SHOP: 2017 shopping

SHOP has been growing revenue fast. Here are the past 3 quarter’s y/y revenue growth:

Q1’17: 75.2%
Q2’17: 75.2%
Q3’17: 72.1%

SHOP reported Black Friday sales of more than $1,000,000 per minute up from $555,716 per minute last year. The y/y change (assuming $1M and not MORE THAN $1M) was 79.9%. But since they reported more than let’s call it 80%.

The increase can come from an increased number of merchants and an increase in spending by consumers this year versus last year.

Early indications from Bloomberg this morning was that internet traffic is up 30% over last year (based on the first 2 hours of Cyber Monday). I think that there are indications that customers will be spending more during this holiday season compared to last year. If true, you will have 3 forces working in SHOP’s favor:

  1. More merchants compared to last year
  2. More spending by consumers compared to last year
  3. Continuing trend of people shifting their brick and mortar shopping to online shopping

Now, when SHOP issued their revenue guidance for Q4 they would take into account #1 and maybe #3. I don’t see how they can make an assumption about #2 before knowing how consumers are going to spend this holiday shopping season. If they would roll this assumption into their revenue forecast then they would be making a prediction that they shouldn’t make. Therefore, I think SHOP is very well positioned for a substantial revenue beat for the Q4 quarter. A 30% increase in shopping dollar volume, if not figured into the forecast could be really huge. Just my thoughts…but we may get more information on the Cyber Monday results tomorrow which will be another clue to how well SHOP will do this Q4.

Chris

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Thanks Chris. The growth rate was impressive but clearly they need to

Here is there site for tracking their real time sales:

https://www.shopify.com/datastories

At the present time, the cyber Monday sales traffic is averaging only $300,000 per minute which translates into an average sales per merchant of around $864 assuming 500,000 merchants for the 24 hour period.

When I last did this calculation the day after Black Friday, here were the results:

They are doing 1500 orders per minute over some 500,000 merchants or 4.4 transactions per merchant per day.

I didn’t find that particularly encouraging.

But as you say, it was pretty decent growth in transactions from last year…just wish they would parse this out to the latter two merchant categories so we could better understand the impact of the more valuable merchants.

re: shop

does shop actually get a percentage of the total sales of the merchants using their platforms?

or is just a reflection of sales levels for the merchants they have or is there is some way to know if the merchants they have are doing well (in terms of sales per merchants in the same way same store sales are calculated?)?

confused…

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.just wish they would parse this out to the latter two merchant categories so we could better understand the impact of the more valuable merchants.

One would certainly understand a lot more if one had some idea of the shape of the curve. Are there a large number with zero sales, either because they are not really fully operational yet or deal in something that one is unlikely to seek out on a special shopping day like this? How many stores does it take to be half of the sales? Etc.

At the present time, the cyber Monday sales traffic is averaging only $300,000 per minute which translates into an average sales per merchant of around $864 assuming 500,000 merchants for the 24 hour period.

Only $300,000/minute? That’s $432M/day. At $300,000/minute, it would take only 15 days to sell as much as was sold on Shopify in the entire September 2017 quarter.

$300,000/minute is amazing.

Bear
go SHOP!

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Only $300,000/minute? That’s $432M/day. At $300,000/minute, it would take only 15 days to sell as much as was sold on Shopify in the entire September 2017 quarter.

$300,000/minute is amazing.

LOL…of course that would be assuming cyber Monday was instead cyber 15 days of December…could happen of course.

Wonder why today will be only 1/3 of what they did on Black Friday…guess that apparel, accessories, houseware weighting doesn’t lend itself as well for a “cyber” day.

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from what I read (sorry no link) the days before Black Friday were up sharply too. Americans went on a shopping binge. Were they buying only what they would have bought anyhow?
Nobody can be sure but it looks like the consumer is consuming full bore again, unworried about the future. The mini real estate boom and the purchase of gas guzzling $50,000 SUV paid for over 7 years or so might indicate the same. It’s great for business while it lasts.
Meanwhile in the stock market only the faintest hint of any possible coming storm can be heard, like the so far distant rumble of thunder that you can’t be sure whether it’s really a storm or a jet.

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I don’t see how they can make an assumption about #2 before knowing how consumers are going to spend this holiday shopping season. If they would roll this assumption into their revenue forecast then they would be making a prediction that they shouldn’t make. Therefore, I think SHOP is very well positioned for a substantial revenue beat for the Q4 quarter.

Hi Chris,

Thank you very much for your input. I think your assumption regarding the earnings beat is very solid. Actually I increased my shop position from 10% to 15% when market opened before I read you post. Without doubt, your post further confirms my thoughts and enhances my confidence in shop. Thanks a lot!

Alex

Duma,
just wish they would parse this out to the latter two merchant categories so we could better understand the impact of the more valuable merchants.

I guess - - - but really would having this info change your investment strategy? I didn’t even think of this as a question until I read your post. Does it make a difference which merchants account for which sales? To me it seems pretty obvious that the bigger merchants are going to sell a boatload more merchandise than the long tail of smaller merchants. So what? Shopify is always going to have fewer large merchants and a much larger group of small merchants. Just assume the Pareto rule applies, 20% of the merchants account for 80% of the sales. Dimes to dollars that won’t be far off. So now what? How do you plug that into an investment strategy?

I’m not being entirely facetious (well, maybe a little). I just don’t see how having granular information on this is actionable. I’d actually like to know how you would apply the information to your investment decisions if they reported it.

Maybe I’m missing something important that I should be paying more attention to.

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Hey Brittle:

The details are in this prior post:

http://discussion.fool.com/shop-the-investment-thesis-32861417.a…

So together, these latter two customers generate $132 million in subscription revenue annually vs what at year end is estimated to be around $300 million in subscription revenue…hence these two account for 44% of subscription revenue but represent only 4.5% of customers!!

The latter two merchant models (4.5% of total) account for 44% of revenue.

Grow that merchant class and SHOP will have massive revenue growth in what is more likely to be repeatable revenue with more successful businesses.

The Shopify PLus merchant number was growing at over 100% YoY…so if they ramp that class, based on above, this will have the greatest impact on revenue…and likely profitability.

During the Xmas time, the 95% of merchants likely includes less capitalized and lower margin businesses…maybe ornament and fruit sellers for all we know.

So yes, thee would great value and knowing this information and whether the more sustainable businesses that contribute the lion’s share of revenue are growing their sales at a fast clip…? faster than industry average.

IMO, SHOP has done a disservice to investors by not reporting this information.

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To me it seems pretty obvious that the bigger merchants are going to sell a boatload more merchandise than the long tail of smaller merchants. So what?

If total sales keep climbing, no, it doesn’t make a difference how they are distributed, but knowing something more about the curve might impact whether or not one expected them to keep climbing. If the long tail contributed significantly to the total, I would see that as a good thing because those are the kind of merchants which are probably easy to attract. If, on the other hand, 50% of the sales came from the top merchant, one could wonder whether one was likely to attract another one like that.

Duma (and Tamhas),
Thank you both for your reply. I did not think this info was of much value with respect to making an investment decision.

I still don’t.

The two of you both replied, but seem to come to contrary conclusions. I say “seem” because neither of you said what you would actually do with the information. If you know the bulk of the revenue was generated by the Shop+ customers (or the long tail of small merchants) do you buy more SHOP or sell your existing position or do nothing? What investment action will you take if you have this information?

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If you know the bulk of the revenue was generated by the Shop+ customers (or the long tail of small merchants) do you buy more SHOP or sell your existing position or do nothing?

Brittle:

Not sure why this is so hard to understand. We have delved into the fact that the merchants are NOT of equal quality as regards revenue generation. There are mere resellers and poorly capitalized pseudo-businesses that make up the lion’s share of SHOP’s merchants.

They are the week hands with high attrition rate.

If that is the merchant classes that SHOP is dependent on, then I would exit…that is correct. Under that circumstance, SHOP has to replace poor businesses either because they have serious business flaws or they disappear…to grow revenue becomes the challenge of growing each business within SHOP’s ecosystem but ALSO replacing the high number that keep failing.

OTOH, the latter two merchant classes have MUCH more predictive characteristics for a successful SHOP ecosystem…durable businesses that do a lot of individual business and keep growing those specific businesses. 4% of merchants contribute how much to the revenue again???

Its OK if you do not agree…no need to beat this in to the ground…so I won’t counterpoint further.

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