Shopify In 3 Charts

Thought the board would be interested.…

Frank - long SHOP, see profile for all holdings


An alternative view…

  • That cash etc. on the balance sheet didn’t come from operations, it came from financing.

  • Cash from ops is piddly because right now they’re investing in acquiring customers and R&D.

  • In fact, cash from ops has only been positive because they’ve given out IOUs (options).

  • Ever hear of Faro? Faro was a Hidden Gem wreck back in the day. Fast grower. SPECTACULAR
    gross margins. But they were on a treadmill – they NEVER could stop investing in sales and
    R&D, and consequently never created any value for their shareholders.

  • Someday this pup has to provide a return that’s greater than its cost of financing. That’s
    the key metric – not growth or gross margin or profitability. Until we can get some idea of
    the timing and magnitude of that return, this is just a lottery ticket. Worse, at least with a
    lottery ticket you know the odds.





You have never SEEN the likes of SHOP! :slight_smile:

Seriously, though, thanks for the reminder that no company has it all. I do believe that SHOP can and will continue to grow impressively and eventually scale until its financing is insignificant. But I think it’s important to take off the rose colored glasses once in a while and look critically.

Another company besides SHOP that your post holds true on is AMZN. Is SHOP an AMZN or a FARO? Well I believe we need to look at how sustainable the businesses are. I don’t know anything about FARO, but I do know growth petered out in the mid-2000’s. And even before that, it was certainly no SHOP. Here’s a partial revenue history for FARO:

1999: 34M
2000: 41M
2001: 36M
2002: 46M
2003: 72M
2004: 97M
2005: 126M
2006: 152M

Now yes, 56.5% growth in 2003 was impressive and averaging ~30% for the next few years was good…but SHOP has grown at 100% and 90% for the last several years.

Also, in 2016, FARO’s revenue was 326M. So we’re talking 7% growth since 2006. (2006 is when Hidden Gems recommended a sell…doesn’t seem it was results oriented, but related to management shenanigans).

Now, SHOP’s past has definitely been more impressive, but since no one can see into the future, how do we know SHOP will not suffer similar stagnation?

Well, among other things, the business is just a bit of a virtuous cycle. They’re signing up new customers like gangbusters, but their customers are also growing, thus increasing SHOP’s revenue. Also, a lot of that revenue is subscription based, so it’s recurring. SHOP ever seeing just single digit growth does not seem likely. If their sales were ever flat, that would mean they were losing lots and lots of subscribers, or that their sales and advertising and R&D were literally accomplishing nothing, zilch, zero. AND their customers would have to do more poorly than they did in the past, as well.

I know nothing of FARO’s business model, and heck it may have changed. Maybe they’ll even do ok in the future. But I don’t think it’s a very good comparison to Shopify. Their history leading up to the HG pick and subsequent sale are much different and less impressive than SHOP’s. And not only SHOP’s results but also their business model make it seem unlikely that they will go the way FARO did afterward.