Shopify president Harley Finkelstein on a monster Q2: $116B GMV, 30% growth, and agentic commerce is real

Speaker 1: Shopify is the commerce platform that grows with your business and lets you sell in seconds online, in store, on mobile, on social, on marketplaces, now with AI agents. And we have the perfect guest to talk about Shopify because we have Harley Finkelstein, the president of Shopify here with us in the TV at Ultratome. Welcome back to the show, Harley. Congratulations. What a quarter. Insane stock chart. Take us through it. What's going on with Shopify?

Speaker 3: It is, Jordy John, great to be back here.

Speaker 1: Great to

Speaker 3: see you. I don't know if the ad role and me coming on together was complete.

Speaker 1: Completely coincidence.

Speaker 5: Complete coincidence.

Speaker 3: Brilliant. Before the go, let let let me get This was a monster quarter, no doubt. GMV was a 116,000,000,000, which is more than like the GDP of half the countries on the planet. Revenue was $2,600,000,000 Gross profit was $1,700,000,000 and free cash flow was just over $650,000,000 Most importantly, think, is that I mean, this is obviously, Shopify is at a huge scale, and we delivered more than 30% across across the board this quarter, and I think it's like our fifth straight quarter of 30% or more growth in GMV. So Shopify is doing well, and more importantly, the stores on Shopify, the merchants on Shopify are doing incredibly well. And we're really, really fast.

Speaker 2: People talk about AI victims, and in this situation, I think AI is a victim of Shopify.

Speaker 3: I mean, you know, we we can get into that. I I actually think one of the more interesting parts of of the call, we got into a little bit of it, was just around what is happening in AgenTic that I think the question I got on the Q1 call was, is this real, and is this going to continue? And I tried to answer that question clearly, which is, yeah, it's it is early, and yes, the volume is small in Agenta Commerce relative to a $116,000,000,000, but the the trend is is real. I mean and the growth is real. And and funny enough, or surprisingly enough, should say, the merchants that seem to be benefiting most from Agentic Commerce are not the big box stores. It is the, like, long tail of these specialized independent businesses. And just on on on Agentic alone, traffic was up three x. Like, AI driven traffic to Shopify stores

Speaker 1: Okay.

Speaker 3: Was up three x. Orders were up three x. So not just traffic, the actual orders themselves. And probably the most interesting is, like, conversion from our catalog, Shopify catalog, was 2x more than sort of general AI scraping. So one, it is real two, it continues to grow and three, it is disproportionately affecting these smaller merchants. So, you know, consumers are searching for, like, a standing desk for a small apartment or car seats that fit three across the back bench of a sedan, and I think that is a structural advantage for small businesses, which happens to be a big part of our our merchant base.

Speaker 2: Okay. So yesterday, we had the most feared lawyer in the world on our show, John Quinn. He was talking about a sort of current lawsuit between Amazon and Perplexity. Amazon sued Perplexity because Perplexity's bot was going on to amazon.com, finding listings for users, which I think is something that a lot of people a lot of people want. But Amazon is not excited about that because they have a big ads business and if bots are crawling all over, they can't really serve or they don't have a way to serve ads to bots in an effective way. It feels yesterday, I think there was a a some type of action by the judge. I forget the technical term for it, but the judge is I I don't think the case is fully decided yet, but the judge is effectively saying like a an agent acting on the user's behalf to do something on a website is wildly different than just general like, basically, the way that we would historically view bots where, like, a company could say, like, we don't want your bots on our website, but we're entering into this new paradigm. It does feel like Shopify is in a really great position here because you guys aren't trying to monetize eyeballs in the same way and you're not trying to monetize that demand. You're just trying to get merchants in the position to sell a lot more products. And so how do you see this sort of struggle evolving on a more global level between consumers, which want to use agents to buy products all over the Internet, and these sort of big platforms and legacy shopping platforms that want to, you know, control attention on their websites?

Speaker 3: Look, I I think I I did a search for myself in June. Bailey, our our we have a 10 year old our 10 year old daughter. We want to get her, screenless phone to use. And I've I've historically, I would have gone to a search engine and would have typed in screenless phone. I probably would have seen something like Best Buy pop up, and they'd have, like, eight different options from some, you know, some big big, I don't know, big companies, electronics companies. Instead, just using chat on my own, I typed in looking for a screen phone for for for Bailey. Because it had so much context, because it knows me so well, because of all the conversations we've had over the last, I don't know, two and a half years, it actually pointed me right to the tin can phone.

Speaker 2: Yeah.

Speaker 3: The tin can phone is it's a Shopify merchant. Took me right to the store.

Speaker 1: I have like five of them. They're amazing. They're amazing. Amazing.

Speaker 3: I never would have found that. I never would have found that product.

Speaker 2: And this is a

Speaker 3: That is a

Speaker 2: can with a string attached to

Speaker 1: your head fan. That's the metaphor.

Speaker 3: Yeah. That's the metaphor. But it's basically it's it's WiFi enabled, screenless phone. It's really cool because I don't want my kids on screens. It's amazing. It works incredibly well. That is because agentic commerce is merit based. It is not based on who is supplying the most amount of ad dollars. Sure. And I think it's still, like, it's still it's it's really it it it is a much better shopping experience, and I still think it could get better. In fact, I I sent you guys some some graphics here. Can you pull up did you have those? Can you pull up the first one, which is just the dress?

Speaker 1: Yeah. Okay.

Speaker 3: So I mentioned earlier just keep this on for a second. I mentioned earlier that right now, if you look at the conversion from our catalog versus general AI search of scraping, our catalog converts two x. This is what a scraping might actually show, just simply the dress. Go to the next slide. Okay. So this is what we're actually building. This is these taste driven attributes. Whether these these articles, these products, you know, is it formal enough for a wedding? What's the is the fabric breathable? Mhmm. What's the wrinkle tendency if you're using it to travel? Sneakers, are they suitable for an endurance race? This type of structured values agents can actually read. It means that when someone's saying, I want to buy a dress that's good for a summer wedding or a suit that needs to be formal enough or judging its formalness, this is where it is going. We announced this at at dot dev two weeks ago, but this is what we are building with catalog. We are building these incredibly rich product attributes that will make the shopping experience from a discovery perspective way better. And then what we're seeing is ultimately the journey compression is insane. So buyers arrive, effectively ready to shop. AI referred sessions land on product pages two and a half times more than simply organic search where they just go to the general page and they're perusing and they're browsing. That's not how it works with with with AgenTic. Mhmm. Actually, they're arriving right on the product page Mhmm. And they're using shop pay to check out. So the adoption, like, this is real, and it's showing up in our numbers and both in traffic and orders, and I think AgenTic is only going to get bigger from here. And I love the fact that these small niche companies, like the tin can phone, seem to be the ones benefiting more than others. In fact, if you actually just compare 75 of all AI attributed purchases in q two on Shopify were from outside our top 100 categories.

Speaker 1: Mhmm.

Speaker 3: So it is not your, I want yoga pants. It is, I want, I don't know, reef safe sunscreen that doesn't leave a white cast in my, you know, on my black leather, whatever it is. Sure. It's that type of stuff, and I think that means our merchants, I think, will disproportionately benefit from this.

Speaker 1: Because AI is still a little slow, there's a little bit of a cost to going down the agentic search path. I would expect, I have been expecting that we will see disproportional agentic purchases for higher ticket items, more considered purchases. So you're doing research on a car? Yeah. Go let five point six pro cook on all your features and figure out everything. But you're ordering just another soda. You're not going to go and down the agentic system for that, at least in the short term. Are you seeing any of that? Do you expect Yes. That to be a

Speaker 3: So for sure. Products that require more deliberate purchasing intent and more research benefit from it too. But I would tell you to expand your perspective there, it's not just it's also products that are very much for it's a particular product for a particular use case. It is not necessarily, I want to buy a t shirt. It is, I want to buy a high end t shirt with a GSM count that is more than, you know, that keeps me warm Yeah. Like when I go out at night in New York City, where it knows your location, it knows the weather in your location Yep. And now it actually pulls from your entire conversation history and says, you probably want a James Perce t shirt, which is my favorite shirt.

Speaker 2: Yeah. The other thing I've been doing, I'm I'm I I think you maybe discount consumers' willingness to wait or do things in order to save money. Right? This is not you don't strike me as the kind of guy that ever was doing like credit card point maximization or like chasing coupon codes around the Internet. Mhmm. But a lot of people are. And a lot of people like wanna buy something and then they're thinking, okay, what how can I get the price best price on this? I saw a pair of sneakers a couple days ago that I really liked. Yeah. Found them for sale and I just took a screenshot of the of the product page and I said find me this sneaker in my size at the best price. Oh, interesting. And it went and found three different options.

Speaker 1: So you might land on a Shopify

Speaker 2: store. And what was interesting is it actually took me to StockX and it was like, hey, by the way, this is selling for below retail

Speaker 1: Mhmm.

Speaker 2: StockX. $50. No. No. Of course.

Speaker 1: Yeah.

Speaker 3: I mean, especially if you have some sort of like reminder, hey, these these are the sneakers I want. They're a little too expensive for me right now. I would love you to let me know if if something else comes up. Now it basically runs a query every couple of days to see whether or not it's being discounted as well. Yeah. So even though that's not a deep research product, you actually are doing deep research on the pricing of it as well. But the other thing also that came out of the call today, which I don't know if it necessarily got picked up, it's worth sharing, we've talked about Sidekick on the show before, and I said ultimately the goal for Sidekick is that it makes merchants more effective, more efficient, helping them reach their early milestones faster or make better decisions. All the things that, know, when I was selling t shirts on Shopify or, you know, you were selling nicotine patched, like, you know, all that stuff, the silly ad spend we made on performance marketing that just didn't convert, that ultimately the goal was to to alleviate all that as well. And what we actually talked about today was when you actually look at the onboarding guidance when you're just setting up a store on Sidekick on Shopify, we actually saw an 8% increase in new merchants reaching their fifth order within fifteen days. That may not seem like a big deal, but on a massive base of Shopify, new merchants that are constantly coming on Yeah. The fact that they're getting to their their fifth sale faster is remarkable. And so we think not only is that going to get better for new merchants, but then as merchants also grow in scale, it's not going to be about setup anymore. They're going be using Sidekick to become more, like, to do more things like analytics or reporting or to find new opportunities. And therefore, all the mistakes that we all made when we were building our own ecommerce businesses ten years ago simply go away. And so you'll have more people starting and more people growing faster. And as that happens, psych just keeps getting smarter and smarter.

Speaker 1: Yes. So break that down more for someone who's actually running a Shopify store today. How close are we to the world where you show up, you have a budget, and Shopify can sort of agentically for me take a budget and spread it across Facebook and AppLovin and Google Ads and load balance everything, the stuff that, you know, you wind up hiring an agency for sometimes and then maybe they get a little clocked out, then you hire a person and it becomes a job. Like, and a lot of small merchants might not have that capacity, but there's a you're picking up pennies off the floor if you're doing it properly.

Speaker 3: Yeah. So so I mean, so that that is it's already happening to some merchants some of the time. We have something called we announced called autopilot, which we announced in our last edition, which effectively allows you to give us your your ad budget, and we will go and find the most effective uses for you.

Speaker 1: Yep.

Speaker 3: But in terms of like so there's different stages of usage on Psychic. For new merchants, the first job is getting that first sale and then the next sale. Mhmm. And those you guys know this. The first few orders, it creates incredible momentum. It gives you confidence. You become an entrepreneur when you have your fifth sale and it's not your mom or your neighbor. It's like some stranger who found your business. As the business then grows, we've noticed obviously setup accounts go down. Now they're actually using it to do things like reporting analytics. Sure. And over time, what we're doing, Sidekick, is actually proposing things like bundles, for example, or SEO optimization driven product creation. Then we have something called Pulse that lives inside Sidekick, which is effectively saying, this is what's happening right now on your business, and these are some proactive ideas you should consider, like useful recommendations. You can accept them. And if you do, Sidekick will implement them for you. It could be something as simple as moving your product page around or moving the buy button, you know, the shop pay button further up the stack a little bit. But this idea is we wanna we wanna deliver the best practices across, you know, hundreds of billions of dollars of GMV every year that goes to Shopify to anyone using the platform, and then they can decide on their own if they want it. The reason that this is possible is because it understands, unlike any other AI agent, it understands a merchant's products, customers, transactions, history, and that context allows us to give this incredible grounded advice in the reality of a merchant's business. And it's an advantage actually that just continues to compound. As more people use Sidekick, more merchants are able to get value from it as well. And I think the path forward is Sidekick will take on more of the work, not just with ads, but also selecting a three p l or figuring out, you know, doing like line skipping to figure out how to have the best deal on shipping. But this is like really I mean, it's it's it's not just science fiction. Like, this is really happening where Yeah. You can put more and more of your business on autopilot.

Speaker 1: It's great. What a great time to start a company.

Speaker 2: In two minutes, I want you to talk about the year 2035. And let's assume that you have a widespread use of of robotics that can make anything that you could possibly imagine spread out all over the world that can make custom products or one off products or small batches of products. I have so many different products, like, in my camera roll that I just made with ChatGPT images. And I would I would love to be able to make, like, just five of them or 10 of them or or make one for myself and throw up a product listing. Right? It could be something like sculptural or a piece of furniture or even something in consumer packaged goods. And I I personally have a theory that as as robotics bring down the cost of making anything, that there's so many people on the planet that have ideas that would create a Shopify store. And if they could make, you know, 10 or 20 or 50 or a 100 of products really easily, they would become, you know, basically entrepreneurs overnight. You're just about reducing that friction all the way. So, like, thirty years ago, was quite a bit harder to sell products online. It was it was it was possible, but again, it was, like, clunky. Now, it's easy to sell products online. It's still incredibly hard to make high quality products, especially as somebody that's a new entrepreneur that doesn't have a lot of capital. So how are you thinking about the, like, the year 2035, assuming, you know, a takeoff in in robotics? Can you guys

Speaker 3: pull up gamers.town? Gamers, like the gamer, like someone who's a gamer, .town. Just pull that up for a second. Wanna show you something. I I just saw this before the call, but this I think is fascinating.

Speaker 1: This is very cool. This on Shopify? Yeah.

Speaker 3: So I gotta this is so interesting. So Wow. Can you pull it up here so

Speaker 1: we okay. Can

Speaker 3: Okay. So this is an entrepreneur who basically took our catalog API, so a billion products, right? Like, Allo is in here, Viore is in here, Mattel is in here, Canagoose is in here, everything is in here. And they also looked at every single store that, obviously, this entrepreneur is a gamer, and said, wanna pick across a billion products the most relevant interesting merchandise for all these games like Minecraft. And they effectively they took the Callic API, like, as the access point, and now these developers can effectively just build their own stores with other people's products. So think and it's beautifully done. You can see it. It's like this great constellation type of shopping experience. So the fact that even before the year 2035 where maybe robotics help us with manufacturing, I actually think now that allowing anyone with some ambition to take the Shopify catalog and create their own interesting ideas, In this case, it's for gaming, but there's so many other ones as well. I think that is like, that will happen not in the next ten years. I think it'll happen in next, like, ten days. This is the first one I found.

Speaker 1: I'm getting a full Counter Strike costume for sure. This site is amazing. Thank you so much for coming on the show.

Speaker 2: Very cool.

Speaker 1: Always always fantastic chatting

Speaker 2: Incredible quarter. This

Speaker 1: Ben, congratulations. What a quarter. Great you, guys. Stuff. Goodbye. Let me tell you about MongoDB. What's the only thing faster than the AI market? Your business on MongoDB, don't just build AI. Own the data platform that powers it. Our next guest is John Giamatteo from BlackBerry.