I’ve been thinking about this for some time. The company had a great run, but I feel the market is a little too optimistic about it right now. I trust their technology, I trust the management, but I’m not completely sold on the business case and I’m afraid of the hype they are getting.
The problem with the business case is that it does not have a moat. They get called the “next Amazon” or the “next Facebook” but they are fundamentally different. Amazon has got a physical logistical network that is really hard to compete with. Facebook has got the user base. There’s none of that in Shopify’s business. No physical components to the business and the users (online retailers) don’t really care how many other users there are. What opened my eyes was when I talked to a developer a month ago who sets up web pages for small companies. I asked him if he had used Shopify for his last project and he said no - the customer was too small and Shopify’s price model did not make sense for him and there’s a lot of other options.
So here are the risks I’m seeing:
- SHOP has been so successful because it could barge into the ecommerce business without too much resistance - because there is no moat in it. Another one company could do the same…
- the company is still not profitable
- it may have captured a lot of the ecommerce business quickly, but there will come a point of time when the space is saturated and the fight for new customers becomes hard
- the hype around SHOP is high and the stock price reflects it
Given this, I’m going to sell a portion of my shares. It’s a good company doing well in a dificult business but right now the share price is out of synch with the risks…