Shopify - a reprise

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.

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


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


All I can say is thank you for sharing your extraordinary knowledge so freely.still, I somehow feel fear to buy when some company has grown so fast so quickly. i plan to visit this board every day this year to soak up all this knowledge so i can invest confidently.
wish you and your family a safe, peaceful, happy, successful newyear

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Hi Saul,

I asked about this before with no reply, so I’ll try again. There’s an inconsistency about your analysis that bothers me. This time I went to the Knowledgebase to see if there’s anything there, and there is.

In the Knowledgebase, quoting ptheland: “So I’d say the first step in evaluating a business is to look at their management. Honest management will give honest financial statements. Dishonest management will give dishonest financial statements - even if those statements follow GAAP.”

Yet here, in discussing what’s to like about SHOP, nowhere do you say that you believe Shopify management to be honest or trustworthy or exhibit integrity. It would seem it would at least rate a mention. I’d actually expect some evidence for said belief as well, given the care put into providing meaningful evidence of financial performance.

Maybe I’m being overly picky here, or just confused, but I’d appreciate it if you would explain.

(phenomenal results this year, in some part due to this board)

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“I don’t remember seeing any company, EVER, that has grown like that.”

Rare words from someone with the investing experience, knowledge, and skills of Saul.

Thanks, Saul, for your frankness. I just placed another buy order for more SHOP shares.

Best of investing luck to each of you in 2018.


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Obviously, I’m not Saul, but I’ll take a stab at answering your question as I too believe that management integrity is at the top of the list when investing in a company.

Unfortunately, this is damnably hard to investigate. Most companies post management biographies, but I’ve never seen a negative one, so maybe those biographies are not the best source.

Then, there’s They provide an employee evaluation of the management, if any employees have taken the trouble to post anything. This being the real world, usually there’s not a lot of posts unless the employees have something to bitch about. In the past, some folks on this board have challenged the integrity of negative posts, assuming that one or a few employees with a gripe sign on to Glassdoor under several false identities in order to post numerous negative posts that all seem to come from different people. I don’t buy that. First, that’s an extraordinary amount of hassle just to register a gripe. Second if you actually read the posts as I have (re/ CEO Garrabrants @ BOFI) you can’t help but notice that each post has different word usage, grammatical structure, typos, etc. Nobody would go that kind of trouble no matter how disgruntled they may be. I bailed from BOFI and never looked back. If I had taken the trouble before investing, I probably would not have bought in the first place.

But, Glassdoor is unreliable in that most often there aren’t many comments one way or the other. If there’s only a small handful, that doesn’t impress me as meaningful.

So, what’s left? The transcripts from the quarterly reports are very telling. Almost always you will get a report from both the CEO and CFO. Often, other officers of the company participate. OK, the canned remarks may not indicate a whole lot, but if you read the responses to the Q&A session, you can get a god feel about the C level management. And especially if you read a series of 5 or 6 transcripts in most cases it’s pretty easy to evaluate whether the officers are making excuses quarter after quarter or answering questions candidly and addressing issues directly.

In other words, the words of the officers over time are probably your best gauge as to whether they are honest and direct or misleading and evasive.


For me personally, I get a lot of clues as to the integrity of management by listening to the earnings calls. It’s the nuances in the voices that gives a lot away to me. Video interviews, if you can find one, of the CEO, give me even more information. Body language tells me a lot. There’s much more I get too but it’s difficult to describe.

This is not an inteview but conference video of Tobi Lutke:

He reminds me of a young Jeff Bezos. Kinda nerdy, relaxed, driven.


Thanks for the video Dana! The opportunity he outlines between 16:45 and the 20 minute mark really explains the value Shopify is adding!


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Great Video!!!