My thoughts on Shopify. Again…

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21

Duma,

You + Saul nailed it.

I have remained in SHOP until very recently. $265-270, somewhere in there. But Duma’s 1-5 are spot on. Tinkers rules for selling are when valuations detach from fundamentals. SHOP has shot through its fundamentals. It’s a great company. I think SHOP plus is a world dominating product.

But I agree with Saul. The only explanation seems to be speculation over weed sales. And who knows.

Zoom, is my new love. And I now have a small position. Owned some it went it up a bunch, sold it. Stock dropped bought some more, went up even faster, sold again. Drop, bought to go long for good. Then another 30% pop. Zoom has flawless fundamentals, it’s just hard to keep long for long in this environment. Keeping some. Is valuation beyond fundamentals? Perhaps, very hard to tell.

Darth

5 Likes
22

Darth,

I do find it funny that you make the call that “SHOP has shot through its fundamentals”, yet you say you can’t tell if Zoom has done so (with an EV/S of 80!). :astonished:

I really have no idea which will do better short/medium/long term, but these stocks do seem to continue trading in the direction of their momentum for quite awhile as long as no new news derails it, typically overshooting on both the up and down side, so who knows how much higher either of them could go, or how much either could fall when some bad news appears.

Matt Cochrane summarized my SHOP feelings perfectly upboard, and much more eloquently and fact based than I did - I don’t know how he always knows what I’m thinking, but he does.

Good luck to us all (Zoom and SHOP holders)! I might as well throw in Beyond Meat holders, too, as that one is up 20% more every day I look at it (but I won’t touch it either, currently).

As I stated, I did trim my SHOP holding 25% today with my shares in a tax deferred account, still mulling over whether I want to deal with the HEFTY tax bill I will incur reducing SHOP more

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23

Wow, I’d like to thank all you people who have turned this thread into a great discussion!

There’s one point I was trying to make though that I don’t think anyone has understood. A number of people have said that Saul has shown that growth is decelerating. But what I really was trying to show was that, contrary to expectations, that rate of deceleration was accelerating.

Here’s a simplistic example.

Small company has its rate of growth drop 50 points yoy from 270% to 220%. No one blinks. It’s what’s expected as the base grows.

Bigger company has its rate of growth drop 50 points yoy from 70% to 20%. Whoa! What happened! When you are coming from a smaller base you expect a smaller number of points of drop. Maybe 10 points yoy from 70% to 60%, but not the same number of points as when it was bigger.

Are you with me so far? What was troubling me is that the number of points that Shopify was dropping each quarter was rising as its growth rate base got smaller. That’s the opposite of what you’d expect! In order the number of points of drop went 7, 13, 14, 17, 18. That’s NOT a healthy progression!

If you think of it in terms of the percent of the starting growth rate that they lost (for example a drop of 7 points from 70% to 63% being a loss of 10% of its growth rate (7 is 10% of 70)), Shopify lost 9% of its growth rate, then 17%, then 19%, then 24%, then 26.5% of its growth rate. That’s just NOT a healthy progression either! In fact it’s worse. Losing 26.5% of your growth rate yoy is a bunch!

It just feels to me that something is wrong. I may be completely off-base. I’ve made plenty of errors before. But it just doesn’t seem right. And then when I saw them trying to sign up people off the street (subway), who had no businesses at all, it really, REALLY, reinforced my concern, and I wanted to warn people. (What makes a company like Shopify desperate enough to literally say “Make your Mom’s apple pie recipe into a business”. I’m not kidding, that was one of the ads, as was “Remember that idea you had last week”). Is that how they are using S&M dollars to reaccelerate growth? But again, I may be wrong, and make your own decisions.

Best,

Saul

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24

Thanks to you Saul - it’s your board that has brought us all here!

Interesting take on their growth slowdown. I agree those numbers look a bit scary. Here is what I see when I look at their growth rates recently:

Q4 '17: 75% YOY rev growth (https://investors.shopify.com/Investor-News-Details/2017/Sho…)
Q1 '18: 68% YOY rev growth (https://investors.shopify.com/Investor-News-Details/2018/Sho…)
Q2 '18: 62% YOY rev growth (https://s2.q4cdn.com/024715446/files/doc_financials/2018/Q2/…)
Q3 '18: 58% YOY rev growth (https://s2.q4cdn.com/024715446/files/doc_financials/2018/q3/…)
Q4 '18: 54% YOY rev growth (https://s2.q4cdn.com/024715446/files/doc_financials/2018/q4/…)
Q1 '19: 50% YOY rev growth (https://s2.q4cdn.com/024715446/files/doc_financials/2019/q1/…)

When viewed through this lens, I personally feel like that is a fair rate of relatively stable deceleration for a company at their size and scale - your view differs, and this is what makes a market :slight_smile:

As far as the ads promoting “Make your Mom’s apple pie recipe into a business”: it’s just a brand marketing campaign (https://www.marketing-schools.org/types-of-marketing/brand-m…), primarily to drive consumer awareness and shape opinion rather than achieve an immediate direct response. Keep in mind that the average e-commerce consumer has no idea Shopify exists! They only know the different brands that they shop from, built on the SHOP platform.

As Shopify grows into a larger and larger company, I think it’s reasonable of them to grow and change the types of advertising campaigns that they put into market. Whether it’s the most effective use of their ad dollars can be debated, but I don’t think it’s fair to hold it as a negative against their future business prospects.

respectfully,
nat

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25

Saul,

Here is what you were trying to say in tabular form:


Sales Growth
Grth	Mar	Jun	Sep	Dec	Tot
2016	94.7%	92.9%	88.6%	85.8%	89.7%
2017	75.2%	75.0%	72.2%	70.9%	72.9%
2018	68.3%	61.5%	57.5%	54.2%	59.4%
2019	49.5%	<b>_*47.5%_</b>			

QoQ difference
Delta	Mar	Jun	Sep	Dec
2017	-19.5%	-17.8%	-16.5%	-14.9%
2018	-6.9%	-13.5%	-14.7%	-16.6%
2019	-18.7%	<b>_*-14.0%_</b>

* June quarter assumes they beat on revenues by 4%, which they did last quarter and was the smallest beat during 
any time as a publicly traded company.

This accelerated deceleration is not the best thing to see. However, it looks like it may start slowing. Regardless, there are secular e-commerce tailwinds for Shopify that should make it a long term out-performer, although the stock valuation is on setting historical highs. Also, as companies look to Amazon alternatives, Shopify is beginning to offer a full range of products that can satisfy their needs.

I still have an 8.2% position in Shopify and am holding while convinced we’ll see lower value points in the stock.

DJ

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26

I would like to add, that the rate of deceleration already slowed down instead of increasing since the Mar 2019 quarter.

The rate of deceleration decelerated by -10% (from +26% vs sequential quarter).

They expect to beat on revenue by 4%, which means +48.5% revenue growth YoY.
It will drop from 62.5% to 49.5%.
Rate of deceleration will decelerate by: (49.5/62.5-1)*100 = -21% (from -10% vs sequential quarter).

Their next guidance will tell us more about the direction i guess.

1 Like
27

Typos:

We expect to beat on revenue by 4%, which means +49.5% revenue growth YoY.

(Is there really no edit function?)