I posted this in Saul but should be of interest here too
I think Saul, Duma and others are correct in focusing on MRR.
Q3 2017 MRR was $27M
Q3 2018 MRR was $38M
Since MRR is a reflection of the number/quality of shop merchants you could simply say that merchants with MRR of $27M contributed $144M (171-27) of non MRR rev. in Q3 2017. This means for every $1M of MRR we got $5.33M of non MRR rev.
Similarly for Q3 2018 merchants with MRR of $38M contributed $232M (270-38) of non MRR rev. For every $1M of MRR we got $6.1M of non MRR. Remember this non MRR includes every other rev including the one paid by Shop+ members based on their GMV.
I carried out the analysis for all of the past 4 years and then estimated the next 4 years. First column is rev growth for that Q (yoy) (I used the date on which the Q report comes out typically so subtract 1 month). 2nd column is MRR each Q. 3rd col. is rev for each Q. 4th column is all rev that is non MRR. 5th column is ratio of non MRR to MRR. 6th column is growth of that ratio (yoy). You can see that it has been growing steadily at 10% (yoy), it was higher back in 2016. There has been a small spike this Q from 1.1 to 1.13 most likely due to the shopify plus contributions. But I doubt it will be long lasting, after the initial burst should settle back to 1.1 yoy. Nevertheless it is interesting to watch this. Last 2 columns just show the MRR and non MRR growth thus far. They are both slowing as expected no surprises.
Now for the future growth estimates. I have assumed in future every quarter we will add 11M in MRR (yoy). This has been the case in recent times and seems reasonable. I have assumed an averaged "ratio" growth for each Q based on the last 2 year's corresponding Q. This is column 6. You can simply assume 1.1 too. From this you can calculate the non MRR growth since you already estimated MRR. Then you can estimate Q Rev and finally Rev growth rate. It shows overall rev. growth slowing over the next 5y, it is an average of 31% over the 5y so not too slow. If MRR growth is faster or if the ratio growth is faster then the rev growth will be faster too. The converse is also true. But can it grow faster? That is the question. IMO it is doubtful and this #s may be reasonable. We have to wait and see.
quarter rev grow MRR Rev Non MRR rev Ratio Ratio growth MRR growth Non MRR growth
2/1/2015 6.6 35.2 28.6 4.33
5/3/2015 95 7.4 37.3 29.9 4.04
8/2/2015 88 8.5 44.9 36.4 4.28
11/1/2015 96 9.8 52.8 43 4.39
2/1/2016 99 11.3 70.2 58.9 5.21 1.20 71.2% 105.9%
5/2/2016 95 12.8 72.7 59.9 4.68 1.16 73.0% 100.3%
8/1/2016 93 14.4 86.7 72.3 5.02 1.17 69.4% 98.6%
11/1/2016 89 16.3 99.6 83.3 5.11 1.16 66.3% 93.7%
1/31/2017 86 18.5 130.4 111.9 6.05 1.16 63.7% 90.0%
5/2/2017 75 20.7 127.4 106.7 5.15 1.10 61.7% 78.1%
8/2/2017 75 23.7 151.7 128 5.40 1.08 64.6% 77.0%
11/1/2017 72 26.8 171.5 144.7 5.40 1.06 64.4% 73.7%
1/31/2018 71 29.9 222.8 192.9 6.45 1.07 61.6% 72.4%
5/2/2018 68 32.5 214.3 181.8 5.59 1.09 57.0% 70.4%
8/2/2018 62 35.3 245 209.7 5.94 1.10 48.9% 63.8%
11/1/2018 57 37.9 270.1 232.2 6.13 1.13 41.4% 60.5%
1/31/2019 45 40.9 322.3 281.4 6.88 1.11
5/3/2019 44 43.5 307.6 264.1 6.07 1.09
8/2/2019 42 46.3 348.8 302.5 6.53 1.09
11/1/2019 44 48.9 388.9 340.0 6.95 1.10
2/1/2020 39 51.9 449.6 397.7 7.66 1.09
5/2/2020 35 54.5 416.2 361.7 6.64 1.09
8/1/2020 33 57.3 464.6 407.3 7.11 1.09
10/31/2020 33 59.9 516.1 456.2 7.62 1.10
1/31/2021 31 62.9 588.3 525.4 8.35 1.10
5/2/2021 30 65.5 539.1 473.6 7.23 1.09
8/1/2021 29 68.3 599.3 531.0 7.77 1.09
11/1/2021 29 70.9 664.9 594.0 8.38 1.10
1/31/2022 28 73.9 754.0 680.1 9.20 1.10
5/2/2022 26 76.5 680.1 603.6 7.89 1.09
8/2/2022 25 79.3 751.9 672.6 8.48 1.09
11/1/2022 26 81.9 835.2 753.3 9.20 1.10
1/31/2023 25 84.9 941.1 856.2 10.09 1.10
5/2/2023 24 87.5 840.2 752.7 8.60 1.09
8/2/2023 23 90.3 926.9 836.6 9.26 1.09
11/1/2023 24 92.9 1,031.9 939.0 10.11 1.10
I posted this in Saul but should be of interest here too. I think Saul, Duma and others are correct in focusing on MRR. I did a small analysis below and would like to know your thoughts. BTW, I still have a small SHOP position and this discussion will help make up my mind.
Q3 2017 MRR was $27M
Q3 2018 MRR was $38M
Since MRR is a reflection of the number/quality of shop merchants you could simply say that merchants with MRR of $27M contributed $144M (171-27) of non MRR rev. in Q3 2017. This means for every $1M of MRR we got $5.33M of non MRR rev.
Similarly for Q3 2018 merchants with MRR of $38M contributed $232M (270-38) of non MRR rev. For every $1M of MRR we got $6.1M of non MRR. Remember this non MRR includes every other rev including the one paid by Shop+ members based on their GMV.
I carried out my analysis for all of the past 4 years and then estimated the next 4 years. First column is rev growth for that Q (yoy) (I used the date on which the Q report comes out typically so subtract 1 month). 2nd column is MRR each Q. 3rd col. is rev for each Q. 4th column is all rev that is non MRR. 5th column is ratio of non MRR to MRR. 6th column is growth of that ratio (yoy). You can see that it has been growing steadily at 10% (yoy), it was higher back in 2016. There has been a small spike this Q from 1.1 to 1.13 most likely due to the shopify plus contributions. But I doubt it will be long lasting, after the initial burst should settle back to 1.1 yoy. Nevertheless it is interesting to watch this. Last 2 columns just show the MRR and non MRR growth thus far. They are both slowing as expected no surprises.
Now for the future growth estimates. I have assumed in future every quarter we will add 11M in MRR (yoy). This has been the case in recent times and seems reasonable. I have assumed an averaged “ratio” growth for each Q based on the last 2 year’s corresponding Q. This is column 6. You can simply assume 1.1 too. From this you can calculate the non MRR growth since you already estimated MRR. Then you can estimate Q Rev and finally Rev growth rate. It shows overall rev. growth slowing over the next 5y, it is an average of 31% over the 5y so not too slow. If MRR growth is faster or if the ratio growth is faster then the rev growth will be faster too. The converse is also true. But can it grow faster? That is the question. IMO it is doubtful and this #s may be reasonable. We have to wait and see.
3 Likes
quarter rev grow MRR Rev Non MRR rev Ratio Ratio growth MRR growth Non MRR growth
2/1/2015 6.6 35.2 28.6 4.33
5/3/2015 95 7.4 37.3 29.9 4.04
8/2/2015 88 8.5 44.9 36.4 4.28
11/1/2015 96 9.8 52.8 43 4.39
2/1/2016 99 11.3 70.2 58.9 5.21 1.20 71.2% 105.9%
5/2/2016 95 12.8 72.7 59.9 4.68 1.16 73.0% 100.3%
8/1/2016 93 14.4 86.7 72.3 5.02 1.17 69.4% 98.6%
11/1/2016 89 16.3 99.6 83.3 5.11 1.16 66.3% 93.7%
1/31/2017 86 18.5 130.4 111.9 6.05 1.16 63.7% 90.0%
5/2/2017 75 20.7 127.4 106.7 5.15 1.10 61.7% 78.1%
8/2/2017 75 23.7 151.7 128 5.40 1.08 64.6% 77.0%
11/1/2017 72 26.8 171.5 144.7 5.40 1.06 64.4% 73.7%
1/31/2018 71 29.9 222.8 192.9 6.45 1.07 61.6% 72.4%
5/2/2018 68 32.5 214.3 181.8 5.59 1.09 57.0% 70.4%
8/2/2018 62 35.3 245 209.7 5.94 1.10 48.9% 63.8%
11/1/2018 57 37.9 270.1 232.2 6.13 1.13 41.4% 60.5%
1/31/2019 45 40.9 322.3 281.4 6.88 1.11
5/3/2019 44 43.5 307.6 264.1 6.07 1.09
8/2/2019 42 46.3 348.8 302.5 6.53 1.09
11/1/2019 44 48.9 388.9 340.0 6.95 1.10
2/1/2020 39 51.9 449.6 397.7 7.66 1.09
5/2/2020 35 54.5 416.2 361.7 6.64 1.09
8/1/2020 33 57.3 464.6 407.3 7.11 1.09
10/31/2020 33 59.9 516.1 456.2 7.62 1.10
1/31/2021 31 62.9 588.3 525.4 8.35 1.10
5/2/2021 30 65.5 539.1 473.6 7.23 1.09
8/1/2021 29 68.3 599.3 531.0 7.77 1.09
11/1/2021 29 70.9 664.9 594.0 8.38 1.10
1/31/2022 28 73.9 754.0 680.1 9.20 1.10
5/2/2022 26 76.5 680.1 603.6 7.89 1.09
8/2/2022 25 79.3 751.9 672.6 8.48 1.09
11/1/2022 26 81.9 835.2 753.3 9.20 1.10
1/31/2023 25 84.9 941.1 856.2 10.09 1.10
5/2/2023 24 87.5 840.2 752.7 8.60 1.09
8/2/2023 23 90.3 926.9 836.6 9.26 1.09
11/1/2023 24 92.9 1,031.9 939.0 10.11 1.10
I fixed an error in the analysis, improved clarity and posted this in NPI if anyone is interested. It is predicting a CAGR of 32.2% for the next 5y and for this valuation seems decent.
https://discussion.fool.com/shop-growth-estimates-34046462.aspx?..