SHOP - Shopify

[valueinvestor]

Down 8%

[valueinvestor]

Down about 20% for the last two days, not sure if it went back up again, but could be a buying opportunity or a possible break of Shopify's multi-year rally.

[KJP]

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.

 

 

Here's one person's view that Facebook Shop could be a problem for Shopify:  https://stratechery.com/2020/platforms-in-an-aggregator-world/

 

Key paragraphs:

 

Shopify’s original business model is labeled “Subscription Solutions”; merchants pay a subscription fee to use the Shopify platform — the price ranges from $29 to $299 per month — and can use the payment provider of their choice. When Shopify IPO’d Subscription Solutions was 60% of their $67 million in quarterly revenue.

 

Over the last five years, though, “Merchant Solutions” — which are a percentage of transactions, usually from using Shopify Payments — has been the primary growth driver. Last quarter it was Merchant Solutions that was 60% of Shopify’s $470 million in quarterly revenue.

 

This shift in Shopify’s business model is almost certainly why the company appears to be uncomfortable with this evolution of their “partnership” with Facebook. Sure, Facebook Shop integration will be a feature of Shopify’s Subscription Solutions, but Shopify will be locked out of sales made via Facebook Checkout, which means no Merchant Solutions revenue, and by extension, no participating in the upside of its merchants’ growth.

 

 

[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.

 

 

Here's one person's view that Facebook Shop could be a problem for Shopify:  https://stratechery.com/2020/platforms-in-an-aggregator-world/

 

Key paragraphs:

 

Shopify’s original business model is labeled “Subscription Solutions”; merchants pay a subscription fee to use the Shopify platform — the price ranges from $29 to $299 per month — and can use the payment provider of their choice. When Shopify IPO’d Subscription Solutions was 60% of their $67 million in quarterly revenue.

 

Over the last five years, though, “Merchant Solutions” — which are a percentage of transactions, usually from using Shopify Payments — has been the primary growth driver. Last quarter it was Merchant Solutions that was 60% of Shopify’s $470 million in quarterly revenue.

 

This shift in Shopify’s business model is almost certainly why the company appears to be uncomfortable with this evolution of their “partnership” with Facebook. Sure, Facebook Shop integration will be a feature of Shopify’s Subscription Solutions, but Shopify will be locked out of sales made via Facebook Checkout, which means no Merchant Solutions revenue, and by extension, no participating in the upside of its merchants’ growth.

 

Thanks for this! I was under the impression Facebook would not be entitled to any of the merchant fees, but looks like I'm wrong! Although it does not change the overall thesis, since Facebook Shop is a bonus and not the core.

[valueinvestor]

www.barrons.com/amp/articles/shopify-stock-jumps-on-walmart-deal-51592237606

 

Shopify Walmart Partnership

[Liberty]

Pretty insane numbers:

 

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

[valueinvestor]

Pretty insane numbers:

 

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

 

Thanks! Didn't know they announced, thought they were going to next month for some reason.But yeah crazy numbers, but I think the even insane numbers are not out yet.

[fareastwarriors]

Pretty insane numbers:

 

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

 

Thanks! Didn't know they announced, thought they were going to next month for some reason.But yeah crazy numbers, but I think the even insane numbers are not out yet.

 

What do you mean?

[valueinvestor]

The company is changing quarter-by-quarter, and therefore when forecasting one has to take account the value ladder and flywheel effect that a Shopify customer goes through when hopping on their platform.

 

For example -

 

Shopify customer comes on to the platform ----> they grow ----> they start purchasing other services from Shopify/Shopify Apps, even though it's more expensive then competitors, it's easier to integrate and therefore more valuable ----> they start upgrading their subscription plan ----> eventually become shopify plus ----> and also possibly eligible for Shopify Shipping.

 

On the other hand, Shopify has more data, where they can refine services such as Shopify Capital, where they can  make loans based on a data-driven underwriting process.

 

If one goes through past financials and used their services (while using the competiton's services), they'll realize that even though revenues was growing at a fast pace, the value provided to shopify customers grew way faster. Even during the years where Shopify declined due to the short report and slowing revenue growth, many people didn't realize that they weren't focus on Revenue but rather Value. This is more important in my book, and the number of users they were able to on-board, while obtaining a wider talent pool due to the US - makes me think that the platform became even more valuable. However to the credit of other posters, it's hard to quantify the above and reach a fair valuation. 

 

 

[jschembs]

Just flipped through the Q2 presentation. Their discussion of financials ends at 'adjusted' gross profit.

 

I can't imagine a more perfect storm for e-commerce businesses relative to other sectors than Q2 2020 / COVID. I know "investing for growth," but you'd think there might be a little more discussion about cash flow and profits...

[valueinvestor]

It’s hard to discuss about CF, when there’s really none. They’re not out of the weed work in terms of dominance and there’s a lot of CAPEX associated. Especially with the number of initiatives they are rolling out that requires huge capital and stock issuance.

 

If we stop the growth and tried to extract cash from the business, it would be $50-200M tops?

 

 

[valueinvestor]

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

Blowout quarter and down 4-5%.

 

Bittersweet, as I thought it would lead to higher returns and hence bought more before the earnings. However, it seems that the market is becoming more rational about future prospects. However, their future looks brighter than ever - it's just that downside is quite large in my view.

 

Still holding, but may trim to fund other positions.

 

 

[villainx]

What does Shopify do exactly?  I googled a bunch but what or why is it amazing/game changing? 

 

It's like sort of like eBay, right? 

[clutch]

What does Shopify do exactly?  I googled a bunch but what or why is it amazing/game changing? 

 

It's like sort of like eBay, right?

 

Much better than Ebay. It actually helps you build a stand-alone website for retailers. They can customize UI, navigation, features, etc. The stand-alone websites look MUCH better and it can give a proper identity for retailers, unlike Ebay stores where you are still presented as part of the Ebay website.

[valueinvestor]

I view it more of a data-hub than an e-commerce builder. Being able to access merchant's data and also the consumer data offline and online can create a large moaty business. Especially with the partnerships with Facebook, Walmart, Tik Tok, possibly youtube and more - this just adds to it.

 

Quite Ridiculously expensive at 300x earnings, and it's one scandal or black swan event away from going down 90%+.

 

However, the prospects are quite bright and I don't see a real reason why I should sell it, maybe trim it, as it becoming a significant part of my portfolio.

 

Anyways, ebay and other possible competitors are just not in their league and if they decide to go the same route, I find it difficult to see them catching up.

[Liberty]

What does Shopify do exactly?  I googled a bunch but what or why is it amazing/game changing? 

 

It's like sort of like eBay, right?

 

They provide easy-to-set-up-and-use infrastructure to retailers, basically.

[fareastwarriors]

I view it more of a data-hub than an e-commerce builder. Being able to access merchant's data and also the consumer data offline and online can create a large moaty business. Especially with the partnerships with Facebook, Walmart, Tik Tok, possibly youtube and more - this just adds to it.

 

Quite Ridiculously expensive at 300x earnings, and it's one scandal or black swan event away from going down 90%+.

 

However, the prospects are quite bright and I don't see a real reason why I should sell it, maybe trim it, as it becoming a significant part of my portfolio.

 

Anyways, ebay and other possible competitors are just not in their league and if they decide to go the same route, I find it difficult to see them catching up.

 

What do you think about BigCommerce?

 

Are they a viable competitor?

[valueinvestor]

It's too early to tell. However, Shopify's flywheel philosophy paired with billions spent on R&D over 5 years is quite hard to catch up with only 100M in revenues. It is a possibility if BigCommerce issues stock on new highs, raises capital and burn it all to catch up but it seems to be foolish - as they can both exist and carve out specific niche.

[valueinvestor]

To illustrate my point above, R&D spend for this year is 5x more than BigCommerce's entire revenue.

[Simba]

I own the Canadian iShares Technology ETF (XIT-T) to own Shopify indirectly.

 

It's about 28% SHOP, 25% CSU-T, 17% CGI, 12% OTEX, and the rest is others. 61 bps management fee.

 

SHOP is growing crazy fast... who knows how many years (or decades) this lasts for.

 

I've never taken a deep dive into $SHOP, but it's likely one of those misunderstood companies (As was the case for much of tech , e.g. -> $NFLX, $AMZN, etc.)

 

Tobi seems like a smart guy, still very young. These owner operator companies can really go high (e.g. Bezos / Musk)

 

[Sportgamma]

It's a beautiful business model, no doubt about it. But it is hardly misunderstood. Shopify has gone from trading at a price to sales ratio of 15 to 45 in less than two years. I'd say the Shopify thesis is plenty understood by now...

[valueinvestor]

That's my worry. @ 15x sales - more than triple Amazon at the time - it was hard to stomach yet if I sold on overvaluation - I would've lost a significant amount of returns. The only reason I can find to sell is overvaluation, Tobias is young and maybe it's confirmation bias but reminds me of Bezos.

 

The fact that he is not concentrating on M&A and focus on core competencies, where markets are producing pockets of opportunities is noteworthy (although I attribute it to my confirmation bias). It's hard to say no - I still salivate when I see Fairfax Financial, Brookfield, Wells Fargo, Graftech, Scully Royalty, Aercap, American Eagle, etc are trading at.

 

Orange provided a good (not necessarily agreeable) contrarian view (I encourage to take a look) in prior posts - which is that business can only be done in the walled gardens in the future, hence Shopify is worth close to $1B versus $100B, IIRC - probably oversimplifying Orange's view. I wonder what Orange thinks now...

 

Call me hopeful, but I don't think the entire transaction of the future will only go through Google, Facebook, Amazon, etc. I don't think that's in the best interest of the people, especially with Anti-trust talks now.

 

If that's the case, then the only option is Shopify. How can anyone recreate what they have now, and catch with the possible innovations that are doing today?

 

Until I see that - then maybe I would trim or diversify on those two bets.

 

I have yet to see a Pepsi to Coke, or Mastercard to Visa with Shopify.

 

I may see an Overstock (a stretch in my mind) to Amazon, but that's about it.

[Sportgamma]

Call me hopeful, but I don't think the entire transaction of the future will only go through Google, Facebook, Amazon, etc. I don't think that's in the best interest of the people, especially with Anti-trust talks now.

 

If that's the case, then the only option is Shopify. How can anyone recreate what they have now, and catch with the possible innovations that are doing today?

 

Until I see that - then maybe I would trim or diversify on those two bets.

 

I have yet to see a Pepsi to Coke, or Mastercard to Visa with Shopify.

 

Why is Shopify the only option? Shopify is not aggregating data (a la Google and Facebook) or inventory (a la Amazon). Shopify is not an intermediary between the consumer and the merchant. In fact, one of the biggest value that Shopify brings to the table for merchants is that it is easy for them to integrate and optimize through those platforms.

 

The biggest risk, that I think is often overlooked when analysing SHOP, is that they seem to be destined to lose their most successful customers. Shopify is an amazing and totally unrivalled product if you are starting out and you want to hit the ground running. It's also very good if you are a brick and mortar retailer who is trying to integrate eCommerce to your existing business model.

 

Imagine there is a new emerging category in online retail. 1,000 startups launch through Shopify. By the nature of search engine optimization and other factors, outgrow the rest by orders of magnitude. Being on Shopify, is not going to give any of those 10 competitors any competitive advantage. At this stage, things like page loading speeds are starting to critically matter, because the top 3 places in Google searches are going to give 10 times more traffic than the places below.

 

The needs of these companies are going to outgrow the commoditized nature of the Shopify business model. Not saying that Shopify is not a great product or that SHOP cannot become a $500 billion company in the future. Just saying that at $112 billion in market cap, an awful lot of expectation is already priced in.

 

 

[Jurgis]

The only way Shopify goes from 112B to 1T (or even likely 500B) is if they do AMZN and start capturing adjacent and not-so-adjacent markets. This is not so easy to do without diworsifying. They are doing this somewhat with logistics, delivery-by-Shopify, etc. They could provide tools for merchants that grow out of their base product and continue to capture successful large® businesses. There might be other things that I don't see right now. Seeing them is not easy, so we'll see whether Tobi is Bezos or not.  8)

[clutch]

Not sure if this article was shared:

https://stratechery.com/2019/shopify-and-the-power-of-platforms/

 

I do agree with others that it's harder to identify the stickiness in the Shopify platform that other trillion dollar tech businesses have.