. This allows merchants the ability to offer their buyers an organic shopping experience wherever they are. With this, we solved two more merchant problems, brand ownership and building direct relationships with customers. Social commerce can play an important role here. While adoption of social commerce is still early, it is growing fast for Shopify because we have been and continue to be at the forefront of multichannel selling. In Q3, we expanded our relationship with TikTok introducing organic product discovery and shopping tabs where products are linked directly to a merchant's online store for checkout. Since announcing our partnership with TikTok in October last year, merchants have embraced selling on this channel. And just last week, we launched our Spotify sales channel integration, allowing artist entrepreneurs to sync their product catalogs and showcase their products directly on their Spotify profile. As a platform, Shopify enables merchants to connect with buyers through social and search in a number of different ways. While this most commonly happens via traditional ads placed, more merchants are finding value using a Shopify integrated marketing app or an integration that takes buyers direct to checkout. In fact, GMV generated through these valuable integrations for social grew more than tenfold from the same quarter last year and double digits sequentially. Thousands more merchants integrated with our Facebook, Instagram and Google channels in Q3, positioning themselves to be discovered by billions of potential buyers. We saw the share of GMV from these channels expand its contribution to overall GMV quarter-over-quarter by several basis points. Increasing sales conversion is a central problem businesses encounter that Shopify is well positioned to solve. Shop Pay, our accelerated checkout, has been our primary tool for merchants to increase conversion, and it is now available to U.S. merchants on Facebook and Instagram, whether they're on Shopify or not. We're seeing early traction with a number of buyers checking with Shop Pay and Facebook and Instagram growing and orders ramping up on these services for Shopify and non-Shopify merchants. We remain on track to add Shopify Payments as the processor for all Shopify merchant transactions on Facebook properties by year-end. We expect this integration with Google where Shopify and non-Shopify merchants alike will be able to offer Shop Pay at checkout to be completed in the fourth quarter. Shop Pay is also the accelerated checkout for our digital shopping assistant, Shop, which helps merchants strengthen their relationships with buyers with the goal of extending buyer LTV. As of Q3, we have brought the innovation of Shop and its latest features to all the same 17 countries of Shopify Payments, including fast and easy checkout through Shop Pay and Shop Pay installments, both of which have proven to increase sales conversion and checkout speed as well as order tracking, merchant and product recommendations and a growing number of curated shopping lists. Both the number of Shop registered and monthly active users, which includes both buyers that have opted into Shop Pay as well as users of the app, surpassed all previous quarters in Q3. And by the end of September, Shop Pay had facilitated more than $35 billion in cumulative GMV since its launch in 2017. Shop Pay Installments, our buy now, pay later product, also leverages the power of Shop Pay, so merchants can offer their buyers a flexible and convenient way to make purchases. Shop Pay Installments, which has proven to boost repeat purchases among first-time customers by 23% is clearly resonating with buyers. In Q3, the number of repeat buyers quadrupled and the growth of GMV transacted via Shop Pay Installments accelerated over the previous quarter, following the products released to all U.S. merchants in June. One of the hardest problems entrepreneurs face as they scale is selling internationally. That's why we're supercharging our merchants' cross-border commerce capabilities with the launch of Shopify Markets. With 28% of traffic to merchant stores from international buyers, global commerce is a major opportunity for our merchants to grow their business. Shopify Markets removes complexity for our merchants, letting them easily sell to buyers around the world from a single store. Merchants are showing strong interest in Shopify Markets during this early access period with tens of thousands of merchants joining our waitlist. We're getting incredibly positive feedback on Shopify balance from merchants who say they're saving on fees and now have separation between personal and business finances. They're getting faster access to their money, saving time and earning cash back and other rewards, all of which goes directly back into their business. To access innovations like Shopify Balance, Shop Pay Installments and Shopify Markets local pricing, currency and payment features, merchants need to be using Shopify Payments. As more merchants, including Shopify Plus and retail merchants are adopting Shopify Payments, penetration continues up into the right, accounting for nearly half of the GMV transacted in Q3. While no longer new, Shopify Capital is no doubt among the innovations merchants cherish on Shopify. Shopify Capital had another record funding quarter as we help merchants buy inventory and get ready for BFCM, increasing the amount of finance to merchants 56% year-over-year and cumulatively funding $2.7 billion since its launch in 2016. Another established merchant solution that makes growing a business easier and more affordable for our merchants is Shopify Shipping, which we expanded to the U.K. in Q3. Shopify is also making commerce easier for larger brands through Shopify Plus. We are equipping high-volume merchants with the ability to move fast and tell their own unique brand stories through the flexibility of our platform, all for a lower cost of ownership. In Q3, more merchants joined Shopify Plus with a healthy balance of brands upgrading from standard plans and coming new to the platform. Some exciting international brands that launched in the quarter included French beauty retailer, L'Occitane; Swiss computer manufacturer, Logitech; Japanese minimalist retailer, Muji; Dutch fashion label, Scotch and Soda; and Healthy Life, the health and wellness business by the giant Australian retailer Woolworths. Celebrities and creators are also joining Shopify to share their passion and own their brands. Superstar actress Jennifer Aniston launched her sustainable hair care brand, LolaVie; and basketball star Jimmy Butler launched his Big Face coffee brand through our Creator program, which helps creators match their influence with ownership. Some other notable brands that launched in Q3 were shapewear trailblazer, Spanx; casual apparel brand, Dockers; apparel and accessory brand, Frank & Oak; children's equipment manufacturer, Even Flow; home storage company, Tupperware; Unsubscribed by lifestyle clothing brand American Eagle; luxury fashion house, Kenneth Cole; and more CPG brands from Nestle and General Mills. Retailers looking to modernize their operations by leveraging the customization capabilities and the flexibility of our platform go to Shopify Plus. Case in point is centrally old Florist network, FTD. Since it stays as a telegraph delivery company for flowers in the early 1900s, FTD has successfully evolved with the retail landscape and is now again modernizing its retail technology with Shopify Plus to provide intuitive and streamlined shopping experiences. We're excited to work with FTD to help them and their extensive partner network, bringing beautiful flowers and memories to their customers. As Shopify builds the essential Internet infrastructure for commerce, we have made it easier and more attractive for our talented partner ecosystem to support our merchants by building on and for Shopify. Earlier this month, we launched our global ERP program with ERP heavyweights such as Microsoft, Oracle NetSuite and Brightpearl, building integrations into the Shopify App store. By integrating these apps, our more complex merchants can seamlessly connect their workflows, saving them time and money and giving them direct control over their data. Another good example is Roku, which is working to launch the first-ever TV streaming advertising app on the Shopify App Store expected in time for the holiday shopping season, making it easier for small businesses to afford advertising on TV. Our partner ecosystem also helped more merchants start their journey on Shopify with over 43,000 partners referring at least one merchant over the past 12 months. As our merchants gear up for the busy holiday shopping season, Shopify and our partners are ready to help them capture opportunities to build their brands and sell their products to buyers wherever those interactions may happen. As part of our commitment to empower our merchants, we extended our far-reaching support for our merchants in August, opening our second brick-and-mortar space in New York City in addition to reopening our L.A. space in October. These spaces help address another problem common for entrepreneurs. It's lonely work. By giving them a one-stop destination to access community, education, support and creative spaces, merchants can level up their knowledge, network and their business. Before I hand it over to Amy, it's my long list this morning of the many challenges faced by our merchants makes entrepreneurship sound hard, that's because it is. It will always be hard. That's the nature of entrepreneurship. But the good news is that all of these features I just laid out are all the areas where we're making things not just easier, but better. This is how we make commerce better for everyone.

Thanks, Harley. We are pleased with our progress this quarter as our outlook for the year unfolds as we had anticipated, with consumer spending on services and physical retail expanding in the quarter as most markets began their post-pandemic recovery. The shift was more pronounced in July with travel and entertainment spend increasing in the beginning of summer and online spend dipping in July as a result and then improving in August and September as kids went back to in-person school and people started to return to their workplaces. As the world begins to return to some normalcy and the extreme levels of online shopping over the past year make way for more in-person retail and experiences, e-commerce's share of overall retail has reset lower than the peak last year, but still several points higher than it was two years ago and is poised to resume a more normalized rate of growth and continue its share gains of retail over the long term. It is in this new normal that Shopify serves as the essential Internet infrastructure for commerce for a growing base of entrepreneurs around the world where commerce happens online, off-line and everywhere in between. Amidst this backdrop, revenue in our third quarter grew 46% year-over-year to $1.1 billion, driven by strong performance from both our Subscription Solutions and Merchant Solutions segments. Subscription Solutions revenue increased 37% over the same period last year to $336.2 million, largely due to strong growth in monthly recurring revenue. MRR grew 33% year-over-year to $98.8 million as more merchants join the platform and the number of retail locations using POS Pro increased. Shopify Plus contributed $27.2 million or 28% of MRR compared with 25% in Q3 of 2020. Subscription Solutions revenue and MRR year-over-year growth were impacted by the double cohort effect in our third quarter last year in which users of both the 90-day extended free trial on standard plans offered until May 31 and 14-day free trial converted into paying merchants in last year's third quarter. Subscription Solutions year-over-year revenue growth was also impacted by our new app and theme revenue models implemented in August and September, respectively, of this year, which reduced Subscription Solutions revenue by approximately $11 million in Q3 2021. This represents about 1% of our total revenue, and while not material to us is material to our developer community over the long term. Merchant Solutions revenue grew 51% over Q3 2020 to $787.5 million. This growth was driven primarily by GMV expansion, which was up 35% year-over-year on a much higher base of GMV to $41.8 billion, bringing the GMV generated in the first three quarters of 2021 above what our merchants did in all of 2020. Our aggregate level of GMV held firm quarter-over-quarter despite some increase in consumer spending towards travel and entertainment I mentioned earlier at the start of summer 2021 and government stimulus in the U.S. that benefited Q1 and Q2 anticipated in Q3. Within the quarter, GMV performance mirrored broader consumer spending month-by-month in Q3. Any impact to GMV from supply chain issues or Apple's changes to IDFA are harder to discern. Merchants' inventory levels and delivery times were consistent versus Q3 last year and GMV followed the same macroeconomic patterns regardless of operating system. However, it is hard to be certain that cost increases, whether to materials, labor, shipping or advertising had no impact on GMV. We believe our software and services better position merchants to have room in their margins to absorb these inflationary pressures and engage buyers across multiple sales channels and merchants remain resilient in the quarter as a result. All merchant segments had solid growth in the quarter with GMV outside of North America, Shopify Plus GMV and POS GMV all gaining share quarter-over-quarter and year-over-year. Our strong year-over-year growth in Merchant Solutions revenue was driven by increased GMV penetration of Shopify Payments compared with the same period last year on strong growth in merchant sales in Q3 2021, combined with new revenues from several strategic partnerships, namely Affirm and Global-E relating to merchant services product performance obligations, which we began highlighting in Q2 of this year. $20.5 million of GMV was processed on Shopify Payments in Q3, up 47% versus the same quarter last year. Shopify Payments penetration of GMV was 49% versus 45% in Q3 2020 with gains realized across channels, merchant segments and geographies. As we have rolled out our POS hardware with integrated payments to more countries, Shopify Payments penetration for our POS channel is now higher than our GPV overall. And more high-volume Shopify Plus merchants adopted Shopify Payments, which also introduced incremental levels of GPV. Adjusted gross profit dollars grew 49% over last year's third quarter to $616.4 million. Adjusted operating income was $140.2 million in the third quarter compared with adjusted operating income of $130.9 million in the third quarter of 2020. In Q3, we accelerated our OpEx spend, stepping up our hiring of R&D and commercial talent as planned and executing on growth marketing initiatives. Adjusted operating income excludes a $30.1 million impairment relating to the planned termination or sublet of additional lease agreements for office space that we ceased using in the third quarter, resulting from our decision to work remotely permanently, which we announced in our second quarter last year. Adjusted net income for the quarter was $102.8 million or $0.81 per diluted share compared with adjusted net income of $140.8 million or $1.13 per diluted share in last year's third quarter. Adjusted net income in Q3 2021 excludes a $1.3 billion unrealized gain on our equity investments. Finally, our cash, cash equivalents and marketable securities balance was $7.52 billion on September 30 compared with $6.39 billion at year-end. Shopify is well positioned to continue building the commerce infrastructure independent merchants need to compete with the biggest retailers around the world. Our key investment areas, Shopify Fulfillment Network, Shop and international expansion strengthen our merchants' toolboxes and puts these capabilities into the hands of more entrepreneurs. In Q3, we continued to build the foundation of Shopify Fulfillment Network to offer simple, fast and affordable fulfillment to our merchants. We added features that reduce complexity and help merchants sell more, including product bundling, regional tax settings and tracking inbound transfer shipments of inventory. Our Shopify Fulfillment Network team has also been heads down preparing for the upcoming Black Friday Cyber Monday shopping weekend, which typically kicks off the busiest shopping period of the year for our merchants, ramping up services at our fulfillment centers. In addition, we're educating our merchants on how to optimize their operations in time for the peak selling season while balancing supply chain uncertainties and increased shipping demand through a combination of webinars, blog posts, merchant newsletters and events. 6 River Systems warehouse fulfillment solution is ready to help effectively manage the influx of volumes at our network's nodes as well as at their customers' warehouses. Demand for wall-to-wall fulfillment technology remained strong in Q3 with 6 River Systems revenue more than tripling year-over-year as bookings increased and we ramped up our pace of deployment. Turning to our second key area of investment, Shop. Harley highlighted earlier the significant progress we've made in expanding shops reached to 17 new countries where we offer Shopify Payments. We're also working to position our merchants for a successful holiday shopping season. We're making it easier for buyers to discover new products from the merchants they love through more curated experiences while enhancing the utility of shop through features like Shop Pay Installments and order tracking. Our third key area of investment is international expansion. Shopify is making it easier for merchants to sell almost anywhere. We announced Shopify Markets in September. Shopify Markets gives our merchants the back-end tools to scale their businesses internationally and the front-end tools to offer buyers the most intuitive experiences and serves as a great complement to our offering with our partner, Global-E, which gives merchants the option for a more full-service outsourced solution. In addition, the expansion of Shopify POS to Germany and New Zealand gives more merchants around the world a unified commerce experience with best-in-class omnichannel capabilities. As we improve the product market fit of Shopify in our focused regions, more entrepreneurs are joining Shopify, and our merchants are succeeding as we saw our base of merchants and GMV outside North America increase as part of our overall mix in Q3 compared with the same period last year. As a reminder, we are building a portfolio of growth initiatives with different return time horizons that we expect will contribute to Shopify's growth over the long term. Initiatives like international expansion and Shopify POS, which we embarked upon a few years ago are further ahead in product and market development and some of our more complex and groundbreaking initiatives like Shopify Fulfillment Network and Shop, which are still in their early stages. We are excited about all of our vectors of growth and the opportunities they offer to our merchants. Turning to our outlook. The economy remains resilient. Consumer spending on services and off-line retail is expanding. And e-commerce, after easing from its peak share as a percent of total retail, is growing at a more normalized pace relative to 2020. 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 2021, we continue to expect the following. Subscription Solutions revenue growth to be driven by more merchants around the world joining the platform in 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 for 2020 or any year prior to it, as we do not expect the surge in GMV that drove Merchant Solutions in 2020 to repeat. And 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 Merchant Solutions. We continue to expect the fourth quarter to contribute the largest share of full year revenue and that the revenue spread will be more evenly distributed across the four quarters than it has been historically. While the commerce market, both online and off-line, may be impacted by supply chain delays or increased costs for materials, labor, shipping or advertising in the fourth quarter and spending on Black Friday, Cyber Monday may be pulled forward, we expect our GMV in the fourth quarter to continue to grow substantially faster than the commerce market. We continue to expect rapid growth in gross profit dollars in 2021 and plan to continue reinvesting back into our business as aggressively as we can, with the year-over-year growth in operating expenses accelerating slightly in Q4 after excluding the Q3 impairment charge as we expect to hire more engineers and commercial talent and ramp up our go-to-market programs and events. Finally, we expect stock-based compensation and related payroll taxes to be approximately $400 million and amortization of acquired intangibles to be approximately $22 million for 2021. And we continue to expect full year 2021 adjusted operating income to be above the level we achieved in 2020. Some final thoughts to leave you with. We are still in the early innings of omnichannel commerce, which has plenty of runway ahead and Shopify's flywheel is just taking off. Merchants around the world are joining Shopify to grow their businesses. Merchants are taking more of our solutions, and we continue to launch new products designed to help our merchants succeed. Our powerful platform, mission-driven investments and focus on execution, backed by the tailwinds of digital commerce, position our merchants and Shopify for success now and in the years to come. I'll now turn the call back to Katie.

Thanks, Amy. [Operator Instructions] Arielle, can you open the line up for questions now?

Certainly, we will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Thomas Forte of D.A. Davidson. Please go ahead.

So you touched on this in your prepared remarks, but I still think it's the most important question, so I'm going to ask it. What is Shopify doing to help merchants address challenges caused by supply chain issues and logistics inflation?

Yes. Thank you for the question. That's I mean, definitely most important thing right now. Well, we are seeing talking of everyone on our platform. The challenges are, of course, real. There are pressures in supply chain, increasing logistics costs and things like this. And inflation is harder for us to judge. There are probably some inflationary things going on. We have no idea if they are short term or long term. In terms of this, it's -- I think the role Shopify plays is even more important, right, because there are over 1 million small businesses on the platform. The nice thing is we can show up as a unit. And we can help our customers through these times in a lot of surprising ways that we tend to find and that's what they're doing. So, so far, the good news is that there's more margin in the part of the segment that we are in. I do think a bunch of people are buffering some of the increases in costs in their margins. And we'll just work with the community to see how this is going to continue and how we can help.

Our next question comes from Ken Wong of Guggenheim Securities. Please go ahead.

Fantastic. Thank you for taking my question. When we look at this -- the past quarter and some of the recent announcements, you guys launched Shopify Markets, signal for a new B2B offering in the first half of '22 at your Commerce+ event and also announced this global ERP program. I mean should we view the culmination of these events as Shopify making a real push for the largest of the large retailers? Or is this just consistent with how you guys have been playing kind of play in the market?

Thanks for the question, Ken. It's Harley here. So a couple of things. I think when you look at things like Shopify Markets, for example, which really is going to make it so that any merchant that use Shopify is default global from day one. That's not just about larger merchants. We think that commerce is not just going to be done across every country, but it's also going to be across every surface area. The reason why you hear us talking about things like TikTok, for example, or Spotify or Roku, because we think that the future of retail is going to happen everywhere. And if we want to be the central retail operating system for the best brands, the best retailers, that's how we have to show up. So I would say that when it comes to things like Shopify Markets, the idea really is to make it really easy for anyone to access a global consumer base, and it's not just for the larger brands. When it comes to things like ERP, for example, there's two things there. The first thing is, yes, some of our homegrown success story, some of those merchants that started at their mom's kitchen table they've grown from cradle to scale. They are now going public. You saw Figs go public and you see companies like Albert's doing incredibly well or Oakley. So we want to make sure that there is no ceiling on what you can do on Shopify that you can start with us, but you can go really, really large never have to leave the platform. On that same note, what you're also seeing is more established brands are also coming to Shopify. I mentioned some of those brands earlier in my prepared remarks, but when you see these more established brands that are migrating from existing -- company like Dockers, for example, Kenneth Cole or Spanx or L'occitane, they want to make sure that they can everything they need to do with Shopify and not have to look elsewhere. And so, these ERP integrations simply allow larger brands to more easily migrate out to Shopify, and that's happening now at an amazing pace. So all these things are meant to make it easier for small business to get bigger, but it's also meant that larger businesses continue to future-proof their business and do it all with Shopify.

Our next question comes from Siti Panigrahi of Mizuho. Please go ahead.

Thanks for taking my question. I want to ask you about the social commerce growth this quarter. And also, you talked about the social networks as a good channel for your merchants to onboard their buyers. So since we heard recently, these challenges from privacy so Apple ATT changes, that's even making it difficult for social platform for targeted ads and your merchants rely on those platform and third-party data for customer acquisition, so how should we think about the impact on your merchant traffic due to these challenges? And how could you -- what could you do to help your merchants circumvent this challenge?

Thanks, Siti. So I think it's quite clear at this point that at Shopify, really, we believe the future of commerce is going to be everywhere. And the demand for more services to conduct commerce will continue to grow. And so as entrepreneurs grow and succeed, they will need multiple channels. We are seeing more commerce happen through Shopify on social channels. That includes Facebook channels, Pinterest, TikTok, Snap as well. And actually, the GMV contribution from social channels grew year-over-year. GMV attributed to social channels grew several times out of online channels, and more shops were successful in making sales to those channels in Q3 this year versus Q3 of last year. Part of the reason also we're introducing things like TikTok shopping is that it's not just a new channel, but it allows organic product discovery right into the shopping -- right into the videos and also these new shopping tabs. So you will see Shopify show up in more of these surfaces where commerce can be conducted. In terms of the -- on the ad side of things, look, near term, these changes, they may reduce the efficacy of ads. We think that these changes will further incentivize merchants to try other ways to connect with their buyers on top of ads, of course, getting crazily expensive. I think Google's earnings on Tuesday made it very clear that there are still very effective ways for merchants to find buyers. Longer term, we expect the merchants are actually going to benefit from further embedding in commerce itself into other surfaces and from things like retargeting tools like Shop, for example, that give more control to the buyer. And that's why we continue to announce new partnerships. And so we actually think that by connecting more merchants on our platform with more buyers directly through these channels, they're not necessarily going to be affected by these changes in the long run.

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

Great. Thanks for taking the question guys. Just one quick one. So any color you can provide on fulfillment, what is the primary reason to keep it gated? And is your $1 billion investment goal over several years still the plan for fulfillment? Thank you.

Yes. So there's been no change in direction on Shopify Fulfillment Network. We continue to build fast, reliable, simple-to-use fulfillment. And we're still in the product market fit phase, as we said we would be this year, heads down building the software and optimizing the network. We've made no changes to and learn, and we've always said that we would update you if those numbers materially changed. So we're happy with our progress, and this is -- we're not gating based on demand, and demand is there. We're gating on building, iterating and keeping our quality standards high and making sure that we can delight our merchants with our fulfillment offering with the right product market fit at this particular time and continue to make progress and really excited about the Black Friday, Cyber Monday preparation that's underway.

Our next question comes from Samad Samana of Jefferies. Please go ahead.

Hi, good morning. Thanks for taking my question. So during the quarter, the Company announced Shopify Markets. I think that sounds like an exciting new way to tackle cross-border, which I think the Company noted it was about $20 billion of GMV last year. How should we think about the path to monetization for Shopify Markets? And how does it differ from your partnership with Global-E?

So the path to monetization for Markets is there is a per order transaction type fee for the calculation of duties and taxes. It's all on our website. You can go see those fees. There's one fee if you're on Shopify Payments and a slightly higher fee, if you're not. And then keep in mind that in the typical transaction for Shopify Markets, there's also an FX transaction fee that would go along with that as well as a payment fee. And so -- and all of that is gross with an offsetting cost to serve that shows up in gross profit net.

Also, Samad, just to add to that, the idea here, I mentioned this earlier, but this idea of making global -- like being global by default available on Shopify, the idea is, again, we want more of our merchants to access the global consumer base. And so, things like local currencies and payment methods, things like local languages, things like local domains with automatic SEO optimization, duties, import taxes on behalf of the buyer, all these things are really important if you want to be default global when you sign up with Shopify and launch your store. And all of this, I think, also complements the Global-E offering for merchants as well. So what you're seeing here, again, is the theme where we believe that commerce is going to happen everywhere in every country across every border, but also in every surface online and off-line. And that's the reason why we continue to make these things much easier. Tobi Lütke: And sorry to pile on or for you as one more question, but like it's a really good example here like a lot of -- of course, the market is monetized in the bundle of a subscription fee. But like this is a wonderful example of where our company's alignment, the growth of Shopify and the growth of all our merchandise super aligned. Of course, the best way to monetize anything on is to help all of our meters to be more successful and for opportunity, especially for smaller businesses earlier to -- in the more formative times to learn how to service the rest of the planet and how to make strategic decisions about which strategy you're doing in which territories and being able to take advantage of sets of interest in markets that you might not have imagined would be markets for your product. Obviously, things are going to be now happening earlier, we hope, and therefore, become more part of the settlement of the business strategy, and we are going to make that simpler and therefore, be more successful. And that's when we also, of course, participate because of the merchant services. That's a wonderful illustration of the core concept of the Company.

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

I wanted to ask you about Shop Pay and the digital wallet space, your ambitions for the product. On one hand, we're seeing three to four digital wallet options to check out on many Shopify sites. So there's clearly a lot of competition there. But I know we're also going to see Shop Pay off of the Shopify platform as well, which opens up TAM. So maybe if you could sort out a bit the competitive landscape, the differentiation and then plans to drive usage of Shape both on and off platform. Thank you.

Colin, so just to kind of level set. So by the end of September, Shop Pay had facilitated more than $35 billion in cumulative GMV since its launch, which happened in 2017. But really, this is a primary tool for our merchants to increase conversion. It's now available in the U.S., of course, but also to merchants on Facebook, Instagram, whether they're on Shopify or not. We are seeing early traction with the number of buyers checking out with Shop Pay on Facebook and Instagram growing and orders continue to ramp up on these services again for both Shopify and non-Shopify merchants. But the idea is, we think that Shop Pay is just a wonderful way for consumers to check out. If anyone on this call has used it, you know that there really is no better way to do it. It's fast. It's convenient. It's incredibly safe. And so by expanding Shop Pay's footprint beyond just Shopify services to places like Google, which we made available later this year, and of course, on Facebook and Instagram, we think that more merchants can have more sales. It's not only faster, but again, the conversion rate we know is also higher. So I think you will continue to see Shop Pay available in more places. It's also one of the reasons that I think a lot more people are beginning to realize that Shopify is the Company behind their favorite brands. We have been the brand behind the brand for a very long time, and we play really well in that space. But now when more merchants are seeing Shop Pay available across the Internet, across their favorite buying experiences and they sort of begin to associate those brands with Shopify, it's becoming quite clear that Shopify's powering consumer saver brands. So that's where we're going with that. And I think you'll continue to see Shop Pay available in more places.

Our next question comes from Daniel Chan of TD Securities. Please go ahead.

Hi, good morning. You mentioned that the share of GMV from off-line expanded. Can you provide a little color on how much of that you think was a result of changing spending trends that you commented on? And how much of that was from higher POS sales? Thanks.

Yes. So, we did say that GMV from off-line continue to expand. So off-line did particularly well in the third quarter as economies reopened and more in-person spending occurred. And I want to just add, it did increase in our GMV mix quarter-over-quarter and year-over-year, quite substantially off of much higher aggregate levels, and that was due in part to what we saw overall in consumer spending as economies reopened. And we're so -- we're just -- we're super delighted with that. But also Harley mentioned all of the things that we've been doing in entering new countries, Australia, U.K., Germany, New Zealand, we saw more uptake in more locations. And so, all these things played into just a spectacular quarter for off-line GMV and in particular, our POS performance.

Just to sort of give a little more color on point of sale because I do think Q3 was our best quarter for the retail business. Retail GMV hit an all-time high. But we are bringing Shopify is a very efficient go-to-market model to the POS industry. We're not leaning on established networks of partners, but rather we're doing this in a really efficient way. And we're beginning to see momentum with things like Shopify Retail for Plus merchants. We're starting to see retail growing impact on the Shopify business generally. Again, retail GMV is the second largest contributor to overall GMV behind the online store. We also saw point-of-sale with Shopify Payments continue to expand globally. Amy mentioned some of those locations. Point of Sale Pro is available now across more devices like Android devices. And we're beginning to see much larger physical retail businesses like Golf Magazine used us at the Ryder Cup, for example or Hickory Farms using us across 70 retail locations. So I think our point-of-sale product has gotten really, really good. I think it's best in class. And I think the way we're taking it to market now is being done in a very efficient way relative to pretty much every other cloud point-of-sale system. And so I think you'll continue to see a lot of growth in that point-of-sale retail area of our business.

Our next question comes from Mark Zgutowicz of Rosenblatt Securities. Please go ahead.

Thank you. I was just hoping you might be able to flesh Thank you. out the GMV headwinds that you witnessed in 3Q versus And perhaps said differently, Amy, you quantified essentially commerce mix of retail coming down in 3Q, and I was just wondering if you could quantify how much or whether you'd expect the same or greater decline in 4Q as you quantify for 3Q.

Yes. And as I said in my opening remarks, I think one of the things you have to take into consideration is that Q1 and Q2 benefited from pretty significant U.S. stimulus, and it dissipated by the time we got to Q3. So obviously, Q4 will be similar without those tailwinds behind it. But let me just kind of step back and reiterate what I said about what happened in the quarter. We really did mirror what happened in overall consumer spend, and in particular, what happened with retail, especially in those countries that reopen like the U.S. and U.K., and I'll talk mostly about the U.S. So what we saw is consumer spend on services and physical retail, as I just said, also expand pretty much throughout the quarter. As vaccine rates increased in June and July, people just moved about more often, and they spend on services, recreation, entertainment, they were back shopping in stores. And so as a result, in July, we saw overall retail actually dip, and that was because e-commerce dips as folks were moving about. And our GMV, as a result, dipped in July with that e-commerce overall dip. But then we saw a rebound in August for e-commerce and our GMV, which is attributed to people going back to physical workspaces and kids returning to in-person learning. And then we saw another uptick from August to September, and our GMV followed that trend. And I want to just point out a couple of other points of evidence here. In terms of consumer verticals, apparel and accessories, which is our mainstay actually performed better than our average GMV growth, and that's consistent with people refreshing their wardrobes to go back to in-person school and workplaces. So it really did follow what we saw in consumer spending. Also to add to that, in countries that didn't reopen like New Zealand and Australia -- and Australia, their GMV actually grew faster than our average GMV because they never saw that e-commerce dip. They continued in lockdowns and e-commerce remained strong. And actually, our POS retail GMV did well in those countries as well, further consistent that, that was the main driver of our GMV in Q3. As we head into Q4, we expect our GMV to continue to grow, driven by e-commerce. It has reset but it is growing at a more normalized pace now. And we expect it will continue its share gains of penetration of overall retail. We expect more in-person shopping because restrictions are lower now than they were this time last year. And we expect our global merchant base continue to grow and be the underpinning of our GMV growth.

Our next question comes from Tim Chiodo of Credit Suisse.

I want to dig into the pricing on Shop Pay Installments, so the take rate charge to the merchants, really not the absolute level, but if you could just share how the pricing is presented to the merchants when they're opting in. Is it dynamically done? Is it based on the size of the merchant, the vertical, the average order value? Are larger merchants, maybe negotiating this some? How does that work mechanically?

So our partner, Affirm, on Shop Pay Installments, actually manages that aspect of it, and it's based on a percentage of the sale that's charged to the merchant that's consistent with the industry. And as we've always said, we have a take rate on that, given that Affirm manages that transaction on our behalf. And it's accounted for net versus payments is gross. But if you look at net to Shopify, it would be slightly higher than like a payments margin typically.

Our next question comes from Josh Beck of KeyBanc Capital Markets.

I wanted to follow up on earlier question about the ERP integration. Obviously, you're working with the NetSuites, Microsofts, et cetera, of the world. So I'm curious, does it significantly alter your go-to-market as you think about those more established brands that might require a bit more resources, integration, maybe with other products, et cetera, as you onboard them. Just curious if there's any changes with respect to the go-to market.

Josh, it really just makes -- this offering really unlocks the seamless workflow and allows them to have greater control for these sort of high-volume merchants. The idea really is for them to help transform the data into actionable results that they scale on our platform. This was possible before. Now it's a lot easier. So what we're trying to do is reduce the amount of reasons that a big retailer -- again, century-old florists like FTD, I mean they basically created the flower delivery industry. We want to make sure there are no reason for them not to use us. And what we're trying to do is we want to invite them into our version of what is enterprise e-commerce. We're not necessarily going to do everything for every major, large retailer, but we think that our version is something that is very appealing to them at this stage. And one of the things that we think we could do to make it easier is integrating with Microsoft and Oracle and some of these major ERP systems that they're already using. I think one of the reasons that I mentioned at the beginning of these calls every quarter some of the CPG brands from Nestlé and General Mills is because when they launch more brands with us, for example, Larabar was launched this past quarter on Shopify Plus, we want to make sure there is no reason why they shouldn't use us given our view of what we think enterprise e-commerce should be. And so that's the reason why we do these ERP integrations in general. I think at a higher level around Shopify Plus. I mean, Shopify Plus is an incredible offering, not just from a product perspective but from the perspective of how long it gets into market. It allows them to obviously have incredible flexibility, total -- lower total cost of ownership. And as things like new channels, whether it's social media or things like Spotify are available, they want to access them and they know that if they use Shopify, their future-proofing their retail business. And so we're just trying to reduce the barrier to entry for these larger brands to use Shopify. And I think we're doing a good job of that.

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

Thanks very much. Good morning. There's just been some recent discussion in the media around potential industry consolidation along the theme of super apps. I was just hoping to get your thoughts on what you think of the rise in super apps and what you view as Shopify's competitive position against super apps? Tobi Lütke: Yes, I mean that's a trend. We've seen super apps, especially in the east, which is incredibly e-commerce active. And so this is -- I think you'll see more of that in west, too, and are -- I think, observing a bunch of people launch their platforms, the economics end up being a little bit different than what we've seen in the east. But from our perspective, like Shopify has -- like we sort of set our set of strategy that we want to make sure that entrepreneurs can build businesses, engage in retail behind ideally every item on any ordinary person's phone home screen. And so, we are booking for people who are building the super apps. And I mean, it turns out, obviously, the monetization of almost all these systems are advertising, which usually leads to retail products. That's the most -- the tightest feedback loop and the most transactional environment for monetization. So, there's a lot of conversations that we're in. You see us launch things all the time. And the -- I mean we really do love the open web. It is an incredible opportunity space. It's a permission-less part of the Internet. It's given rise to every of -- like large companies of today. We hope that people will keep the browsers and the open web in their home screens in the future. Shopify's for the online store, which is the one you access to Safari, Chrome, of course. But Shopify's future is not dependent on this because I think we have a very good thing going on, good relationships. And of course, we are -- can act as a single integration point for millions of the best retailers in the world for the people who are bringing the super app to market. And we expect the -- our intentions to move quicker, like there's going to like a potential time like all at one point and then five years later, it might be a completely different one. Like obviously, seen in social networks already a while ago, like the never built a MySpace channel, but we would have, it would have been building channels back then, and that would no longer be as important as it might have been during most times. So, this is the way we are approaching this. And from our perspective, the demand and supply is clear, like the demand from the business of these apps is they would like commerce and high-quality commerce, traffic commerce and good merchants with great products on the platform, and we'll be very happy to welcome them and provide that integration.

Our final question comes from Mark Mahaney of Evercore ISI. Please go ahead. Our final question comes from Darren Aftahi of ROTH Capital Partners.

Just can you talk about the retention dynamics of the surge in merchants you guys saw in the second and third quarter of last year and kind of how that compares to historical levels? Thanks.

Yes. Actually, retention rates have remained very strong. We're pleased with retention rates as we've moved through 2021. And I also want to just emphasize that something that Harley said in his opening remarks, with respect to Plus to keep in mind, we're still seeing levels of standard merchants upgrading to Plus that are higher than pre-COVID levels. So, those 700,000 merchants, standard merchants that joined last year, many are thriving on the platform and upgrading to Plus at very high levels. And so, we're delighted to see that and want to continue to emphasize, look at this holistically, both standard and Plus merchants together, and that we're there for the entire merchant journey.

All right. Well, I think that's it for our conference call today. Thanks to everybody for dialing in.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.