Shopify – A timely review.

[putnid]

I’ve been sitting on the sidelines reading all the comments posted about Shopify (SHOP) and, frankly, I find myself shaking my head and wondering: “What do these folks see that I don’t?” I’ll explain by referring to SHOP’s press release regarding its 2Q earnings.

https://seekingalpha.com/pr/16902083-shopify-announces-secon…

Yeppers, SHOP’s revenue growth has been prodigious. But I’m an earnings/profits kinda guy. What about those metrics?

From the press release:

Operating loss for the second quarter of 2017 was $15.9 million, or 10% of revenue, versus $8.7 million, or 10% of revenue, for the comparable period a year ago.

Let’s pause and think about that for a minute. SHOP loses 10 cents on every dollar of sales. Despite the fact that revenues keep growing prodigiously, SHOP keeps losing money.

Net loss for the second quarter of 2017 was $14.0 million, or $0.15 per share, compared with $8.4 million, or $0.10 per share, for the second quarter of 2016.

Wait. What!?! Revenues keep growing (and a whole lotta folks swear these are quality customers), but the net loss per share keeps growing, too?

Adjusted net loss for the second quarter of 2017 was $1.1 million, or $0.01 per share, compared with an adjusted net loss of $3.0 million, or $0.04 per share, for the second quarter of 2016.

Well, OK, that doesn’t seem all that bad, but wait, here’s the explanation:

Adjusted operating loss in the range of $7 million to $11 million, which excludes stock-based compensation expenses and related payroll taxes of $55 million

So, let this sink in a minute. SHOP loses 10 cents on the dollar, but rewards its managers $55 MILLION in stock-based compensation. Let’s contemplate the fact that SHOP’s 2Q revenues totaled to $151.7 M. Um, I’ve always had a problem with C-suite denizens rewarding themselves handsomely, but this truly makes me gag.

At June 30, 2017, Shopify had $932.4 million in cash, cash equivalents and marketable securities, compared with $392.4 million on December 31, 2016. The increase reflects the $560 million in net proceeds from Shopify’s offering of Class A subordinate voting shares in the second quarter.

OK, folks seem to take comfort in SHOP’s cash balance. Let’s think about this. SHOP gained $560 M as a consequence of selling more shares (that’s what’s called DILUTION peoples). Notwithstanding that, when all was said and done, it appears that SHOP burned through about $10 Million in cash over the course of the quarter. Sigh, that’s what happens when you lose 10 cents on the dollar.

All this reminds me of an old, old Wall Street joke: “I’ll sell at a loss but make it up in volume!” goes the joke.

As I stated at the outset, I truly don’t get this fixation on revenue growth versus what, to me, should be a fixation on earnings/profit growth.

[stenlis]

putnid,

While I think SHOP is somewhat overvalued (I’d pay $80 for it…), it’s not for the reasons you write.

Let’s pause and think about that for a minute. SHOP loses 10 cents on every dollar of sales. Despite the fact that revenues keep growing prodigiously, SHOP keeps losing money.

You could have written the very same thing about AMZN in 2003. Growing fast but generating a loss. That’s what fast growing companies do.

http://www.wikinvest.com/stock/Amazon.com_(AMZN)/Data/Derive…

SHOP loses 10 cents on the dollar, but rewards its managers $55 MILLION in stock-based compensation. Let’s contemplate the fact that SHOP’s 2Q revenues totaled to $151.7 M. Um, I’ve always had a problem with C-suite denizens rewarding themselves handsomely, but this truly makes me gag.

They reward themselves in stock and stock options, not cash. I find insider ownership good. It aligns management interests with mine and it gives me a good hint at what is a good time to sell.

OK, folks seem to take comfort in SHOP’s cash balance. Let’s think about this. SHOP gained $560 M as a consequence of selling more shares (that’s what’s called DILUTION peoples).

And that was a good move as well. I think SHOP is overvalued. SHOP management probably thought that as well so why not issue stock when it’s high and do buy-backs when it’s low? If people are throwing money at you and you can invest it well, why wouldn’t you do it?

Notwithstanding that, when all was said and done, it appears that SHOP burned through about $10 Million in cash over the course of the quarter. Sigh, that’s what happens when you lose 10 cents on the dollar.

If you follow this board a bit and read earning calls reviews that the users here write, Shirely you noticed people here understand what a net income loss is.

As I stated at the outset, I truly don’t get this fixation on revenue growth versus what, to me, should be a fixation on earnings/profit growth.

Then you should not invest in this kind of stock. Simple as that. It’s risky and tricky and you need to be able to assess the company well.

SHOP has a couple of things going for it - it’s subscription based, has a large pool of potential customers and it’s inherently a high-margin service business. They are not a printer manufacturer.
The problem is just the price of the stock. Look through Amazon’s historical P/S chart:

http://www.wikinvest.com/stock/Amazon.com_(AMZN)/Data/P:S

You’ll notice that it was never ever higher than 20. And you might argue that AMZN is a retailer, but I’ll counter that it’s equally a service for retailers to sell their stuff.

[captainccs]

While I think SHOP is somewhat overvalued (I’d pay $80 for it…), it’s not for the reasons you write.

Stocks are overvalued mostly because people pay too much for them. It’s an issue of (mis)perception or greed.

Denny Schlesinger

[Kingran]

sales aren’t profits

As long as the company is incurring expenses that help them to grow the revenue or making investments today for the future, it doesn’t matter.

But if a company is basically running at negative margins, because of negative margins they are able to grow…