Shopify Investor Day 2023 Notebook: Payments Still The Straw That Stirs the Drink, Despite Company's Ambitions

Investor days are like a dog and pony show. Investor relations teams try and convince new analysts to cover the stock or improve its ratings. Ratings are then used by hedge funds, pension funds, etc, to decide to include the stock in the portfolio.

It doesn't matter what happens on the day - except that it reveals company strategy, management philosophy, and long-term guidance. The tenor of the call reveals that the company feels that analysts worry most about TAM, attach rate, and free cash flow. Here are a few key points I took away.

1 - The "Intel Inside" of Shopify is still Stripe in the US, and other payment providers elsewhere

At least for now, Shopify has no plans to build its own payments stack or even acquire one of the players. Management reveals that "market fit" is the primary criterion to determine the buy/build/partner approach for payments in each market, not some overriding philosophy that they must never do one thing or the other. (This observer notes that Apple eventually built its own silicon and Amazon built its own logistics network)

Although other businesses are growing, Shopify's margins and revenues will be primarily animated by the gross margins of the payments business long-term, despite the fact that other businesses and revenue sources (like subscriptions) are growing.

SMB, Enterprise, Capital, Balance, POS, B2B, Country Expansion -- it's payments that generates the revenue.

2 - Gross Margins Do Have Some Headwinds

Despite the growth of POS, B2B, Enterprise, and International, the news is not all rosy. These GMV sources all have lower attach rates to revenue than their existing business. This provides mild downward pressure on gross margins. The company has other businesses, but pay attention to payments to discover the financials.

Shopify is currently about growth and upsell, not gross margin expansion.

3 - Artificial Intelligence Used Broadly in the Company To Control Costs

The CFO and COO said that as we grow, we aren't going to be hiring a lot. We will get leverage through software and AI. The promise is that the company has found how to generate free cash flow, and won't be returning to its old ways.

4 - Advertising Remains a Hobby

Advertising did not get much play, except for a few revealing comments. I wrote down one: "Our job is to teach merchants how to fish, not bring them fish."

This line shows the divide between a company like Amazon (who wants to bring fish, but not before taking half that same fish) and one like Shopify. Shopify is a tool-builder, not a traffic generator. This could indicate that Advertising and Shop App is still just a hobby, and no one should expect it to significantly impact the company's financials or most merchant's lives anytime soon.