For some end-of-the year reading I thought perhaps you’d like being reminded why we are in Shopify. Here’s a post I made back on October 7th. It’s almost three months old but the story hasn’t changed and it will help you focus your mind. At a minimum, it will make you feel good about how smart you are to have a position in Shopify. Have a great new year, all of you.
Saul
Shopify – A timely review.
I know you’ve heard a lot about Shopify lately, but I was troubled to see several members of the board get scared out of their positions by a hysterical short attack and I thought a little review of Shopify, the actual company, might be in order. Let’s take a look.
Their success in the marketplace: There has probably been no other company on the planet that has been more successful at growing, that has grown as fast and as consistently as Shopify has over the past four years. Here’s what their revenue has looked like, if you’ve forgotten:
**2012 24 million**
**2013 50 million**
**2014 105 million**
**2015 205 million**
**2016 390 million**
That’s slightly over 100% compounded for four years, a little over a 16 bagger for revenue in four years. At the end of 2017 it will be roughly a 28 bagger in 5 years. I don’t remember seeing any company, EVER, that has grown like that.
What is their marketplace? Is it growing? Well they are in online commerce. They help merchants set up and run online websites and businesses. Is online commerce a contracting market or a growing market? Do you see it contracting any time in the forseeable future, with a rush back to bricks and mortar?
But they just fell 15.9% in a week! Surely that means the end is near:
What short memories! Shopify hit $105.50 in the beginning of August and fell 16.4% to $88.20 in a week and a half. Was it the end? Well in the next month it rose to $123.80, a little over 40%!
That doesn’t mean they’ll rise 40% in the next month from now. What it means is that stocks like this are volatile.
What’s their business model? How do they make money?
They have two main revenue streams, Subscription Solutions and Merchant Solutions.
Subscriptions Solutions is SaaS revenue. It’s recurring each month, and just grows. It’s high margin.
Merchant Solutions is the money they make from their merchants’ sales. It’s also recurring in a sense, as their merchants keep making sales. It’s much lower margin.
Shopify Plus is their solution for major enterprises, of whom they have surprisingly signed up quite a few, certainly many more than I expected, and it’s growing very rapidly. To give you an idea, some that launched just in the June quarter included Visa, Frito-Lay, BuzzFeed, Canadian Tire and The New York Times, (and others that I’m not bothering listing).
Shopify Capital gives loans to their customers which is paid back out of the sales the merchants have on their websites.
Why aren’t they making any profit?
Well, they’ve said that their market opportunity is so vast that they’d be crazy not to grab as much of it as they can. So they have been conscientiously pouring about 1% to 3% more into building out the business than they’ve been taking in as revenue. They lost all of 1 cent per share in the June quarter and have promised for some time that they’d show a profit in Dec quarter. (They can have a profit whenever they want it by spending 2% less, and it may arrive a quarter early in the Sept quarter). [It did, and they made 5 cents in the Sept quarter.]
How have they been doing recently? Let’s look at the June quarter:
Total Revenue was up 75% to $152 million. In the ordinary world companies don’t grow revenues by 75%. They just don’t! This is extraordinary.
Subscription Revenue was up 64%. It was 47% of revenue, and is almost all recurring. Shopify Plus, the large merchants, was up 89% and was 18% of recurring revenue, and growing rapidly.
While we’ve heard from posters on the board that it’s hard to sell online, Merchant Solutions revenue was up 86%, and is growing faster than subscription revenue. Gross Merchandise Volume passing through their system was up 74% to $5.8 billion. Yes, Billion!
Gross Profit was up 83%. That’s faster than revenue, and thus means increasing gross margins.
Now look over some of those percentages of growth that we just encountered: 75%, 64%, 89%, 86%, 74%, 83%. Is this company having any trouble growing? Is it reaching the end of it’s TAM? You must be kidding!
Here are some business highlights they announced:
• In July, we began shipping our Chip and Swipe Reader, enhancing our point-of-sale channel, which is our second-largest channel for GMV.
• Also in July, we announced the integration of eBay as a channel for merchants. The integration will enable Shopify merchants to surface their brand and products to more than 169 million active eBay buyers, while managing eBay orders, inventory and messages from within Shopify.
• In June, we announced the integration of Buzzfeed, with its audience of more than 200 million, as a channel for merchants.
• Shopify Pay, a feature designed to increase conversion at checkout by streamlining the checkout process, especially on mobile devices, went live in Canada.
• Shopify Payments went live in New Zealand, added to the US, Canada, U.K, Australia, and Ireland.
• We made the virtual assistant Kit free to all merchants, to use to help automate online marketing.
• Mobile traffic to merchants’ stores continued to grow, reaching 72% of traffic and 60% of orders.
• In the quarter, Shopify Capital issued $37 million in merchant cash advances, up nearly 100% sequentially!
How about competition from Amazon, eBay, etc?
Well a couple of years ago Amazon closed their own merchant website service and told people to use Shopify. And Shopify will now also be native on eBay. Here’s what they said in the conference call:
In both those cases, our objective here is to ensure that our merchants on our platform can sell anywhere they potentially have customers waiting for them. And so, obviously, Amazon and eBay being two of the largest marketplaces globally were obvious fits for us.
Amazon, we’re continuing to work with to improve the experience for our merchants. We also are beginning to expand into new categories with Amazon, which is exciting. eBay hasn’t launched yet, but again, the goal, whether it’s Amazon or eBay or it’s BuzzFeed or Wish or any of the other channels that we’re looking into, is to enable our merchants to sell more.
The addressable market continues to get larger and larger. And Shopify is actually increasing the size of the pie.
Conclusion: Okay, here’s this company that is growing at a rate beyond which we’ve ever seen, and has signed up enterprises like Visa, The New York Times, Nestles, Frito-Lay, etc, and you are going to get scared out of your position because some short tells you it’s like Herbal Life? Does this sound like Herbal Life to you? Really? Read it again!
Best to you all
Saul
For Knowledgebase for this board,
please go to Post #17774, 17775 and 17776.
We had to post it in three parts this time.
A link to the Knowledgebase is also at the top of the Announcements column that is on the right side of
every page on this board