Does SHOP have a Zoom like problem >

Shopify is a top 3 position(~9%) for me and wanted to get some feedback from folks that may be in it as well. SHOP has been excruciatingly range bound since about six months starting in early July. Inspired by Saul’s pinpointing to Zoom’s QoQ growth challenges, I took a similar look into SHOP and wonder if it has a similar situation and that is probably why the market is hesitant to push it any higher even after two Quarterly releases and constant flow of small but incremental developments from the company, BFCM-Year End seasonality.

Q3 20 QoQ %revenue growth was the lowest of past 8 quarters, disregarding Q1s because of seasonality.

Rev(YoY)	Q1	Q2	Q3	Q4	YoY %
2018		68%	62%	58%	54%	59%
2019		50%	48%	45%	47%	47.20%
2020		47%	97%	96%		
Rev QoQ ($M)	Q1	Q2	Q3	Q4	Full Year
2018			31	25	73	129
2019		-23	42	29	114	162
2020		-35	244	53		
Rev QoQ %	Q1	Q2	Q3	Q4	
2018			12.65%	9.26%	21.28%	
2019		-7.19%	11.60%	7.42%	22.57%	
2020		-7.45%	34.17%	6.91%		

Same story with GMV

GMV ($B) Q1 Q2 Q3 Q4
2018 8 9.2 10 14
2019 11.9 13.8 14.8 20.6
2020 17.4 30.1 30.9

GMV QoQ($B) Q1 Q2 Q3 Q4
2018 1.2 0.8 4
2019 -2.1 1.9 1 5.8
2020 -3.2 12.7 0.8

GMV QoQ% Q1 Q2 Q3 Q4
2018 15.00% 8.70% 40.00%
2019 -15.00% 15.97% 7.25% 39.19%
2020 -15.53% 72.99% 2.66%

Yes, there have been at least two rotations away from growth stocks since fall but their peers have recovered and did well.
Lags all other Ecommerce companies since July 1st, and better than only AMZN in YTD performance

	Since July 1st	YTD
SHOP	3.61%		158.29%
ETSY	52.17%		274.49%
PINS	202.19%		274.20%
AMZN	7.68%		63.32%
FTCH	230.40%		437.08%
MELI	62.66%		160.48%
SE	68.69%		382.22%

Just like Zoom, they may post above normal YoY numbers of >90% in Q4 20 and Q1 21 but that would be less meaningful because of the COVID bump. And if they continue to decelerate on a QoQ basis, they will not be anything more than a 40% grower ( or worse ) like they were beginning of the year. I feel like I’m the last one who has this figured out and shouldn’t have been adding to it to make it a top tier position.

Just wanted to see if anyone see better prospects for Shopify’s stock price gaining momentum anytime soon.

While I’m at this, Also fascinated to learn about the ‘real’ Saul today. Have to confess that when I came upon this board, I googled for Saul and found nothing besides that one MF article and assumed Saul is probably some pseudonym of sorts. Today’s forum news show that I have a lot to learn in doing a proper internet search as well. I want to thank especially Saul, Muji, StockNovice, Bear, Vinegar, GauchoRico, BroadwayDan and countless others that are immensely contributing to my benefit.


I am in SHOP as well and is one of my bigger positions. I think the stock is not getting that much love due to its stretched P/S valuation, similar to what I think is happening with some other plays like DDOG. I’m keeping it for the moment without trimming or adding and do see the stock price to continue to move in 2021 once the revenue catches up to the stock price. Other paid services I follow are very bullish and I don’t think this is a pandemic play, they will continue to penetrate and take away from Amazon.


I think the short answer is yes they have a ZM-like pull forward that juiced YoY revenue growth rate, but won’t last forever. But is that a problem? Depends.

For one thing, I recommend tracking SHOP’s subscription revenue and monthly recurring revenue (MRR). While Merchant Solutions revenue is an even larger part of total revenue, subscriptions are more predictable from one quarter to the next…usually. So personally, I got all excited when SHOP reported Q3, because their subscription revenue grew 25% sequentially which is obviously incredible. But this year isn’t usual. I realized subscription revenue had probably been pushed back from Q1 and Q2, when they were charging less during the depths of the pandemic, to help their customers. Here’s the trend:

2019  5%  9%   8%  11%
2020  2%  5%  25%

So I’m thinking, as I said, the very low growth in Q1 and Q2 set them up for a big increase in Q3…but, I don’t really know where it goes from here. Back to 8% or so on average? 5%?

And yes, that is exactly the same “problem” with ZM. So is it a problem? Long term I think both of these companies will do well. But short term, let’s look at the numbers:

If you take their most recent quarter and even multiply by 4, the run rate PS ratio for both ZM and SHOP is in the neighborhood of 40. That might be a little high if they turn out to be 40% YoY growers (or less) next year. But it might turn out to be low if they can grow at 50%+ or even 60%+ at their just massive scale.

But what we like even better is when a company’s revenue is actually accelerating, like DOCU’s or NET’s. Or where it’s growing consistently at 80%+ like CRWD’s. So ZM and SHOP are not tier 1, for me, simply because of the uncertainty with them, if nothing else. But that doesn’t mean they have a ton of risk or won’t do well. We’ve gotten so spoiled, we actually differentiate companies that will likely crush the market for years to come (like ZM and SHOP) from companies that will likely crush the market even more, based on how we see them trending and what we expect going forward.

That’s really the whole thing. It does not mean any of us are perfect at it. SHOP might reaccelerate and CRWD might slow down. I don’t expect that, but I’ve been wrong plenty.


PS - Someone asked if I had sold SHOP. It was only a 3.6% position in October, but yes, I trimmed it. I still have a tiny position, but it’s under 1.5%.

PPS - I also got an email asking me why I want to hold more than just CRWD, NET and DOCU. Do I just want to diversify? Am I worried one will falter? Let me just say: ANY COMPANY CAN FALTER. We are not perfect, and sometimes there are things we just can’t know! So holding 15% or 20% of your entire portfolio in a company is already an enormous risk, no matter how much you like the company. Holding much more than that in a single company is just crazy. And sometimes my tier 2 positions will do better than my tier 1’s, because I’m not good enough to get them right all the time.


Think of Zoom in the same place of vaccine companies. Zoom has actual revenue and Vaccine companies are based on hope. Both Zoom and vaccin companies benefited massively from effect of COVID.

Shopify has some benefits of COVID but doesn’t benefit directly as Zoom and vaccine companies.

Future growth:
Shopify wants to arm the rebels against Amazon. Amazon is and will still be the market leader in E-commerce. Both of them are reaching maturity and won’t have extraordinary growth rate we expect. Shopify was a classic growth stock that I missed 5 years ago. I saw its IPO while I was busy working at a job. Back then I didn’t have much confidence in growth stocks. Its stock price appreciated at almost the same rate as its revenue growth of 100% per year. Compounded for 5 years, that’s a 46 times increase! Imagine putting 20% of your portfolio in stocks like this? I won’t miss the next 100% grower easily. e.g. Peloton. Despite the worry about competition and shipping problem, Peloton is still growing at 100% consistently and I am still holding it as long as it’s growing fast. The numbers don’t lie.


To me, neither supply nor competition really bother me about pton. I think, perhaps, moreso than shop, they will have to prove to skeptics that their connected fitness model and bike sales maintain this trajectory post vaccine. I’m much more convinced about e-commerce mega trend and shop role at the center of that than I am the connected at home fitness trend for example. Long pton zm and shop.


A few thoughts from me on this given that it is my #1 holding at over 15%.

Firstly - you might come undone looking at QoQ revenue growth rates with Shopify as the seasonality in eCommerce is a massive factor and not something that affects the Zoom numbers as much.

Secondly - I don’t necessarily see covid having pulled forwards revenue in the sense that post covid revenues will drop to a zero sum game. I see covid having accelerated adoption of eCommerce in a one off uplift that will continue to grow from there.

Thirdly - the TAM of eCommerce is orders of magnitude higher than videocalling, (~100x at least right now and that isn’t accounting for offline retail commerce).

I agree Shopify is growing into its valuation in terms of share price performance this year (like DDOG). I’m not hearing any annoying P/S detractions any more these days. Sure has it underperformed vs some of the smaller faster growing ecommerce names this last year? (e.g. SE and Farfetch - which I hold too), yes but frankly I’m ok with that for a company with such clear cut credentials supporting top draw conviction levels.