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.