Pretty long, main claim is the low quality of the merchants. I haven’t read it all, but I think the author may be missing the growth in Shopify Plus and the other aspects of Shopify that are quite promising, like the AR offerings that Tim Cook was visiting their HQ to check out.
https://seekingalpha.com/article/4184225-shopify-massive-chu…
volfan84
long SHOP
Here’s another, which I would guess is driving more of the selloff, because it hits at a hotter issue – international trade (and taxes): https://seekingalpha.com/article/4184233-charging-online-sta…
Both of these articles focus on the wrong things…namely small merchant churn. We’ve discussed this many times and it simply is not an issue. For one, there will always be more and more small merchants. But more importantly, this Shopify has outgrown the effect of the marginal small merchant – yes, combined, the several hundred thousand small merchants are a big part of it’s current revenue, but the significant growth is now coming from other areas. It has grown with the companies it serves - not just upward to larger merchants, but outward into new lines of business.
It’s quite simple, thus any long article complicating it isn’t worth the read.
I added some more SHOP today.
Bear
From article
Shopify has been focused a lot on its Shopify Plus offering, which is a solution priced at $2000+ per month. Shopify management has been spinning this as new revenue from blue-chippy clients with enterprise grade qualities. Our research has found that a significant chunk of these Shopify Plus clients are not those A-class businesses. For example, Fleshlight.com (Shopify’s #4 visited website according to our SimilarWeb data) or SiliconWives.com are peddlers of “sexual hardware”, but worse, a significant chunk of Shopify Plus clients are showing terrible Trust Pilot ratings (2* and less) such as ColourPop.com, KylieCosmetics.com or MVMTwatches.com (all 3 are top20 Shopify Stores according to SimilarWeb) with the majority of reviews saying they have not been delivered product at all or they have impossible return policies. These stores could massively be affected by changes in Facebook (FB) policies towards low quality advertisers. Since pricing for Shopify Plus is variable, this could hurt Subscription solutions revenue.
Pretty long, main claim is the low quality of the merchants. I haven’t read it all, but I think the author may be missing the growth in Shopify Plus and the other aspects of Shopify that are quite promising, like the AR offerings that Tim Cook was visiting their HQ to check out.
https://seekingalpha.com/article/4184225-shopify-massive-chu……
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I didn’t bother to read the whole article either but scrolled down to see disclosure. Found the name of the company suitable – Absurd Research.
Disclosure: I am/we are short “SHOP”.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: By using AbsurdResearch.com (and viewing or downloading any material we publish) you agree to our terms of service. In no event will you hold AbsurdResearch.com or its principals liable from any direct or indirect trading losses caused by information released on this website or in our reports. Our reports are not investment advice or a recommendation or solicitation to buy or sell any securities.
I did read the entire article. And as disclaimer, I’ll note that I added 60% more to my SHOP yesterday, so obviously the timing of today’s article sucks for me. Maybe.
IMO, there is some legit effort on the part of the author to do some investigative research by digging into some domains (some of that research actually cost him/them some money, it’s worth mentioning) and figuring out whether they are “quality” or not. That last part is subjective, but it is an interesting narrative on the domain lifespan research. The biggest issue I have with the article is that there is some extrapolation and guessing (in part because SHOP doesn’t outright disclose what we’d like to see), and then the “truths” from those extrapolations are used to extrapolate further.
In short, there’s margin of error being added in multiple layers, and I question how accurate it could be. It could be WORSE accurate, meaning the story could be worse than illustrated. I don’t know.
What I do know is it’s 5% cheaper today, so if you were shorting you made a few bucks today, and if you believe in SHOP long-term, this (or tomorrow) might be a good re-entry/add point for building up a position.
I am holding my SHOP for now. It may cost me, but I have some time and a significant margin of profit and am willing to wait and keep watch. However, I will say that my ‘patience’ level is growing a little thinner with this stock, both because of the continued short attacks and because of the reluctance or unwillingness of SHOP to provide actual customer retention numbers. That’s a red flag that probably means I should have sold instead of added… but sometimes you take a calculated risk and sometimes that risk pays off.
I am holding my SHOP for now. It may cost me, but I have some time and a significant margin of profit and am willing to wait and keep watch. However, I will say that my ‘patience’ level is growing a little thinner with this stock, both because of the continued short attacks and because of the reluctance or unwillingness of SHOP to provide actual customer retention numbers. That’s a red flag that probably means I should have sold instead of added… but sometimes you take a calculated risk and sometimes that risk pays off.
Hey hlygrail,
This reminds me another stock that didn’t open up about the true value of certain aspects of the operation. AWS was such a secret until AMZN, I suppose Bezos, decided it was time to reveal and didn’t that cause a further surge and conviction for the Bulls. I surmise Lutke and company want to keep things locked up for now until they feel it’s just right to reveal that valuable information. Until then we have the earnings reports and the speculation driving share price.
Added a SHOP 150 Jun 2020 syn long thanks to the commotion.
~Scott
Another thing to note about that website is that this is the ONLY article on it!! And it’s hosted on Wordpress.com. How seriously can we take this guy?
meanjeanslo: Good find, looks like an excelent buying oppertunity then 
Another thing to note about that website is that this is the ONLY article on it!! And it’s hosted on Wordpress.com. How seriously can we take this guy?
Moreover there’s an associated Twitter account: @absurdtrader with the following tweet:
Let’s have some fun. The first 100 people who tweet a link to our report will get a soap dispenser in the shape of a nose (popular drop shipper item, allow 40 days for shipping). Send proof of yr twt and address to hello@absurdresearch.com.
So you can squirt some snot soap out and wash your hands? Incredulous how short sellers are behaving these days!
I looked at the article but did not read the entire piece. It, like most short attacks, is lengthy. Standard tactic, bewilder with BS and inundate with innuendo. Make sure you leave out or dismiss and contrary arguments.
The primary thesis is that Shopify is plagued with low quality vendors and therefore they suffer a great deal of churn.
So, what’s new? This has been true since the inception of Shopify. Why would it now, at this particular point in time drive the stock price from ~$150 to ~$60 (author’s target price)? No explanation, in fact, this obvious observation is not mentioned (I say with some caution as I perused but did not read the entire article).
Moreover there’s an associated Twitter account: @absurdtrader with the following tweet:
What would really be the icing on top of that cake is if they used Shopify for some of their fulfillment needs for this.
For those with premium subscriptions, some thoughts from Jim Mueller (TMFTortoise):
http://discussion.fool.com/4056/my-thoughts-on-the-short-article…
volfan84
Well…I doubled my SHOP position today
…because of the reluctance or unwillingness of SHOP to provide actual customer retention numbers. That’s a red flag that probably means I should have sold instead of added…
Hi hlygrail,
Just curious why you are so concerned about churn, and why it bothers you so much? I’m not just being silly, I’m asking. I mean here is a company that doubled their revenue every year for four years compounded:
24
50
105
205
390
and last year they were “only” up by 73% to 673.
Say that during those years they were doubling revenue they had huge 20% churn. So if they were average merchants that were dropping out, starting with the 80% that were left Shopify actually would have had to grow their numbers by 150% to get to doubling! (80 times 1.5 = 200). If 20% dropped, clearly the ones who dropped weren’t contributing much.
In the last quarter they had results like this:
Total revenue was up 68%.
Subscription revenue was up 61%
Monthly Recurring Revenue (MRR) was up 57%.
Shopify Plus revenue (big companies) was up 103%.
Merchant Solutions revenue was up 75%.
Gross Merchandise Volume was up 64%
Gross profit was up 71%
Adj operating loss was 0.1% of revenue, up from a loss of 3.4% a year ago.
And with results like that, which not so long ago no one ever imagined that they would ever see for any company, you are worried about churn? I don’t get it…
And because this short article guy could find 10 or 20 sleazeball companies to who have Shopify stores, so what. Even 40 of them wouldn’t be 10% of their merchants, it wouldn’t be 1% of their merchants, it wouldn’t be a tenth of 1% of their merchants, it actually wouldn’t even be one one-hundredth of 1% of their merchants. I repeat, so what!
And the other short, who was worried about the sales taxes and how the little merchants wouldn’t be able to figure it out… I mean, REALLY? Don’t you think that Shopify will provide the software for that? Or that more of the merchants would choose to use Shopify shipping? (More revenue for Shopify, by the way).
And do you not think that those two short articles were coordinated to come out on the same day? By authors that no one ever heard of? (For example, Bert has 24 times(!) more followers than both of them put together.)
Just saying.
Saul
Hi Saul,
Your reasoning makes sense but aren’t you worried that Shopify is attracting the wrong type of merchant and that over time, most of them will fail and cease their relationship with Shopify?
The dropshipping business is silly; and Shopify’s ‘become a millionaire’ advertisements on youtube are dubious at best.
Doesn’t the above bother you as an investor or do you think Shopify will do just fine?
Thanks!
Just curious why you are so concerned about churn, and why it bothers you so much?
You also used the word “worry”, so I’ll try to address that…
I didn’t sell any of my SHOP. In fact, I added to my holding – sadly, the day before the recent short articles, so that last batch got burned. But I’m actually thinking of adding some more to round it out today… maybe. So “worry” is not a match for my actions at least.
I’m not concerned about churn except that it causes so much consternation for others, and becomes a target. As there is often a difference between a good stock and a good company, this, to me, puts at least a small tarnish on what would otherwise be a great stock by all of the metrics you called out. Said another way, I read what others are saying/thinking, often more so to understand what the general thinking might be than to form (or challenge) my own opinion.
To add to #2, I tend to think and live WELL outside the middle of the Bell curve, so I find the need to understand what “the whole market” (others) might be thinking, even if I don’t choose to act on it. The former has done REALLY well for me in some cases, and not so much in others. Case in point for the “not so much”: I barely use FriendFace (Facebook) and don’t get why so many people feel the need to “live out loud” or get constant praise from others. I had “no use for it and no way in @#(*& would I pay $90 for that stock” less than 2 years ago… and now it’s $200ish, I hear. My non-average lifestyle bias clearly got in the way of my investor/capitalist self. So, I actively look for ways to balance my biases, I guess is the way to summarize this point.
On the churn point specifically, I would like to see any company providing metrics that are improving. In the case of Shopify, I would like to see their retention rates improve over time (which means they would have to report that in some manner). That would tell us that not only are they able to monetize customers longer, but probably also that they are improving their offerings toward that end, and also able to target the right customers that will be with them longer, better/more cost-effective marketing, etc… All good things that turn into cashflow and reduce the cost of acquiring new customers. That is the only “worry” I have with churn, per se.
As you said, as long as the profit outruns the costs, we’re all good… but none of us can say there is an infinite market out there for potential customers, so at some point – if we plan to be long-term shareholders anyway – we do need to look at those retention metrics.
I haven’t mastered the Saul art of getting out of every position at the magical right time, though, so maybe you are only in SHOP until those metrics turn south a little and then trading into the next one. If so, then we’re in agreement that SHOP is still good and likely to make us some money. And I hope you’ll tell me/us what you rotate into when/if it isn’t anymore. 
One additional observation about “Chrun”.
When cell phone operators use it, it means that customers are moving from one operator to another. So it is a leading indicator of issues relating to the competitiveness of their offering. Sure, there will be a few customers who have died and no longer need a cell phone.
When Shopify uses it, it is the opposite: customers have gone out of business…very few are going to take the trouble to move their website once it has been built.
Cham
Hi Hlygrail, thanks for responding to my post.
I did realize that you had added. I guess I was responding more to That’s a red flag that probably means I should have sold instead of added…
I hear so much about “churn” with Shopify, and I guess I was trying to point out that it’s huge revenue increases that matter, and not whether a few thousand non-productive micro-business drop out each year. I mean, who cares, when the business is growing at 70% or so? Their Shopify Plus business of larger businesses who pay a great deal more monthly grew at over 100% each of the last two quarters, and now is 22% of monthly recurring revenue, and growing. That’s where they are going. While the shorts talk about sex shops using them, recent companies added to Shopify Plus included Ugg, Sports Sack, HarperCollins UK, and some shops that have been set up by Nestle, PepsiCo, and Lay’s.
But that’s just my opinion and there is nothing magical about it. I sometimes get it completely wrong.
Best,
Saul
Thanks Saul
There was nothing mentioned hear about the article that made me even bother to read it.
Investors who have been here awhile and in shop have already heard these arguments a long time.
We’ve been through large corrections in the stock and ranges…
It’s easier now to hold shop when we have madd 100s of percent gain. I wouldn’t feel great if I had just bought at 175 and added at 145.
I have about 7 positions now
In the latest small correction I’m not planning on adding shares to anything I am holding
I’m looking at starting a new position in wix