REV SUB REV MERC REV TTL REV GR SUB REV GR MERC REV GR
2012 23713 19200 4513
2013 50252 38339 11913 112% 100% 164%
2014 105018 66668 38350 109% 74% 222%
2015 205233 111979 93254 95% 68% 143%
2016 389330 188606 200724 90% 68% 115%
2017(E) 645000 303700 341300 66% 61% 70%
Above show SHOP’s full year revenue growth including overall revenue, subscription revenue, and merchant revenue growth. The 2017 numbers are based on the midpoint of their current guidance. I’ve looked at their guidance and tried to estimate the split between subscription numbers. Here’s how I did it on a quarterly basis:
REV SUB REV MER REV q/q Sub GR q/q Mer GR # Merchants Mer added Seq % added
Q116 72.7 38.706 34 275000
Q216 86.6 43.7 43 300000 25000 9.1%
Q316 99.6 49.8 49.7 325000 25000 8.3%
Q416 130.4 56.4 74 375000 50000 15.4%
Q117 127.4 62.1 65.3 60% 92% 400000 25000 6.7%
Q217 151.7 71.6 80.1 64% 86% 500000 100000 25.0%
Q317(E) 165 80 85 61% 71%
Q417(E) 200.9 90 110.9 60% 50%
The thing that doesn’t add up to me is if they added 25% more merchants in Q2, why wouldn’t that continue. A couple of things jump out at me:
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They added a lot of new merchants in Q2. After Q1 they said they have more than 400,000 merchants, and at then end of last year they said that they had more than 375,000 merchants. We don’t know if it was 401,000 or 430,000 after Q1, but any way you look at they added a huge amount of merchants in the past 6 months. Why is their guidance so low then? I see that their merchant revenue for Q3 should be closer to $95M and their Q4 which is their seasonally strongest quarter should have merchant revenue more like $115-120M (at least). And if their rate of merchants added stay high then there should be upside even above those numbers. And their Shopify Capital program is really taking off so there is additional revenue opportunity there. Therefore, I must conclude is that it is highly likely that they will beat their guidance by a fair amount. My guess is that a beat of $30M+ in the second half is very likely.
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Now back to the merchants added. Holy moly. 25% increase in Q2. That’s just extraordinary. The question is whether the Q2 increase is a one-time pop or whether Shopify is going mainstream and the rate of shift to online commerce is really accelerating now and SHOP is a main beneficiary of that. If it’s the latter then the $30M+ beat in the second half might even be way too low.
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The analysts must realize the above and I think we can expect buys reaffirmed and price targets hiked in the coming weeks.
Chris
28 Likes
The analysts must realize the above and I think we can expect buys reaffirmed and price targets hiked in the coming weeks.
Perhaps they’ll also realize that the margins on both business segments are expanding.
Sub Mar Jun Sep Dec SubGP Mar Jun Sep Dec
2015 22.4 25.5 29.6 34.6 2015 17.3 20.0 23.1 26.9
2016 38.7 43.7 49.8 56.4 2016 30.5 34.6 39.3 44.4
2017 62.1 71.6 2017 49.8 57.9
Grth Mar Jun Sep Dec GP% Mar Jun Sep Dec
2015 2015 77.5% 78.7% 78.3% 77.9%
2016 73.2% 71.5% 68.6% 62.9% 2016 78.7% 79.2% 78.8% 78.8%
2017 60.4% 63.9% 2017 80.3% **80.9%**
Mer Mar Jun Sep Dec MerGP Mar Jun Sep Dec
2015 15.0 19.5 23.2 35.7 2015 4.2 5.2 5.6 9.6
2016 34.0 43.0 49.7 74.0 2016 8.8 11.6 13.2 23.3
2017 65.3 80.1 2017 22.4 28.9
Grth Mar Jun Sep Dec GP% Mar Jun Sep Dec
2015 2015 28.3% 26.8% 24.1% 27.0%
2016 126.8% 120.7% 114.2% 107.5% 2016 25.9% 27.0% 26.5% 31.5%
2017 92.0% 86.3% 2017 34.3% **36.1%**
There is, however, one negative aspect to Merchant Solutions relatively faster growth. The aggregate gross margin will likely show decreases going forward as the Merchant Solutions make up more of the total revenue pie. However, this is a really good problem to have with growth at 86%.
The share count (stock comp) is increasing. But compared to sales growth, it’s certainly manageable…
WASh Mar Jun Sep Dec
2015 39.3 53.0 75.9 78.0
2016 80.5 81.3 84.9 89.1
2017 90.2 94.3
YoY Mar Jun Sep Dec
2015
2016 104.6% 53.4% 11.9% 14.3%
2017 12.1% 15.9%
… and they have a lot of cash & marketable securities on the balance sheet. It looks like they haven’t touched the proceeds from public offering yet.
$&MS Mar Jun Sep Dec
2015 190.2
2016 189.5 179.6 400.3 392.4
2017 395.7 **932.4**
All of this with existing business. What will the numbers look like when they add new products and services to all of those merchants?
DJ
16 Likes
DJ,
The share count (stock comp) is increasing. But compared to sales growth, it’s certainly manageable…
A fair amount of the share count increase as the secondary offering. They said total SBC in 2017 would be $55M which is a bit higher than I’d like but with the growth rate what it is it’s not horrible.
… and they have a lot of cash & marketable securities on the balance sheet. It looks like they haven’t touched the proceeds from public offering yet.
Their Shopify Capital program will allow them to put part of that cash to use while earning a 20-25% return and increasing their merchants’ top line of which they will also get a piece.
All of this with existing business. What will the numbers look like when they add new products and services to all of those merchants?
Do you mean wha this will look like in terms of increasing costs of adding those features or in terms of price increases to their merchants (in exchange for extra products and services)?
Chris
Chris,
A fair amount of the share count increase as the secondary offering…
Yes. My statement about the share count and the stock comp was off. I should have mentioned these separately. Stock-based compensation this past quarter was about $20 million and only a bit over $8 million in the same quarter last year. This amount is insignificant compared to the secondary offering and given the exceptional sales growth.
Their Shopify Capital program will allow them to put part of that cash to use while earning a 20-25% return and increasing their merchants’ top line of which they will also get a piece.
It’s difficult to say that investing these funds will yield 20% to 25%, because there is no net income to calculate the return. However, there is are two gross margin numbers that give a good indication of what the return could be: 81% for Subscription Services and 36% for Merchant Services, both of which are going up. How much of what is left that will drop to the bottom line will be determinable when they don’t spend as much on their operating expenses, which are basically in lockstep with sales for now. With the number of merchants they have and are getting, it looks like a great investment.
Do you mean what this will look like in terms of increasing costs of adding those features or in terms of price increases to their merchants (in exchange for extra products and services)?
I was refering to future revenue streams that we cannot even fathom today! Amazon started out as the Earth’s Biggest Bookstore, planting the seeds which would grow into what it is today. I’m sure that there are a lot of future products and services, many of which are unfathomable, that Shopify will offer its customers. Perhaps they won’t cost much to deliver once they’re in the ecosystem. This is really exciting, and for once in my investing life I feel like I got in on the ground floor of what could be a . This time, I’ll know what to do when volatility hits the stock, and it will.
The primary concern that I have is that Shopify won’t survive long enough and will be acquired some day. I certainly hope it doesn’t get acquired.
DJ
8 Likes
I should have mentioned these separately. Stock-based compensation this past quarter was about $20 million and only a bit over $8 million in the same quarter last year. This amount is insignificant compared to the secondary offering and given the exceptional sales growth.
DJ,
The SBC amount for the quarter was $11.601M of the quarter, not $20M. Look at the statement of cash flows again. The $20.808M is for the first 2 quarters of 2017 so to the the Q2 number you need to subtract the $9.207 number for Q1.
Chris
3 Likes
I was refering to future revenue streams that we cannot even fathom today! Amazon started out as the Earth’s Biggest Bookstore, planting the seeds which would grow into what it is today. I’m sure that there are a lot of future products and services, many of which are unfathomable, that Shopify will offer its customers. Perhaps they won’t cost much to deliver once they’re in the ecosystem. This is really exciting, and for once in my investing life I feel like I got in on the ground floor of what could be a . This time, I’ll know what to do when volatility hits the stock, and it will.
Thanks, DJ. I think you may be right here.
The $20.808M is for the first 2 quarters of 2017 so to the the Q2 number you need to subtract the $9.207 number for Q1.
Good catch! The amount for the prior period, also 6 months, is about $8 million. So there is still the same increase. But the magnitude of it is cut in half by the time frame. 