SHOP Q3 Results

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
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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…

  1. It has gotten ahead of the e-commerce curve and so future proofed itself with m-commerce and social commerce.

  2. 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)

  3. 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.

  4. 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:

  1. 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.

  2. 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).

  3. SBC continues to be out of control and has doubled again since last year. (I didn’t see revenues double let alone profits double).

  4. 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…

  1. Amazon, Google and Facebook turn themselves into walled gardens with native e, mobile and social commerce solutions

Ant

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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

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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.

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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.

https://www.shopify.com/plus

I don’t think I have anymore to add. If I made any mistakes in there let me know.

Darth

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