SHOP vs AMBA

I bought AMBA in the teens, rode it up to about 130, and went down with it to the 50s where it has been for awhile. I understand that GoPro is a big reason for the decline in AMBA. I also feel that it went up so fast once it lost momentum it crashed fairly hard.

SHOP concerns me as I see some similar traits. I am wondering what others think about a stock when you have the rapid growth and price appreciation like both AMBA and SHOP have exhibited.

Htownrich

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SHOP concerns me as I see some similar traits. I am wondering what others think about a stock when you have the rapid growth and price appreciation like both AMBA and SHOP have exhibited.

Hi htownrich,

Except for the price appreciation they are entirely, one hundred percent different animals.

AMBA makes little hardware things. Shop does software.
AMBA had no recurring revenue. Their customers could always choose a different chip provider, and sometimes did. Shopify is almost all recurring revenue, and growing.
AMBA had one big dominant customer. And when that customer flamed out, Amba lost all its growth. Shopify has hundreds of thousands of little customers who are plugged into Shopify’s system - forever, for all practical purposes.

What traits do you see similar besides the price rise in the stock?

Saul

20 Likes

I am concerned if AMZN stop using SHOP. Do we then have a GoPro AMBA situation. I understand this is probably not likely. In fact, I think AMZN may one day buy SHOP. I have learned and like very much the idea of recurring revenue for companies including SHOP.

Htownrich

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My perspective is that AMBA’s main focus targets Fitbit, and “some” others. Where as SHOP’s main focus serves an unlimited number of products and services. The timing of SHOP aligns with the proliferation of e-commerce, which has a far longer runway and total addressable market(TAM).

AS many people liken SHOP to AMZN, as one looks back to 4/23/99 when AMZN was at $105/share only to get more than cut in half to $44 on 8/6/99. On 12/10/99 it was back up to $106 only to lose 85% of its value on 1/12/2001. Fast forward 12 years to 12/20/13 when AMZN was at $402 only to dip to $287 on 10/24/14. Eight months later on 5/1/15 it was back up to $423, only to hit $672 on 12/4/15, back down to $502 on 2/5/16 and to $823 by 10/14/16 to $934 as of yesterday 5/5/17.

As I type this, I can’t imagine SHOP NOT experiencing similar “character building opportunities” for shareholders of SHOP as it grows. That said, just typing this has helped prepare me for the road ahead and tells me I need to temper my expectations to expect volatility. The growth of SHOP or any other golden opportunity like SHOP will never be a straight vector.

SHOP seems to require far less capital (warehouses, airplanes, etc. ) to grow revenue than AMZN, so it feels somewhat less risky, but for their need for data centers and the value of each share of stock getting too far ahead of itself.

This is where I get outside of my knowledge zone. Although I am learning a lot from Saul, Denny and the many contributors to this board, I do not consider myself an expert and would ask other more seasoned stalwarts who hang out on this fabulous board to weigh in and take this part of the conversation into the fundamentals of the price per share and how it aligns with Earnings, TAM, market share % SHOP controls, what if SHOP gets bought by AMZN etc.

sjo

7 Likes

I think another important distinguishing difference is the growth rate comparison. When AMBA did its climb to the top of the mountain and then down again I don’t remember it growing the same rate as SHOP. Shop has been growing at 75-100% and the terminal growth rate it is likely to reach with the commerce market growth rate is substantially higher (20-25% as demonstrated by AMAZON) is substantially higher than the terminal growth rate of semiconductor chips supporting electronics which is also cyclical.

Ant

5 Likes

The example of Amazon should scare everyone, and but also inform and enrich everyone. This volatility happens to EVERY SINGLE successful stock. Up and down up and down. Look at Cisco, Microsoft, Intel, Amazon, Google, Tesla, et al.

Those who held on, and systematically bought, or simply bought at opportune times from time to time, were quite enriched. Those who sold at the top were probably quite enriched (but years later disappointed).

On the other hand, you can say that about many stocks.

Look at AOL. But as we have discussed, AOL was in the midst of being demonstrably disrupted by broadband.

Intel, same thing but with mobile.

Other times, you misrecognize a stock because you have your heart in the stock (not your head). And sometimes it is just bad luck.

Amazon happens to be good luck. Remember, if not for AWS, Amazon would not be close to the stock it became again. Yet most people would have held simply because it was the dominant etailer, and then got lucky AMZN became more.

SHOP vs. AMBA. I agree, not much to compare. SHOP has a large competitive moat. AMBA does not. SHOP has a TAM so large that not even Burt Hochsfeld will guesstimate it. AMBA, not the same.

But, that makes us feel good. Look at Amazon, all powerful Bezos and Amazon. The stock has been crushed multiple times throughout the years. Toss AMBA aside, it WILL also happen to SHOP. When will it happen to SHOP though? Is now the peak, or will it be when SHOP has a marketcap of $15 billion and crashed back to today’s valuation? Dunno.

What I do know is that if I sell SHOP now, and lock in my profits to date, I will pay 30-40% or more on taxes as the capital gains will be added to my income.

However, if you have held SHOP for more than a year, you can get long-term capital gains treatment (20%, and expected to fall if Trump tax plan is enacted), or if you hold it in a SEP account (0% tax), then you will have more freedom.

This is why I say, that too often we do too much, and fretting and doing all the activity actually hurts our long-term returns. It takes a lot of activity and fretting to find and buy long-term winning companies, but once you have one, perhaps we are best off leaving them alone.

Tinker

17 Likes

I like SHOP. I own a few shares and have done well. I will hold for awhile longer. But, when those merchant receivables on the b/S get to be a certain size (haven’t determined this level yet), I am out. I don’t think these guys have any business being in the credit risk business. They are not underwriters. All this stuff looks harmless until the economy turns. Then these loans could be just the thing that sinks them.

4 Likes

What is the most convincing argument for SHOP in terms of their fundamentals?

I get the concept, and a cloud business with a lot of MRR is great. The company is almost doubling revenue annually, also great.

But they lost money every year for the three years of data I have seen, and their investing losses seem to be accelerating at an alarming rate, significantly exceeding their gross income. Their P/B now is over 20, and their P/S is almost 19. The company is not making profit, which is understandable in the early building stages, but with forward PE of 716 it just seems to scream OVER HYPED! A slew of downgrades this past couple of weeks doesn’t help, but probably expected given they have quadrupled in price in a year, and doubled in the just the last 4 months.

Seems very frothy, and ahead of itself.

I’ve had SHOP in my trade screen a couple of times, but felt I was chasing and couldn’t pull the trigger. What would compel an investor to take a position at this level?

-----
Invest wisely my friends
CMFSoloFool - Ticker Guide / Share Holder
Profile and holdings: https://goo.gl/TYTU4S

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But they lost money every year for the three years of data I have seen, and their investing losses seem to be accelerating at an alarming rate

Hi Solo Fool,
Not sure where you are getting your data. Last year, their cash loss (adjusted net loss) was $10.3 million. Their revenue was $389.3 million. That comes to 2.6% of revenue. To call that “accelerating at an alarming rate” is (I’m sorry) laughable.

Even looking at GAAP, (including non-cash expense of SBC) they only “lost” 9% of revenue.

They have made it clear that they have a green field opportunity and they are going to spend all their profit to build recurring revenue while they have the chance. Current stockholders think that makes a lot of sense.

But that’s what makes horse racing.

Saul

8 Likes

I am concerned if AMZN stoped using SHOP. Do we then have a GoPro AMBA situation.

Hi Htownrich,
Posting on this thread led me to spot this worry you posted earlier. Well Amazon USED TO HAVE a product to help people set up their businesses on Amazon. They decided that Shopify did it so much better that there was no point in reinventing the wheel. They closed down their product and told all their users to go to Shopify instead (in middle 2015, as I remember). I hope that that calms that particular worry.

Saul

2 Likes

Hi Solo,

What is the most convincing argument for SHOP in terms of their fundamentals?

The only fundamental argument they have is their Revenue growth.

What would compel an investor to take a position at this level?

The companies Tam and their leadership in the market. I would put a small portion to work now and add equally to the position every time it went up 25%. This would get me into the company and if the market drops I would not be hurt.

Andy

What is the most convincing argument for SHOP in terms of their fundamentals?

Hi Phil,

If you really want to know, read this: https://seekingalpha.com/article/4069084-shopify-investors-k…

Bear

2 Likes

Thanks all for the feedback, I have my reading cut out for tonight. Meanwhile;

@Saul,
I was referring to investing losses;
2014 = -40, 2015 = -84, 2016 = -270, versus revenue;
2014 = 105, 2015 = 205, 2016 = 389

That’s what I’m seeing in the report I have.

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Invest wisely my friends

Hi again SoloFool
I can’t imagine where those numbers came from or what they mean.

Here’s the quote direct from the company’s own year-end press release (where I got my figures):

Full-Year Financial Highlights

Total revenue for the full year grew 90% to $389.3 million…

Gross profit dollars grew 85% over 2015 to $209.5 million…

(GAAP) Operating loss for 2016 was $37.2 million, or 10% of revenue…

Adjusted operating loss for 2016 was 3% of revenue or $12.1 million…

(GAAP) Net loss was $35.4 million…

Adjusted net loss for 2016 was $10.3 million…"

I can’t imagine where any service’s computer got “Investing Losses of $270 million” out of that!!!

Saul

4 Likes

SoloFool,

I have to agree with Saul on this one. What are they investing in? They have not been acquisitive, they have not bought their own shares, they have not bought the shares of others. What they are spending their money on is sales, marketing, infrastructure and R&D.

They have moved into a new larger headquarters in Canada…but other than this, that figure is utter nonsense in regard to anything relevant to SHOP.

Tinker

1 Like

Ok, so I went to the annual report on the Shopify site, and on page 7 of the Consolidate Balance Sheet, which is page 86/147 in the report, this is what I got:

Cash flows from investing activities
Purchase of marketable securities (369,208) | (111,154)
Maturity of marketable securities 139,872 | 48,350
Acquisitions of property and equipment (23,773) | (16,525)
Acquisitions of intangible assets (2,463) | (4,511)
Acquisition of businesses, net of cash acquired (14,114) | —

Net cash used in investing activities (269,686) | (83,840)

The left column is 2016, the right is 2015. I guess this is how they report what they are doing with their cash. So aside from property, equipment and intangibles these are cash equivalents?

-----
Invest wisely my friends
CMFSoloFool - Ticker Guide / Share Holder
Profile and holdings: https://goo.gl/TYTU4S

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SHOP is a Canadian company so they may have some different accounting idiosynchoncies. That could be accounting for stock option expenses, although stock options are normally cash flow positive.

Worth digging more into, but not something I’m too concerned with business wise.

Tinker