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
24 92.9 1,031.9 939.0 10.11 1.10
5 Likes
Yeh - this mind bending struggle is not unsurprising. It’s the reason why I also struggle between investing in Ali Baba and Baozun and reconciling pure GMV based e-commerce plays vs pure SAAS subscription plays and then we effectively are having to deal with Shopify which is a hybrid.
On the plus side - e-commerce is a multi decade tailwind. You have already seen the future in this with Amazon. You also have amazing data points from Ali Baba where a company 20x Shopify’s size has nailed a steady 50-60% GMV growth rate for years which gives confidence that Shopify GMV growth rates can maintain a high stable rate and avoid constant declining rates.
You also have excellent data points from other companies like Square etc highlighting how SME and mid size business sectors can be served with a SAAS model profitably with continued excellent growth rates which Shopify is also achieving.
Further to that you have a number of unique investment thesis rationale in Shopify’s favour…
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It has gotten ahead of the e-commerce curve and so future proofed itself with m-commerce and social commerce.
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Its internationalisation agenda also takes it ahead of Amazon and Ali Baba into Europe and Asia. (Only JD.com has called out Europe really and Ali Baba has moved on Asia. Amazon has been asleep at the wheel on its own internationalisation)
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Entering the Cannabis market could indeed be a massive boon from a Canadian market alone - throw in international cannabis e-commerce and throw in international regulated market place e-commerce (e-prescriptions anyone?), then you have a possible massive uplift.
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AWS onboarding is now complete - we should see the next 4 quarters benefit from removal of double counting in the cloud cost base as well as scalable efficiency leverage for the future.
Now - what still concerns me is:
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Potential for moderating growth rates - although the above points evidence how we should have confidence in being able to nail ~50% growth rates for the near term and if Amazon’s 20% e-commerce growth rates represent terminal growth I can live with that.
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Shopify fails to drive cash flow and profit growth in line with TOP line growth (although there’s the hope that the AWS move will reset the cost base and start to improve margins in the near future).
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SBC continues to be out of control and has doubled again since last year. (I didn’t see revenues double let alone profits double).
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Whilst the Shopify plus cap lifting is a phased outcome, at some point we will have tougher year on year compares once this impact is over - I hope it doesn’t time with tough year on year compares with the one time AWS impact and cannabis sales in the bag year on year as that will be a real issue to deal with.
Ant
15 Likes
Ugh - sorry, hit return too early…
One more worry that I’ve mentioned before…
- Amazon, Google and Facebook turn themselves into walled gardens with native e, mobile and social commerce solutions
Ant
2 Likes
Hi Darthtaco
Final thoughts. Merchant solutions stabilized at 68% growth, the same as last quarter. The greatly outpaces the 55% GMV growth, so SHOP is capturing revenue from sales. They are succeeding at being an e-commerce platform.
This segment is now a much larger portion of SHOP total revenue and pulling away. And the bigger portion is growing at 68%!!. The difference in gross margins between the two segments is not that substantial.
This tells me that the way the company is performing high total growth of >50% is a probability for quite some time.
Ok these are interesting distinctions and helps folks understanding. I’m reminded of a post about a billion years ago on the Fool.co.uk site discussing ARM Holdings.
Similar situation - frustrated holders not having a clear view of either the company’s model or the future success. Only Denny here will remember this.
Basically ARM was a fabless chip tech licensing company.
It sold licenses, it earned some services revenue and then earned royalties on chips. As it landed it also expanded but they didn’t call it that back then. Also back then the only continuous chip success stories were Intel and err Intel.
Anyhow - it seemed obvious now but we investors had to rationalise what we were investing in and why. After all Intel creams it on every chip (hundreds of dollars) and ARM was making cents on the unit. ARM’s licensing deals weren’t that transparent for obvious competitor reasons and seemed small beer and at that time royalties were also small beer - the lesson in volume came later!
Anyhow someone tried to describe this akin to a space rocket’s propulsion generated ascent.
First you have the main rockets that generate thrust at lift off (licenses) then you have booster rockets that add thrust (cross selling/expand/services) and finally in outer space you have zero resistance momentum. (royalties).
Anyhow you could conceivably think about this analogy in a similar way with Shopify.
First you have the core subscription recurring revenues (main rockets) then you have cross selling additional value added merchant services revenues (booster rockets) and finally you have GMV transaction cut revenues which represents the long term resistance free momentum - cue the volume story.
Maybe it helps maybe it doesn’t but just an occurrence to me!
All revenues are useful but it is important to recognise the specific roles, the interdependency as well as the longer term journey and not just argue about the either/or.
The ARM story ended very well and was my first 20 bagger.
Ant
4 Likes
MRR for the quarter was $32M on total revenues of $270M. Shopify MRR is 14% of revenues and getting dwarfed by the merchant solutions which is 56%
Ooops, sorry Darth, MRR stands for Monthly Recurring Income. MRR was $37.9 million (not the $32 million you referred to above). When you triple that it’s $113.7 million. It’s 42% of total revenue, not 14%.
Saul
1 Like
I made the same mistake. I have corrected it. The trend seems to be showing the same. Rev growth moderating over the next 5y. Only way it can accelerating is by increasing MRR or making more non MRR rev. I have assumed an average of 12% (yoy) basically shopify customers contribute 12% more rev (yoy). This was the average recent times. If this creeps up then rev growth can accelerate. I pasted the modified table below
quarter rev grow MRR Rev Non MRR rev Ratio Ratio growth MRR growth Non MRR growth
2/1/2015 19.8 35.2 15.4 0.78
5/3/2015 95 22.2 37.3 15.1 0.68
8/2/2015 88 25.5 44.9 19.4 0.76
11/1/2015 96 29.4 52.8 23.4 0.80
2/1/2016 99 33.9 70.2 36.3 1.07 1.38 71.2% 135.7%
5/2/2016 95 38.4 72.7 34.3 0.89 1.31 73.0% 127.2%
8/1/2016 93 43.2 86.7 43.5 1.01 1.32 69.4% 124.2%
11/1/2016 89 48.9 99.6 50.7 1.04 1.30 66.3% 116.7%
1/31/2017 86 55.5 130.4 74.9 1.35 1.26 63.7% 106.3%
5/2/2017 75 62.1 127.4 65.3 1.05 1.18 61.7% 90.4%
8/2/2017 75 71.1 151.7 80.6 1.13 1.13 64.6% 85.3%
11/1/2017 72 80.4 171.5 91.1 1.13 1.09 64.4% 79.7%
1/31/2018 71 89.7 222.8 133.1 1.48 1.10 61.6% 77.7%
5/2/2018 68 97.5 214.3 116.8 1.20 1.14 57.0% 78.9%
8/2/2018 62 105.9 245 139.1 1.31 1.16 48.9% 72.6%
11/1/2018 57 113.7 270.1 156.4 1.38 1.21 41.4% 71.7%
1/31/2019 45 122.7 322.9 200.2 1.63 1.21
5/3/2019 44 130.5 308.6 178.1 1.36 1.21
8/2/2019 43 138.9 350.3 211.4 1.52 1.21
11/1/2019 45 146.7 391.7 245.0 1.67 1.12
2/1/2020 43 155.7 463.1 307.4 1.97 1.12
5/2/2020 40 163.5 433.5 270.0 1.65 1.12
8/1/2020 39 171.9 488.5 316.6 1.84 1.12
10/31/2020 32 179.7 515.8 336.1 1.87 1.12
1/31/2021 31 188.7 605.9 417.2 2.21 1.12
5/2/2021 29 196.5 559.9 363.4 1.85 1.12
8/1/2021 28 204.9 627.5 422.6 2.06 1.12
11/1/2021 28 212.7 658.2 445.5 2.09 1.12
1/31/2022 27 221.7 770.7 549.0 2.48 1.12
5/2/2022 26 229.5 704.9 475.4 2.07 1.12
8/2/2022 25 237.9 787.5 549.6 2.31 1.12
11/1/2022 25 245.7 822.1 576.4 2.35 1.12
1/31/2023 25 254.7 961.1 706.4 2.77 1.12
5/2/2023 24 262.5 871.5 609.0 2.32 1.12
8/2/2023 23 270.9 971.8 700.9 2.59 1.12
11/1/2023 23 278.7 1,011.0 732.3 2.63 1.12
D’oh.
Thanks Saul. That changes it quite a bit. Will put that back in and see what comes of that. Still the smaller segment growing smaller vs bigger segment growing bigger. But I definitely have to rework that. Big mistake there.
Makes it difficult to figure though since you don’t know how to work that for a total quarter.
Darth
Discovered a small error in the above sheet, fixed it and I get a CAGR for next 5y of 32.2%. Only assumption is they keep adding MRR of $11M (yoy) and that the non MRR rev. that each 1$ of MRR brings keeps growing at 13% (yoy) which has been their average in the last 6 quarters.
A 5 year CAGR of 32% is pretty good at this valuation and I have decided to keep this stock unless a better opportunity comes along.
1 Like
Alright,
I was corrected by Saul that MRR should be about 3x what I said there.
Smaller segment at 42% growing the slowest at 41% and largest segment at 56% is growing the fastest at 68%.
Does not have nearly the same ring to it, for sure. Good thing about the boards is in the end you get the right info to properly make up your own mind. A lot of really good input abounds here.
If you go back in and apply the correct MRR numbers you get that SHOP is adding a very consistent MRR revenue increase each quarter of about $32-33M yoy.
SHOP also very consistently realizes 2.6-2.7% of total GMV as total revenue. Dividing total revenue by GMV. We talked about that back when Adobe acquired Magneto e-commerce platform and now SHOP was capturing about 3x the GMV.
Let me try to better articulate the e-commerce platform thesis for SHOP and why the success in Plus is so important. As we know e-commerce as a part of the economy is growing at a rate much faster than traditional commerce. According to the US census data since Q1 2017, retail sales have been increasing at about a 5% yoy rate give or take a percentage point. At the same time e-commerce has been growing at about 15% +/- 1%.
https://www.census.gov/retail/mrts/www/data/pdf/ec_current.p…
Go through just about any retail company report that has both a traditional retail channel and a e-commerce retail channel and the story is the same. The e-commerce channel is growing faster than the total company.
SHOP has been adding many big Plus companies. These are often companies that have a sizable business overall and already had an e-commerce business. When these companies come into the SHOP platform they add to SHOPs GMV only this e-commerce business. Not only that new revenue but all future GMV growth of that just e-commerce business. And then that goes on top of all the other new companies and all of their just e-commerce growth.
Most of the companies are not publicly held so it’s a little hard to find specific examples. But take privately held new customer Godiva. What does Godivas’s e-commerce look like? Hard to say exactly but comparable public company Hershey had 60% digital sales growth in their last quarterly report. Recent SHOP customer add Yeti just had an IPO so some public data is available there. From 2013 to 2017 direct to consumer sales increased from $14.1M to $194.4M for a CAGR of 93%. This compares to total sales increase of $89.9M to $639.2M, or CAGR of 63% for the whole company. The direct to consumer sales channel also includes the opening of a couple of flagship Yeti stores as well, so it’s not a perfect example of pure Yeti.com sales, but it’s representative of the trend. The global e-commerce economy is growing faster than the total economy. Much faster. And that’s the part that SHOP is involved with.
Shopify claims that the average year over year growth rate for SHOP Plus merchants is 126%. Plus wins matter huge and they keep adding more and more. And those Plus merchants grow and grow.
I don’t think I have anymore to add. If I made any mistakes in there let me know.
Darth
12 Likes