Citron legal disclaimer

From the Legal Disclaimer page of Citron.

“Citron Research does not guarantee in any way that it is providing all of the information that may be available. We recommend that you do your own due diligence before buying or selling any security.”

By not “providing all the information available” Left can say pretty much what he wants to mislead - for his benefit.


I am wondering why everyone is so upset over this Left thing. Really! Stocks go up, stocks go downs and most here say they plan on holding for years. The stock will move back up or move back down depending on future results Left or no Left and end up at the very same place it was going to end up anyways. The Left thing is just static and noise in the scheme of things on that way to that end point.

If you liked it at $120 it is much better at $90. That is unless you are in margin (And there is a margin call) or in stock options that this move destroys. But for those long, and holding long-term, why is everyone so upset?

Left produced some half-truths, but the gist of what he was talking about in terms of customer quality has been known for weeks or months (I found out about it well before Left). It allows you to learn more about the company.

I was happily surprised to find that this site is a Shopify site:

I have only built one Shopify site, but it had the exact look and feel. And sure enough it is.

If a material chunk of merchants on SHOP are of this ilk (but much earlier in their development), by which I mean creating their own value, and not just arbitrage opportunities like drop shippers (and yes, that is a legitimate business, but there is no way it has the same value, growth potential, or sustainability long-term) then why worry at all?

We simply do not know. But this is the type of merchant SHOP’s company narrative is built around. Brick and Mortar shop turned internet vendor (and also happens to have, or had, some substantial TV advertising campaign to go along with it).

So which SHOP is SHOP? Probably both. For me it comes down to how predominant one is to the other to ascertain whether or not SHOP is overvalued or undervalued.



Couldn’t someone have said the same thing against eBay, that it’s a lot of tiny sellers, many of them using drop shippers to sell random merchandise? And they’re reading books like, “How to Get Filthy Stinkin’ Rich Selling on eBay.”

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<<<Couldn’t someone have said the same thing against eBay, that it’s a lot of tiny sellers, many of them using drop shippers to sell random merchandise? And they’re reading books like, “How to Get Filthy Stinkin’ Rich Selling on eBay.”>>.

Yes, and they did, and it was out in the open, and it was new and novel and great. Despite this, in order to grow and make big profits, eBay had to attract auto sales, and larger companies to their site. All these little guys were not enough.…

I do not know if the above chart will pop up or not when you click it. However, it has share price from 2004 to today (the maximum range). Latest share price is $38.31. In 2004 the low price was $14.81 the high price $24.48 (thus if you bought in 2004 your 13 year return is between 56% and 158%)

Is that the 13 year return that you are looking for from Shopify? I rather, in fact I am certain, that you do not. You would be very disappointed if that were the case. The little guys have high cost of acquisition and relatively high cost of servicing and they have a VERY high churn rate. As such, if you want to rely on the small guys for your economic returns (and in the end the stock appreciation will depend on economic return based upon valuation) your returns will not be very great.

I am being hard on SHOP for a reason. As I said on New Paradigm, SHOP is not Amazon, shop is not AOL, shop is not Netflix. All those companies were consumer facing, and every consumer in the world, rich or poor, can be serviced by them almost without discrimination.

For SHOP they need successful businesses to succeed, and the unsuccessfully ones appear to produce practically ZERO economic return.

I linked to Untucked as the prototypical success story on SHOP and consistent with the company narrative, and also to all these drop shippers as a legitimate and real business, but not one that will (IMHO) produce superior economic returns.

So if you want to use eBay as the comparison, you will not want to invest in SHOP. SHOP has to be more than eBay.

This said, eBay had a valuation, if memory serves of $30-$40 billion in the bubble and it never really went up from there. The market appears to have properly valued eBay not too far from after it went public and ate up the returns. This can only happen because all these smaller customers did not create superior economic returns for eBay on a sustainable basis.

eBay was disrupted by Google and its search engine, yes. eBay has lower switching costs than SHOP, yes. But eBay was also not able to lure the higher margin merchants in large enough numbers to create the superior returns necessary for superior long-term appreciation in value of the company.

SHOP is not a consumer company. It takes far fewer merchants to service customers, than it takes customers to enable world beating superior customer facing businesses who become like “Kleenex” in brand recognition. The real question is, how many of these superior merchants that provide the real economic return will be working with SHOP vs. the practically zero economic value drop shippers and the like who have high acquisition costs, relatively high servicing cost against the fees and GMV revenues they produce, and who have a very high churn rate.

I say this not to be negative on SHOP and not to be positive on SHOP, but to present SHOP in the context of the eBay comment above, and also to open up the proper questions to ask for any SHOP investor.

I have chosen, because there are already so many great investing options out there (and yeah, I made a very large profit on SHOP and it was far more than 50% of my port at the time), so I have nothing against SHOP) to not reinvest in SHOP because the perceived narrative has not turned out to match reality, and because SHOP is not consumer facing. That was SHOP back then when it was somewhere around $3 billion in market cap vs. SHOP now at $10-$12 billion in market cap.

Again, a consumer facing business can serve practically EVERY consumer in the world, rich or poor, makes no difference (unless they are a luxury business), and there are many examples of consumer facing businesses expending huge losses in order to build their brand, infrastructure, marketing etc.

For business facing businesses, we have many examples of such companies being profitable as they do the same for their business customers.

Since we really do not know, it is just a risk aversion thing and making choices between investment alternatives.

Others will choose and analyze differently. That is why we discuss these things so we can make up our own dang minds.



I didn’t want to compare Shopify to eBay except with regard to that one accusation. Shopify’s growth will be with the businesses that stick around and pay more than the minimum monthly fee, but it’s not a scam for them to sell to tiny e-commerce operations.

Ali Baba is B to B. Yes, they’ve now got consumer channels, but the soul of the company is B to B.

Almost every industrial company is B to B. Companies like Caterpillar, Boeing, Alcoa, Munich Re (reinsurance) and on and on.

I do not see that “consumer facing” is a necessary key to long term success.

Superior products/services that address actual needs, an extensive and growing addressable market, superior management, excellent customer service, wide moat, etc. are the qualities I perceive to be the attributes of successful businesses.


No, it is not a scam. Some may say it is “goosing” the merchant numbers, others may say it is misguided management in spending marketing dollars and management energy to attract and service such merchants hat appear to have a small amount of economic return, but it is not a scam. And in fact, management may very well have its own pro for a projections that show it to be eventually a very good investment based upon their own assumptions. I do not know.

All we can really conclude, and SHOP management tried to steer away from merchant counting at last earnings call, although they still trumpet the merchant numbers in their promotional material, that the value of SHOP is not proportional to the number of merchants, or perhaps even merchant growth, but the make up of who those merchants are.

I do not think we can conclude anything else, other than, as was well posted earlier today, the numbers seem to indicate that much of the merchant growth appears to provide little in the essence of scaling (which, I.e., is what I described as the need for superior economic returns to produce superior stock returns).

I have taken no more than this from any of it. And very helpful it has been. We may find out much more at the next earnings call if SHOP is willing to give us a better make up of the quality of its merchants, churn rate, and its strategy based upon their pro forma assumptions (without giving way the inner secrets of course).

I do not think, though, that it is enough for SHOP to say, as has been their continual answer, that businessses fail, it is expected, but they will always come back for more. We need some more color into what is actually going on with the merchant quality, if SHOP also wants to promote its stock based upon merchant numbers.



Hi Tinker,

I’ll gamble here and say that I speak for all of us on this board and tell you that we appreciate your posts that throw some more light on the challenges that a Shopify investment faces.

Sometimes, it can feel like rooting for a sports team, drowning out objectivity simply because we really want good things to happen.

Maybe Shopify is like the Yankees, overachieving and exceeding everybody’s expectations all year. They report on October 31, 2017, which is the same day as game 6 of the World Series. Hopefully, I’ll be rooting for both of them on this day and they’ll both do extremely well.



Has anyone made a list of the top grossing Shopify websites? Seems like Shopify itself should/could do so as a way of reassuring its shareholders.

I found this one which lists the top 40 ‘inspiring sites’ and gives a flavor for some of the businesses who use Shopify. Some look really great.


That is unless you are in margin (And there is a margin call) or in stock options that this move destroys. But for those long, and holding long-term, why is everyone so upset?

Because the majority of individual stockholders don’t understand what they own – not really. So they are unprepared for people who know more than them making negative comments about valuation, et al, and the concurring stock price drop. The length and depth of which is of course unknowable – currently $29 off the high.

Research also tells us that the overwhelming majority of people who say the are buying stocks for the long-term are incapable of doing so. They take profits too quickly and they panic sell when markets drop, ceteris paribus.



Because the majority of individual stockholders don’t understand what they own – not really. So they are unprepared for people who know more than them making negative comments about valuation

I would disagree with the section I bolded for the active members of this board (compared to Andrew Left), maybe so for individual investors in general, but I feel the knowledge base of the investors here on the stocks that are heavily discussed, is much higher than the investing public in general, or even the professional short that shows up from time to time.

Not saying we shouldn’t consider their perspective as potential risks, but I feel that has been done on Citron’s reports for UBNT and SHOP, and the large majority of folks here have deemed those reports as pretty non-relevant to either company’s medium to long term success.

Excellent perspective Tinker. We expect volatility so we can’t complain when it happens!

The concerns about the type of merchants seem to be overblown. Here’s what we know so far from the actual results that Shopify has reported:

  • They keep adding a larger and larger amount of new revenue every year

  • The merchants they add in any given year keep producing a larger and larger amount of ongoing revenue every year

As long as those two things hold up it kind of makes any other questions about merchant breakdowns irrelevant.

I did my own analysis of this - might have to post it someday :slight_smile:

One additional note: I don’t see the prospects being limited to large, established businesses. Shopify makes it easier to start a new business therefore we should expect to see more businesses started (kind of like Uber doing more rides than the entire taxi industry in SF before they arrived). Many will be the typical small business. The person doing it works hard, earns an average income after expenses, and can’t afford to invest a lot in growing the business. But if they prefer that to having a job and they still pay Shopify…