SHOP - Shopify

[valueinvestor]

1. None. Maybe AR and Shopify Fulfilment, which I believe is outside their vertical as they’re an e-commerce company. AWS wasn’t the reason why I initially invested in Amazon and you’re right it’s not a right comp to make a point. However I don’t think I made a point saying the set up with AWS is the same as now with Shopify, as they are still growing their core business.

 

2. Absolutely nothing at this point. I don’t see any hidden assets, as it were but that point was merely to cherry pick Xerxes posts. If it helps, I think the take out valuation is $1B in a worst case scenario to $10B, but possibly more with other acquirers like Google who are also trying to get into the space with their acquisition of SquareSpace.

 

Overall, I do see a potential for a hidden asset to be produced within this hub of innovation, I just don’t know what - I’ve invested in this despite my DCF saying no because it’s provides a valuable service that will grow with time and pandemics. :)

[Xerxes]

valueinvestor,,

 

I missed Shopify after years of not following it. Right in my backyard. i.e. I am Canadian.

I missed Amazon after years of following it .. but finally did bought it 2017 with an average cost $900 USD. Still hoping to add to it and still ashamed of not getting into it when Bezos got a re-rating due to AWS back in 2013-14.

 

I am hoping lightspeed (which I own) will benefit from that secular shift. I think risk-reward is better on a no-name like lightspeed than a fully valued peach like Shopify for new entrants. The ones that I really like to get into meaningfully are Mercadolibre, Paypal. 

[Jurgis]

I am hoping lightspeed (which I own) will benefit from that secular shift. I think risk-reward is better on a no-name like lightspeed than a fully valued peach like Shopify for new entrants. The ones that I really like to get into meaningfully are Mercadolibre, Paypal.

 

Do you want to open a thread for LightSpeed?

[arcube]

I am hoping lightspeed (which I own) will benefit from that secular shift. I think risk-reward is better on a no-name like lightspeed than a fully valued peach like Shopify for new entrants. The ones that I really like to get into meaningfully are Mercadolibre, Paypal.

 

Do you want to open a thread for LightSpeed?

 

Great idea.

[valueinvestor]

valueinvestor,,

 

I missed Shopify after years of not following it. Right in my backyard. i.e. I am Canadian.

I missed Amazon after years of following it .. but finally did bought it 2017 with an average cost $900 USD. Still hoping to add to it and still ashamed of not getting into it when Bezos got a re-rating due to AWS back in 2013-14.

 

I am hoping lightspeed (which I own) will benefit from that secular shift. I think risk-reward is better on a no-name like lightspeed than a fully valued peach like Shopify for new entrants. The ones that I really like to get into meaningfully are Mercadolibre, Paypal.

 

You maybe right. History is not kind to Canadian companies that climb to Canada's most valuable company that's not a bank. At the moment, my trigger finger is itching to sell. What's keeping me is probably my bias when I traded around AMZN, when I missed a large portion of my returns by not sitting and doing nothing. Also to repeat myself, I do not think Shopify is not the NEXT Amazon.

 

Now that's out there - I also believe there are reasons why Shopify is the exception to the "curse." If this was in Silicon Valley, then no one would really worry about the frothy valuation.

 

However since I do not think this will go bankrupt in twenty-five years, I decided to keep my position, however out of good sense or irrational emotion, I may quickly liquidate my entire position.

 

Upside and optionality is through the roof, but also the downside is quite steep, imho. Business could be growing but headline risk with this name can be real - short seller report, scandal, etc.

[Guest roark33]

Shopify with a secondary. 

 

 

We are on the outside, they are on the inside....draw your own conclusions...

 

[Xerxes]

Smart move.

 

A secondary share sale while it has a valuation higher than RBC, but with a fraction of its sales.

[CorpRaider]

Since you like the stock so much, Toby will sell you some.

[fareastwarriors]

Smart to raise cash here. Lots of capital needed for new fulfillment centers.

[Gregmal]

I cant help but get even more bearish when tell tale signs of euphoria include justifying valuations of companies like SHOP, BYND, and PTON. Oh yea, and we've gotten past the point of even questioning TSLA...

[valueinvestor]

I cant help but get even more bearish when tell tale signs of euphoria include justifying valuations of companies like SHOP, BYND, and PTON. Oh yea, and we've gotten past the point of even questioning TSLA...

 

Same. Especially with the economy - it’s wack. Things are getting worst and yet stock market is up.

[jschembs]

I cant help but get even more bearish when tell tale signs of euphoria include justifying valuations of companies like SHOP, BYND, and PTON. Oh yea, and we've gotten past the point of even questioning TSLA...

 

Is this sarcasm?

[Gregmal]

I cant help but get even more bearish when tell tale signs of euphoria include justifying valuations of companies like SHOP, BYND, and PTON. Oh yea, and we've gotten past the point of even questioning TSLA...

 

Is this sarcasm?

 

No its legit. I get what you're referring to. I do amuse myself when value folks who have been both arrogant/condescending and wrong for a decade continue to be made to look like fools when their favorite "no brainer" shorts continue to skyrocket, even during times when "value" is supposed to be outperforming...but this is real. ANYTHING, internet related or fad related is going bonkers and it just isn't healthy or rational.

 

While I do think valuations should be higher than most think, I also cant process blue chip RE firms trading at 10-12% cap rates with 0-1% treasuries/private market sales going off at 4-6% cap rates, and single digit PE's on systematically integral companies who are buying back stock and paying dividends while fantasy land business ventures are trading at 50-100x sales and insiders and selling/raising cash like there's no tomorrow. Something has to give and personally, I know what I would own...

 

This maybe be the incognito blow off top everyone was looking for 3 months ago.

[deadspace]

For all the traditional Ben Graham value folks here who can’t contain their disgust at Shopify honestly I feel for you.  But could it be that you are looking at some of these companies in a one dimensional fashion

And for all the talk of long term investing that is the value investors playbook- the disgust here ignores the long term. 

Why not raise some cash at these valuations.  If it can be used to build out the fulfilment network that will strengthen the Shopify moat. What is wrong with that.  If the valuations are crazy then why not raise cash - that’s value accretive not destructive. 

 

And what if this moat gets stronger.  What would you pay for the operating system for new business creations.  A business that can extract a small slice of the entrepreneurial value of all the great human ideas that have still not been created into a business?  What’s that worth ?  What’s it worth when there are no competitors and this large market is theirs to take ?

 

Ben Graham had some cool ideas.  But this almost religious attachment to what value should look like is not helpful to making great investments.    Where has it lead you    - Airlines?

 

I suspect the Shopify share price will be cut in half shortly

 

I don’t care.  I still did much better than the airlines .....

 

 

Ok.  My rant is done.  Cue the necessary ridicule

[valueinvestor]

For all the traditional Ben Graham value folks here who can’t contain their disgust at Shopify honestly I feel for you.  But could it be that you are looking at some of these companies in a one dimensional fashion

And for all the talk of long term investing that is the value investors playbook- the disgust here ignores the long term. 

Why not raise some cash at these valuations.  If it can be used to build out the fulfilment network that will strengthen the Shopify moat. What is wrong with that.  If the valuations are crazy then why not raise cash - that’s value accretive not destructive. 

 

And what if this moat gets stronger.  What would you pay for the operating system for new business creations.  A business that can extract a small slice of the entrepreneurial value of all the great human ideas that have still not been created into a business?  What’s that worth ?  What’s it worth when there are no competitors and this large market is theirs to take ?

 

Ben Graham had some cool ideas.  But this almost religious attachment to what value should look like is not helpful to making great investments.    Where has it lead you    - Airlines?

 

I suspect the Shopify share price will be cut in half shortly

 

I don’t care.  I still did much better than the airlines .....

 

 

Ok.  My rant is done.  Cue the necessary ridicule

 

If anyone ridicules you, then they are ridiculing themselves in my mind.

[thepupil]

I’ll ridicule myself a bit.

 

I think what is wild is the degree of risk aversion in some securities and the complete pass that tech/internet/cloud gets.

 

Some are debating recession or depression, but don’t tell that to these companies.

 

Twilio went up 40% yesterday on earnings. It now trades for 1.5x Berry Plastics on an unlevered basis ($23 billion versus $16 billion). Twilio is supposed to do about $2.4 billion of sales in 2022. Berry should do $2.2 billion of EBITDA.

 

Of course one doesn’t have to pay $16 billion for Berry because the debt market will lend you $11 billion at low rates so you only put up $5 billion and earn a a very high free cash flow yield. The debt market is willing to lend to Berry because it makes money.

 

I’m not saying Berry is without risks. It has high financial leverage; it’s a roll up; people hate plastics and think they destroy the earth; volume growth is anemic; I am not saying that Berry is a sure thing. But the market is saying “Berry is risky” and has demanded a 14-20% free cash flow yield recently” whereas some things in Silicon Valley require a meager 2-10% forward sales yield.

 

How long term do we need to be to prefer Twilio to Berry, when will Twilio generate a similar free cash flowto its equity? When will it generate $2-4 billion of free cash flow?

 

2030?

 

2035?

 

Is the market being long term by loving these businesses? Or is it just rewarding short term sales and earnings momentum to an outsized degree?

 

I don’t think you have to have owned airlines (or skyscrapers in NYC) to be a bit...disgusted/befuddled/confused/amused/anxious by it all.

 

[thepupil]

JPMorgan on TWLO on May 1st:

 

Overall, we continue to believe the combination of large TAM, reduced customer concentration, and superior technology versus competitors distinguishes Twilio as an attractive asset over the long term. However, our enthusiasm is tempered by its current valuation

(~10.3x EV/CY20E revenue) and the near-term COVID-19-related headwinds Twilio faces with a likelihood of very sharp Q2 contraction across Q3 messaging/voice/email from customers such as Uber, Lyft, Airbnb, OpenTable, Booking.com, and a broad base of retailers and restaurants among others, potentially offset by increased usage for communication platforms such as WhatsApp (our recent downgrade note here highlights our thought process).

 

It’s May 8th, the stock is up 70% from when that was written.

 

EDIT: just so it's clear, I have not been long crap and short growth and that is not the source of my...not sure what to call...bitterness would potentially be too strong a word. I'm not pulling an Einhorn and going long Brighthouse and Aercap and shorting TSLA and TWLO and SHOP. I don't love to incinerate capital. I am long some crap, but don't really short.

[Jurgis]

FYI, Motley Fool Rule Breakers hype pretty much all of the suspects mentioned upthread. Not sure how much influence they have, although I've seen couple companies jump 10%+ when they are recommended by MF RB. And clearly they hype the stock performance numbers (XXX baggers) all the time.

 

I was thinking about (somewhat blindly) buying MF RB recos, but it's tough for someone who tries to look at valuations. I have tiny positions in some MF RB recos.

[Xerxes]

For all the traditional Ben Graham value folks here who cant contain their disgust at Shopify honestly I feel for you.  But could it be that you are looking at some of these companies in a one dimensional fashion

And for all the talk of long term investing that is the value investors playbook- the disgust here ignores the long term. 

Why not raise some cash at these valuations.  If it can be used to build out the fulfilment network that will strengthen the Shopify moat. What is wrong with that.  If the valuations are crazy then why not raise cash - thats value accretive not destructive. 

 

And what if this moat gets stronger.  What would you pay for the operating system for new business creations.  A business that can extract a small slice of the entrepreneurial value of all the great human ideas that have still not been created into a business?  Whats that worth ?  Whats it worth when there are no competitors and this large market is theirs to take ?

 

Ben Graham had some cool ideas.  But this almost religious attachment to what value should look like is not helpful to making great investments.    Where has it lead you    - Airlines?

 

I suspect the Shopify share price will be cut in half shortly

 

I dont care.  I still did much better than the airlines .....

 

 

Ok.  My rant is done.  Cue the necessary ridicule

 

 

Deadspace,

 

I may be wrong, but notwithstanding the name of this forum, I don't think you will find many folks who only have FFH or only have BRK in their portfolio. Most folks who hold FFH / BRK do also have a healthy dose of technology companies in their portfolio. Not all by most. That to me means that there are no hard core follower(s) Benjamin Graham.

 

Yes, we got some die hard Buffetism and Mungerism going on here … but Grahaminism I doubt it.

Nor have I seen Watsasim, though I feel sometimes there is a bit of Flettism.

 

just my impression.

Folks may post a disproportionate amount of posts on FFH and BRK, just because they are interesting to follow to learn what to do and what not to do. But not because they got 

99% of their wealth tied up entirely in FFH or BRK. Though on the latter I think I have heard some people who do. So may be wrong.

[valueinvestor]

I’ll ridicule myself a bit.

 

I think what is wild is the degree of risk aversion in some securities and the complete pass that tech/internet/cloud gets.

 

Some are debating recession or depression, but don’t tell that to these companies.

 

Twilio went up 40% yesterday on earnings. It now trades for 1.5x Berry Plastics on an unlevered basis ($23 billion versus $16 billion). Twilio is supposed to do about $2.4 billion of sales in 2022. Berry should do $2.2 billion of EBITDA.

 

Of course one doesn’t have to pay $16 billion for Berry because the debt market will lend you $11 billion at low rates so you only put up $5 billion and earn a a very high free cash flow yield. The debt market is willing to lend to Berry because it makes money.

 

I’m not saying Berry is without risks. It has high financial leverage; it’s a roll up; people hate plastics and think they destroy the earth; volume growth is anemic; I am not saying that Berry is a sure thing. But the market is saying “Berry is risky” and has demanded a 14-20% free cash flow yield recently” whereas some things in Silicon Valley require a meager 2-10% forward sales yield.

 

How long term do we need to be to prefer Twilio to Berry, when will Twilio generate a similar free cash flowto its equity? When will it generate $2-4 billion of free cash flow?

 

2030?

 

2035?

 

Is the market being long term by loving these businesses? Or is it just rewarding short term sales and earnings momentum to an outsized degree?

 

I don’t think you have to have owned airlines (or skyscrapers in NYC) to be a bit...disgusted/befuddled/confused/amused/anxious by it all.

 

To be fair - it's not ridicule. A fair take on the Market's valuing system.

[thowed]

I cant help but get even more bearish when tell tale signs of euphoria include justifying valuations of companies like SHOP, BYND, and PTON. Oh yea, and we've gotten past the point of even questioning TSLA...

 

This is really interesting to hear - it's much more valid to me coming from you than those who have one viewpoint.

 

There is a lot of profitable, high-quality stuff around which is conventionally expensive at P/Es of 20 or so (though maybe not so expensive on nothing interest rates), but I'd much rather own this than these crazy new-gen hype stocks.

 

For those who remember 1999, I think one has to consider how many tech stocks made it on 'potential' i.e Amazon and ...., and how many fell by the wayside.  So I'm sure one or two of these will make it, but knowing which one is a dart-throwing exercise.

 

 

[Liberty]

Podcast interview with Tobi:

 

http://investorfieldguide.com/tobi-lutke-building-a-modern-business-invest-like-the-best-ep-173/

[valueinvestor]

Podcast interview with Tobi:

 

http://investorfieldguide.com/tobi-lutke-building-a-modern-business-invest-like-the-best-ep-173/

 

Ty liberty!  ;D

[bizaro86]

single digit PE's on systematically integral companies who are buying back stock and paying dividends

 

I have a number of RE names that fit your criteria, but am curious what you have that fits the criteria I've quoted. Things like Visa are still very much higher than 10x earnings, but I'm probably missing things...

[valueinvestor]

Few developments that stopped me from trimming position and even adding when it went down 4%.

 

Facebook shop is run on the Shopify platform. Facebook will not receive any fees transaction fees or management fees, as Facebook will rely on the ad spend for the shop platform.

 

Cryptopayements - world largest cryptocurrency payment processor renewed their partnership with Shopify.

 

Facebook cryptocurrency Libra is still back on board with Shopify.

 

Not to mention there’s other features such as Shopify Pay, Capital, Local Delivery, etc.

 

Revenue growth will be firing on all cylinders for next year I anticipate, but do your own due diligence. Cost basis is low for me, but getting higher and higher - secondly I’m ironically not happy about the recent rise because most of the time it signals an impending drop. However I’m not one to sell based on patterns.