SHOP - Shopify

[mloub]

I'm not short SHOP.

 

And my longs aren't worth discussing.

 

If that changes, I'll make a post. But as you can tell, my posting comes in spurts once a decade.

 

M.

 

[thepupil]

I look forward to more productive spurts of contribution.

 

 

[mloub]

I look forward to more productive spurts of contribution.

 

Okay, here it goes:

 

Please, for the love of all that is holy, do not buy SHOP at these prices. Think of your children, think of your spouses, think of poor Charlie. The price may oscillate, it might even go up a lot in the short-term, but buying this company's shares today, at these prices, is a terrible, terrible idea.

 

Hopefully, that was productive enough. See you all in 2030!

 

M.

 

PS. You should probably stay away from Lightspeed too.

 

 

[valueinvestor]

I haven't read the whole thread after Gregmal's on what will make him long (if you haven't read it - I think you should give it a read - it gives an honest counterpoint).

 

As for those who are screaming "what about the valuation?", but really want to understand my point of view, I just ask "have you tried their product/service?"

 

I would recommend seeing anyone that has a Shopify store that's doing $10M+ revenues a year. In fact, the best ones to speak to are the ones that tried to migrate from the platform to another such as Magento? (I would bet a majority migrated back)

 

I invested because it's part of my investment strategy. A third in a great priced good businesses. A third in fair priced great businesses. A third in irrationally priced speculative businesses (TSLA, SHOP, ROKU, etc.)

 

By the way, I'm expecting a 50%+ percent drop as a good possibility next year or the year after, but that does not necessarily make this a bad investment - it just made it cheaper. Unless your timeline is one-to-two years, then yea the loss is unacceptable. My timeline is far longer, I would argue 40 years because that's when I would probably retire.

 

EDIT: I think I oversimplified my investment strategy because those irrationally speculative businesses 10 years ago became fair priced great businesses, such as Amazon, Facebook, Netflix. The only one that hasn't played out in that basket was Valeant when I invested at $200 per share, but oddly enough I have not lost money on that or made great money for the headache and pain suffered.

[mcliu]

@valueinvestor, no doubt SHOP has a great business. I was curious, what price would you consider buying or selling today? $1,000? $5,000? $10,000?

[valueinvestor]

@valueinvestor, no doubt SHOP has a great business. I was curious, what price would you consider buying or selling today? $1,000? $5,000? $10,000?

 

Technically I would've sold years ago, but couldn't find a suitable candidate to replace the irrationally-priced speculative stock like Shopify - closest was Kinaxis (not sure if that's the case) so stuck with it.

 

Also my cost basis is around 350-400 EDIT: (after doubling down at 820 mark), but I was comfortable keeping it as I had a size-able cash position of 10%+.

 

So to strip away the complexity - if I had to buy Shopify at a price where I had to put a third of my capital, can never sell a share, have no overall cash cushion, where the other 2/3 is invested equally in cigar butts and compounders - it would be around $300 to $450 mark, maybe $500 (which are prices that were presented this year).

 

If I had to sell it and can't buy a share ever again - it would be around the $1800-2700 mark where there's nothing that impaired the growth going forward.

 

In between these two circumstances, there would be possibilities where I'm comfortable with prices right now. There are businesses within shopify as mentioned before, like the app store, distribution, AR, shopify capital, etc that can be very lucrative.

 

EDIT: As I'm willing to make a wager that COVID-19 provided some tailwind to their quarterly earnings, and retailers are considering which platform to choose to weather another possible pandemic.

[Orange]

If you are a seller who relies on Amazon or Google, you have a job not a business.

 

Disclosure: No position. I question the economics of the business but they meet an important need and do it very well.

 

+1

 

 

This shows how little you guys understand about ecommerce. How are you going to run an ecommerce business without relying on a platform like Google or Amazon? You have to have a way of getting customers. That doesn't negate the fact that it's still a business

[Orange]

I don't comment in this forum normally, but as someone who has ran an ecommerce business full time for the last 3 years, reading this thread full of investors who clearly don't have a deep understanding of the ecommerce game, is particularly illuminating.

 

It gives me a better perspective of how Mr. Market can get things wrong for long periods of time. Shopify is going to make $100B in revenue in ten years apparently. According to a "valueinvestor." Just... wow.

 

 

The most important thing is really- Shopify sells a tool. It's a nice tool, they do a good job of marketing that tool, it's a well known quality tool. But it's just a tool. The engine to any ecommerce business is web traffic, or customers. Cost of customer acquisition makes or breaks you.

 

Shopify provides no way to gain attention, they have no retail customers. Speaking on behalf of ecommerce store owners, we are slaves to the platforms where the customers hangout. Slave to Facebook, slave to Instagram, slave to Pinterest, slave to Google, super-slave to Amazon. I sell on Amazon, if I wanted to switch to another platform, I would have to entirely rebuild my marketing strategy and core business model. THAT is what high switching costs look like. THOSE businesses are truly valuable, and deserve rich valuations.

 

Shopify does not have truly high switching costs for us ecommerce sellers. They really do not have as much pricing power as investors think, and a large % of their customer base is relying on supply chains that have been permanently disrupted due to Covid. This is a dangerous time to invest in this company IMO, unless the purpose is pure speculation over the short term.

 

If you look at Shopify as a company that sells a tool, then your analysis makes sense. However, it's like saying Apple sells phones, and Netflix rents videos.

 

You are completely dismissing the possibility that Shopify will become an integral tool for all omnichannel providers and possibly the only tool. Shopify's R&D budgets are essentially the size of its next largest competitor's revenues.

 

Even, Amazon has closed their "webstore" services and recommended people to use Shopify.

I'm not sure what e-commerce business you ran - but am I safe to assume you started with a dropshipping website and turned into an FBA store (I guess because you were mentioning the importance retail customers on these platforms)? If you're basing your investment thesis on this, then it's heavily flawed.

 

Businesses, especially small businesses will need to have e-commerce in the future, and when they choose which platform to use - I'll argue Shopify is the only option out there for them. In order to gain customer attention, they will use other advertisers to run traffic to their store.

 

At the end of the day, I may not be right that this could be a $100B revenue-generating company in ten years. However, I'm sure it's wrong to base your investment opinion because Shopify is just a "tool". Unless you believe 100% of e-commerce transactions will only go through Amazon, then I wouldn't agree with you.

 

+1. Shopify is now the 2nd largest company in Canada by market cap, passing TD Bank today -- behind only the Royal Bank of Canada.

 

I believe the attached is driving the current momentum. Not sure how long this will last.

Ouch! History is hasn't been kind to Canadian companies that shot to the top of market cap list and weren't a bank.

 

I know! :P

 

I've been burned before by investing in Valeant - so maybe you should render all my opinions as a zero for that fact alone haha.

 

To justify it at today's valuation - in ten years it has to do about $100B in revenues, which I believe it can if it issues stocks at highs and invest in long run-way projects that could be huge winners.

 

It's a great company, no doubt.

 

But 10 years is a long time to wait to justify today's valuation. What's your discount rate?

 

 

Not exact as I did a simple one in my head but I used a discount rate of 10%.

 

Ending Remarks:

 

Please note that I just offered my opinion, not making a recommendation or no way shape or form saying this is a value investment. This stock can well be expensive if they don't hit their targets. Once they don't hit their targets, then this will most likely go down so fast.

 

No I didn't run a dropshipping business and I'm not doing Amazon FBA lmao. If you seriously think Shopify will ever be the ONLY tool for eComm sellers, you are extremely ignorant of the industry. You come off as pretty ignorant and very emotional. It's a bad combo for an investor, to be sure.

 

To repeat myself, the value lies in having a place where customers hang out. That's why Google Amazon and FB are valuable, they are where the customers hang out. That's extremely hard to replicate. Nobody hangs out on Shopify.com. All they really have that's valuable is a code base. Anybody can hire developers and create their own custom ecommerce solutions. Nobody can hire a developer to create a flow of customers. That's why they don't have pricing power.

[valueinvestor]

 

 

No I didn't run a dropshipping business and I'm not doing Amazon FBA lmao. If you seriously think Shopify will ever be the ONLY tool for eComm sellers, you are extremely ignorant of the industry. You come off as pretty ignorant and very emotional. It's a bad combo for an investor, to be sure.

 

To repeat myself, the value lies in having a place where customers hang out. That's why Google Amazon and FB are valuable, they are where the customers hang out. That's extremely hard to replicate. Nobody hangs out on Shopify.com. All they really have that's valuable is a code base. Anybody can hire developers and create their own custom ecommerce solutions. Nobody can hire a developer to create a flow of customers. That's why they don't have pricing power.

 

Interesting! :D

 

You're not doing dropshipping or FBA, so you essentially list your inventory on Amazon and handle all the logistics of getting and sending the product, as well as possible returns.

 

I hope you can lend me your expertise in the field because you're right I'm the last person who knows anything about coding.

 

1. What made you only decide to run your business on Amazon exclusively? I'm under the impression you're not listing anywhere else and have no plans to go into brick-or-mortar or e-commerce.

 

2. Why do you not use Amazon's Fulfilment Services?

 

3. What reasons does one want to start from scratch, when one can get the code for a nominal monthly fee? I know there are reasons but what to see your take on it.

 

4. Do you have plans to go beyond Amazon and possibly with your own e-commerce site? How would you go about choosing the right platform for you?

 

5. How do you the marketing for your Amazon storefront?

 

6. Do you think others who started from scratch with a Shopify store will branch out to do their own e-commerce in-house? Why would they not want to scale with Shopify? Especially when everything would be inter-connected?

 

7. Do you think most of the transactions will go through Shopify or would other retailers of the next decade will have a mix of Amazon, Facebook, Shopify, etc.?

 

8. What would impair the story that Shopify will effectively be the digital landlord for e-commerce websites, as Google is for search? Personally I think it's Siri, Alexa, Google, and any Voice Assistant (especially if paired with AI), as it is easier to order a Coke from Alexa, then going through an App.

 

9. How would you value Shopify?

 

I think these questions above with the right answer would help me see your side. I would love to hear an opposing view and know I'm wrong sooner, so I can sell sooner. Look forward to your insights.

[KCLarkin]

This shows how little you guys understand about ecommerce. How are you going to run an ecommerce business without relying on a platform like Google or Amazon? You have to have a way of getting customers. That doesn't negate the fact that it's still a business

 

Hmm... I think we are saying the same thing but just coming to different conclusions. Let's ignore Google, since Shopify doesn't compete with them.

 

If you are an Amazon seller, Amazon has all the power. They can increase their take rate, advertise competing products against yours, introduce an Amazon Basics knock-off, or give your listing to the lowest bidder. In other words, Amazon has the power to destroy you.

 

If you build an ecommerce site on Shopify, you can build your own brand and own your customers. If Shopify tries to kill you, you can easily move to a new platform. Shopify doesn't have the power to destroy you.

 

So, there are two different conclusions:

- Buy Amazon. They are the empire.

- Buy Shopify. They are the arms dealer to Rebels

 

Forced to choose, I'd buy Amazon. But the Shopify story has merit.

[jfan]

@valueinvestor, no doubt SHOP has a great business. I was curious, what price would you consider buying or selling today? $1,000? $5,000? $10,000?

 

Technically I would've sold years ago, but couldn't find a suitable candidate to replace the irrationally-priced speculative stock like Shopify - closest was Kinaxis (not sure if that's the case) so stuck with it.

 

Also my cost basis is around 350-400 EDIT: (after doubling down at 820 mark), but I was comfortable keeping it as I had a size-able cash position of 10%+.

 

So to strip away the complexity - if I had to buy Shopify at a price where I had to put a third of my capital, can never sell a share, have no overall cash cushion, where the other 2/3 is invested equally in cigar butts and compounders - it would be around $300 to $450 mark, maybe $500 (which are prices that were presented this year).

 

If I had to sell it and can't buy a share ever again - it would be around the $1800-2700 mark where there's nothing that impaired the growth going forward.

 

In between these two circumstances, there would be possibilities where I'm comfortable with prices right now. There are businesses within shopify as mentioned before, like the app store, distribution, AR, shopify capital, etc that can be very lucrative.

 

EDIT: As I'm willing to make a wager that COVID-19 provided some tailwind to their quarterly earnings, and retailers are considering which platform to choose to weather another possible pandemic.

 

Why did you choose Shopify instead of Kinaxis?

[valueinvestor]

Why did you choose Shopify instead of Kinaxis?

 

I don't understand Kinaxis' competitive advantages, as opposed to other solutions in the space. To keep it short.

[SHDL]

So, there are two different conclusions:

- Buy Amazon. They are the empire.

- Buy Shopify. They are the arms dealer to Rebels

 

My sense is that this narrative could well be a key part of what’s driving SHOP’s lofty valuation. The reasoning is that if you have a big long AMZN position and you’re looking to hedge the various business risks that come with Amazon being the big bad Empire, one way to do it is to buy some SHOP in case the Rebels win the war. This hedging behavior creates an extra demand for SHOP shares and results in a higher valuation than we might see in a hypothetical world without AMZN.

 

(No position in either at the moment.)

[valueinvestor]

 

 

No I didn't run a dropshipping business and I'm not doing Amazon FBA lmao. If you seriously think Shopify will ever be the ONLY tool for eComm sellers, you are extremely ignorant of the industry. You come off as pretty ignorant and very emotional. It's a bad combo for an investor, to be sure.

 

To repeat myself, the value lies in having a place where customers hang out. That's why Google Amazon and FB are valuable, they are where the customers hang out. That's extremely hard to replicate. Nobody hangs out on Shopify.com. All they really have that's valuable is a code base. Anybody can hire developers and create their own custom ecommerce solutions. Nobody can hire a developer to create a flow of customers. That's why they don't have pricing power.

 

Interesting! :D

 

You're not doing dropshipping or FBA, so you essentially list your inventory on Amazon and handle all the logistics of getting and sending the product, as well as possible returns.

 

I hope you can lend me your expertise in the field because you're right I'm the last person who knows anything about coding.

 

1. What made you only decide to run your business on Amazon exclusively? I'm under the impression you're not listing anywhere else and have no plans to go into brick-or-mortar or e-commerce.

 

2. Why do you not use Amazon's Fulfilment Services?

 

3. What reasons does one want to start from scratch, when one can get the code for a nominal monthly fee? I know there are reasons but what to see your take on it.

 

4. Do you have plans to go beyond Amazon and possibly with your own e-commerce site? How would you go about choosing the right platform for you?

 

5. How do you the marketing for your Amazon storefront?

 

6. Do you think others who started from scratch with a Shopify store will branch out to do their own e-commerce in-house? Why would they not want to scale with Shopify? Especially when everything would be inter-connected?

 

7. Do you think most of the transactions will go through Shopify or would other retailers of the next decade will have a mix of Amazon, Facebook, Shopify, etc.?

 

8. What would impair the story that Shopify will effectively be the digital landlord for e-commerce websites, as Google is for search? Personally I think it's Siri, Alexa, Google, and any Voice Assistant (especially if paired with AI), as it is easier to order a Coke from Alexa, then going through an App.

 

9. How would you value Shopify?

 

I think these questions above with the right answer would help me see your side. I would love to hear an opposing view and know I'm wrong sooner, so I can sell sooner. Look forward to your insights.

 

By the way, if anyone has an Amazon business like Orange - would love to hear your insights to the questions above.

 

Hopefully, Orange gets back to us. :)

[Orange]

 

 

Hmm... I think we are saying the same thing but just coming to different conclusions. Let's ignore Google, since Shopify doesn't compete with them.

 

If you are an Amazon seller, Amazon has all the power. They can increase their take rate, advertise competing products against yours, introduce an Amazon Basics knock-off, or give your listing to the lowest bidder. In other words, Amazon has the power to destroy you.

 

If you build an ecommerce site on Shopify, you can build your own brand and own your customers. If Shopify tries to kill you, you can easily move to a new platform. Shopify doesn't have the power to destroy you.

 

So, there are two different conclusions:

- Buy Amazon. They are the empire.

- Buy Shopify. They are the arms dealer to Rebels

 

Forced to choose, I'd buy Amazon. But the Shopify story has merit.

 

You are correct Amazon has a lot of power (certainly not all the power) and is aggressive in their Amazon Basics knockoff business. Aggressive to the point of being shady. High volume products that are trying to be the low cost provider, who have no special advantage in sourcing/manufacturing, are doomed on Amazon.

 

But what you are really talking about is true with all retailers who have loyal customer bases. Buffett talks about this at length in interviews. Costco’s generic Kirkland brand: Started in 1992. It does $39 billion a year. Versus Kraft, a collection of old iconic CPC brands with decades of marketing and share of mind, does $20 some odd billion. Retailers have unbelievable power.

 

 

 

Here’s what you don’t understand. Shopify’s value proposition is that they are an all in one tool for your ecommerce shop. Removing the hassle and barrier to starting a store. Their value prop is not about escaping the power trap of the major corporations that control the customers. Because whoever your traffic source is, that’s who has the power to destroy you. Shopify won’t save you from that. I know guys running Shopify stores that have been destroyed by rising Adwords cost, rising FB ad costs. FB likes to ban accounts in many health categories such as supplements for no reason. Someone will always have power over you in ecommerce when it comes to finding new customers.

 

Shopify’s value prop is easy to replicate, removing the hassle and barrier to starting a store is just a matter of building a code base. To be fair they do a great job at marketing their tool.

 

 

 

Also, Shopify isn’t the only place you can build a brand haha. You can most definitely build a brand on Amazon, and own the customer. That’s why people do “package inserts” and offer a “lead magnet” for people to get on an email list.

 

How exactly do you think ecommerce brands “own their own customers” ? The way you own the customer is to either have some direct way of communicating with them, or having share of mind. Both of those things can be accomplished on any platform where people aggregate. Social media, search engines, email lists, ecommerce platforms. Offline or Online, etc…

 

 

 

 

Of course Shopify as a business has merit. It's a nice business. The question of merit for the stock rests on valuation too though. Are they a good enough business to warrant a high valuation? Are they going to grow to $100 billion in revenue someday? (I’m laughing as I write that)

 

[Orange]

 

Interesting! :D

 

You're not doing dropshipping or FBA, so you essentially list your inventory on Amazon and handle all the logistics of getting and sending the product, as well as possible returns.

 

I hope you can lend me your expertise in the field because you're right I'm the last person who knows anything about coding.

 

1. What made you only decide to run your business on Amazon exclusively? I'm under the impression you're not listing anywhere else and have no plans to go into brick-or-mortar or e-commerce.

 

2. Why do you not use Amazon's Fulfilment Services?

 

3. What reasons does one want to start from scratch, when one can get the code for a nominal monthly fee? I know there are reasons but what to see your take on it.

 

4. Do you have plans to go beyond Amazon and possibly with your own e-commerce site? How would you go about choosing the right platform for you?

 

5. How do you the marketing for your Amazon storefront?

 

6. Do you think others who started from scratch with a Shopify store will branch out to do their own e-commerce in-house? Why would they not want to scale with Shopify? Especially when everything would be inter-connected?

 

7. Do you think most of the transactions will go through Shopify or would other retailers of the next decade will have a mix of Amazon, Facebook, Shopify, etc.?

 

8. What would impair the story that Shopify will effectively be the digital landlord for e-commerce websites, as Google is for search? Personally I think it's Siri, Alexa, Google, and any Voice Assistant (especially if paired with AI), as it is easier to order a Coke from Alexa, then going through an App.

 

9. How would you value Shopify?

 

I think these questions above with the right answer would help me see your side. I would love to hear an opposing view and know I'm wrong sooner, so I can sell sooner. Look forward to your insights.

 

I sell merchant fulfilled and have a business partner that handles logistics, for a cut. My products are small and there are few returns.

 

1. I decided on Amazon because they have the best customer base. Amazon customers are ready to buy, they convert like crazy. It’s a huge lucrative traffic source. They are the biggest search engine for products. But I do have plans to go brick-or-mortar someday. Coronavirus has put those plans on hold

2. Merchant fulfill greatly simplifies inventory for me. I sell a large number of SKU's with intermittent demand. Amazon's long term storage fees make inventory management too difficult for my particular business model.

3. There is really no great reason to start a business from scratch with your own code base unless you are a developer yourself. Existing sellers may want customized solutions though, and more flexibility. Magento offers more flexibility for example.

4. I plan to go brick and mortar. I have no plans of starting my own ecommerce site because it takes so much work to optimize both the site and the traffic source. If I were to run traffic outside of Amazon, there is great benefit in driving the customers to your Amazon listings, because this will cause you to rise in the search rankings on Amazon, which helps you get even more sales on Amazon, creating a flywheel effect.

5. SEO (search engine optimization) and PPC (Pay Per Click) Advertising.

6. Once you start to really scale, there are a lot of really minor tweaks and AB testing that you can do that might really help your bottom line. Ecommerce margins are tight. Decreasing a cost by even just 0.5% could actually have a serious impact on your bottom line. Also, Shopify transaction fee isn’t the cheapest. If you are doing $10 million a year in sales, these things start to really matter. Search “Shopify vs Custom Ecommerce Reddit” on google to read what people in the ecomm game are saying

7. I don’t quite understand the question. I’m also not qualified to predict where global ecommerce transactions will be in 10 years, that is a very difficult thing to predict.

8. You do not need Shopify to get customers, or even start your store. If Shopify raised their prices, or tried to flex their power in any way, new and existing ecomm sellers could simply use a different tool. There is a whole community of people who build software tools, who would gladly provide a Shopify type service to compete with them if their prices became unreasonable. I maintain that SHOP does not have much pricing power.

9. I wouldn’t. I personally don’t want to own stock in a b2b software company that doesn’t have serious competitive advantages.

 

[KCLarkin]

It's a nice tool, they do a good job of marketing that tool, it's a well known quality tool. But it's just a tool. The engine to any ecommerce business is web traffic, or customers. Cost of customer acquisition makes or breaks you.

 

Not a valid thesis. Github is just a tool. AWS is just a tool. Adobe is just a tool. And Shopify belongs in that category of exceptional tools. I'm not saying the current valuation is justified -- but that is true for most growth stocks today.

[deadspace]

Orange,

I think googles move just solved the customer acquisition problem

 

And that’s why it’s hard to bet against Shopify this company has optionality in spades

 

https://stratechery.com/2020/the-anti-amazon-alliance/

 

[Orange]

It's a nice tool, they do a good job of marketing that tool, it's a well known quality tool. But it's just a tool. The engine to any ecommerce business is web traffic, or customers. Cost of customer acquisition makes or breaks you.

 

Not a valid thesis. Github is just a tool. AWS is just a tool. Adobe is just a tool. And Shopify belongs in that category of exceptional tools. I'm not saying the current valuation is justified -- but that is true for most growth stocks today.

 

Github is a community, not just a tool, they also only do $300 million in revenue. AWS is a tool, but they own major data centers, it's not a code base. Radically different customer base as well.

 

Adobe is perhaps the most similar, but they are b2c as well as b2b, their software is used by technicians not by people looking to save hassle and time. Plus their brands are so strong, they have become common words in the English language (eg Photoshop). And despite all this, being an industry standard for 20 years, they still only do $13 billion a year. Yet Shopify is going to do $100 billion someday. Yea ok.

 

 

These comparisons suck my man, it's lazy thinking on your end.

 

And honestly, when you dismiss my long and thought out reply with nothing more than a couple sentences and a bad analogy, it's just a waste of time. Makes you seem like a lazy a-hole who only wants others to confirm his opinions. I won't be revisiting this thread.

 

 

 

 

[Orange]

Orange,

I think googles move just solved the customer acquisition problem

 

And that’s why it’s hard to bet against Shopify this company has optionality in spades

 

https://stratechery.com/2020/the-anti-amazon-alliance/

 

"solved the customer acquisition problem" & "has optionality in spades" you guys are something else.

[KCLarkin]

Shopify’s value prop is easy to replicate, removing the hassle and barrier to starting a store is just a matter of building a code base. To be fair they do a great job at marketing their tool.

 

Shopify has 5000 employees. Why do you assume that "just building a code base" is easy? And how does a "code base" remove the hassle and barrier to starting a store? At a minimum, you need exceptional UX design on top of that code base. When Shopify needed more design talent, they bought the best independent UX agency in Toronto. These guys are exceptional -- I worked with them briefly.

 

And is Shopify's competitive advantage their code base or their ability to attract and retain top engineers and designers?

 

These are the questions you skip over when you dismiss them as "just a tool" or "just a code base".

 

So no, I don't need you to confirm my opinion. But I'm not sure why you are projecting your lazy thinking onto me.

 

 

 

[fareastwarriors]

“For the quarter, Shopify (ticker: SHOP) reported revenue of $470 million, up 47% from a year ago and well ahead of the Wall Street analyst consensus of $443.1 million. It reported a surprise non-GAAP profit of 19 cents a share; consensus had been for a loss of 18 cents a share. Gross merchandise value was $17.4 billion, up 46%.”

 

“The Ottawa-based company said new stores created on the Shopify platform grew 62% in the six weeks between March 13 and April 24 from the prior six weeks, “driven by the shift of commerce to online and by the extension of the free trial period on standard plans from 14 days to 90 days.”“

 

https://news.shopify.com/shopify-announces-first-quarter-2020-financial-results

 

 

 

 

Big surge in new stores due to Shelter in place order. Retailers who aren’t online yet realize they need to be to survive.

[Xerxes]

50+ sales multiple is highly concerning !

I will ask Prem to add Shopify on his list on the next 2020 letter to shareholders.

 

 

[valueinvestor]

Hi Orange,

 

Thanks for getting back to us, and providing your insight - it's super appreciated!

 

As for your answers, I agree with all of it with certain caveats. Amazon is going to be a beast of a online retailer, there's no doubt about it and it's why I have an equal allocation to Amazon and Shopify (or try to because the price action of Shopify is all over the place).

 

However, I think if I get to the core of your argument, you believe that those who control traffic source will control e-commerce. It's almost synonymous to me to saying who controls TV, Mail, Radio, News, Publications will control businesses, and for the most part, you're right. However many small businesses operate within their local markets without ever advertising on those channels and still thrive.

 

Secondly, paid traffic is not the only traffic source, consider Kylie Cosmetics (a Shopify store) that used organic traffic from her social media accounts to exit at a $1B valuation with Coty.

 

Reason why I'm still invested is because other e-commerce providers such as Magento, WooCommerce, BigCommerce, etc do not provide the same value that Shopify provides for SMBs. As you know many who have failed Shopify accounts because of rising ad costs or Shopify users who convert to other platforms because fees are high, I know many who convert back from other providers to Shopify.

 

Any chance you can provide more details on the fees, on a first hand look, and discussing those with Shopify stores doing more than $10M per year, the fees are actually reduced. Especially, if you're a Shopify Plus customer, so not too sure what you mean by huge e-commerce fees, unless you mean relative to other providers. This makes sense, because again Shopify provides (or will provide) a lot of value with their app store, AR capabilities, Shopify Capital, Shopify Exchange, 6 River Systems (Shopify Fulfiment Network - which I think is HUGE!), etc.

 

My bet is simply SMBs will make up a large part of the e-commerce world and therefore Shopify is the only provider that can take on that need in the most valuable and irreplaceable way possible. I'm not investing in it's code, but value of service and the cost to build a Shopify competitor.

 

Am I claiming I made an investment in Shopify because of my analysis of the numbers? No. However one can argue, most great analyst are not great investors.

 

What I'm saying it's eerily similar to the time where many said not to invest in Amazon because of the sales multiple, but I saw that Amazon had almost the same number of fulfillment centers as Wal Mart, in less than half the time - while Wal Mart did nothing. Funny enough I doubled down when Jeff Bezos mentioned AWS years before competition, and when they released AWS - many including Oracle (much to my surprise) still lagged in terms of growth in the sector.

 

So thank you for your insight - it's super appreciated - and if you anything new to get me to liquidate my position, it would be hugely welcomed! I thoroughly enjoyed your posts :D

 

50+ sales multiple is highly concerning !

I will ask Prem to add Shopify on his list on the next 2020 letter to shareholders.

 

Just to cherry-pick your post - not that my answer below reflect your views in anyway.

 

Yes, but how about 100X to InfinityX sales?

 

There are many instances where companies with zero revenues with amazing IP were home runs, such as WhatsApp, Instagram, Youtube, Android ($50 million dollar acquisition), etc.

 

Update:

 

However the only hole I see with Shopify is again with voice, I believe that voice will be a more dominant part of our daily lives. Hence, if Shopify does not integrate that capability, I can see a future where Shopify would be worth 99% lower from today's prices.

[Kaegi2011]

What I'm saying it's eerily similar to the time where many said not to invest in Amazon because of the sales multiple, but I saw that Amazon had almost the same number of fulfillment centers as Wal Mart, in less than half the time - while Wal Mart did nothing. Funny enough I doubled down when Jeff Bezos mentioned AWS years before competition, and when they released AWS - many including Oracle (much to my surprise) still lagged in terms of growth in the sector.

 

There are many instances where companies with zero revenues with amazing IP were home runs, such as WhatsApp, Instagram, Youtube, Android ($50 million dollar acquisition), etc.

 

Valueinvestor - no position in the name, so appreciate your perspective. 

 

On the above two quoted pieces:

1) Given the dominance of AWS to Amazon's financials, how much do you think Amazon would be worth ex. AWS?  I ask because unless one could see a similar opportunity that's completely outside of core SHOP's vertical (and incredibly lucrative), I'm not sure Amazon would be a good comp if you believe an enormous portion of Amazon is AWS. 

 

2) Totally agree that a company doesn't need to generate a ton of revenue for it to be valuable to *someone* - in this instance, how do you think about take out valuation and who might potential suitors be?  In this instance, I think the business is similar to eBay a couple of decades ago (where I used to sell stuff I got for dirt cheap to make a spread and pay for my car in high school), except it's way more sophisticated.  So maybe here, one could point to Paypal as an example where a portion of their business today could be worth way more than the initial business.  But either way, I'm wondering how to value it for a potential acquiror.