Another way to look at it…
Perhaps one way to look at this is valuation.
Shopify’s growth is certainly slowing, and its valuation is now very high based upon historical numbers.
Quarter MRR S+ Ratio GMV GPV SCap AEPS TTM YoY Gr Hi Lo Close WAS P/S/S P/EVHi P/EVLo P/EV
Mar-15 -0.06 39.3
Jun-15 -0.03 $42.13 $24.11 $33.95 53.0
Sep-15 -0.03 $41.11 $22.70 $35.20 75.9
Dec-15 -0.01 -0.13 $39.29 $24.06 $25.80 78.0 9.8 13.6 8.3 8.9
Mar-16 12.8 1.4 11% 2.7 1.0 -0.06 -0.13 0.0% $28.78 $18.48 $28.21 80.5 9.4 8.9 5.7 8.7
Jun-16 14.4 1.9 13% 3.3 1.3 -0.04 -0.14 -33.3% $32.39 $24.96 $30.76 81.3 8.9 8.7 6.7 8.3
Sep-16 16.3 2.4 15% 3.8 1.5 9.2 -0.02 -0.13 33.3% $45.20 $30.00 $42.92 84.9 11.1 10.4 6.9 9.9
Dec-16 18.5 3.1 17% 5.5 2.2 14.7 0.00 -0.12 100.0% $45.45 $37.74 $42.87 89.1 9.8 9.4 7.8 8.8
Mar-17 20.7 3.5 17% 4.8 1.8 19.0 -0.04 -0.10 33.3% $73.00 $42.14 $68.09 90.2 13.8 13.9 8.0 13.0
Jun-17 23.7 4.3 18% 5.8 2.2 37.2 -0.01 -0.07 75.0% $100.80 $67.22 $86.90 94.3 16.1 16.6 11.1 14.3
Sep-17 26.8 5.3 20% 6.4 2.4 44.1 -0.01 -0.06 50.0% $123.94 $84.80 $116.49 98.8 19.8 **19.4** 13.3 18.2
Dec-17 29.9 6.3 21% 9.1 3.5 39.7 0.15 0.09 NA $120.69 $89.35 $101.00 99.5 14.9 16.2 12.0 13.6
Mar-18 32.5 7.0 22% 8.0 3.0 60.4 0.15 0.28 475.0% $154.82 $101.02 $124.59 102.3 16.8 **18.2** 11.9 14.7
Jun-18 35.3 8.1 23% 9.1 3.6 68.5 0.15 0.44 1600.0% $175.11 $112.50 $145.89 106.0 18.1 **19.5** 12.6 16.3
Sep-18 37.9 9.2 24% 10.0 4.1 76.4 0.04 0.49 500.0% $176.60 $130.60 $164.46 106.6 18.4 **18.0** 13.3 16.8
Dec-18 40.9 10.4 25% 14.0 5.8 71.8 0.26 0.60 73.3% $166.86 $117.64 $138.45 107.7 13.9 14.6 10.3 12.1
Now $205.00 $205.00 $205.00 110.0 19.0 **17.7 17.7 17.7**
On a TTM basis, the P/EV ratio has been higher than it is today. So, at least from this perspective, the company is not overvalued. However, growth rates are a lot lower than they’ve been and will continue to go down, which makes the valuation, at least comparing to historical figures and future growth even higher.
The primary thing that Shopify has going for it is potentially significant future growth via international expansion. They have a pretty good history on delivering in their core markets. With this experience as well as a much better product offering, they should be able to grow into their new markets even better.
From the earnings call:
On the International front, a key step we took this year was translating the Shopify Platform which is now available in seven languages. This single undertaking in 2018 boosted merchant access to and merchant success on Shopify outside our core geographies of North America, the UK and Australia.
and this:
As such, merchants from outside our core Geos accounted for 24% of our merchant base 2018 up from 21% in 2017. And the contribution from international merchants to total GMV on our platform continued to increase with the GMV more than doubling over 2017 in three out of our four priority countries.
It looks like the platform was so good that having it in English was good enough for a lot of merchants. What will this be like when potential merchants see it in their own language? I’d bet that Shopify Plus use in these non core Geos is sparsely used for now. They mention quite a few company names using it and I don’t see any foreign company names. What will happen when Shopify gets these Geos using Plus like in their core Geos?
Also, what will happen to Subscription Solutions’ growth as this expansion unfolds? Right now, it’s a drag on the growth rate, which hurts the bottom line due to the significantly higher margins than Merchant Solutions. If history is any guide, they should grow their non-core Geos’ Subscriptions Solutions revenue a lot faster than their Merchant Solutions revenue, at least until there is some level of maturity (like in their core Geos).
Here are the existing figures for Subscription Solutions and Merchant Solutions:
Sub Mar Jun Sep Dec Tot
2015 22.4 25.5 29.6 34.6 112.0
2016 38.7 43.7 49.8 56.4 188.6
2017 62.1 71.6 82.4 93.9 310.0
2018 100.2 110.7 120.5 133.6 465.0
Grth Mar Jun Sep Dec Tot
2015
2016 73.2% 71.5% 68.6% 62.9% 68.4%
2017 60.4% 63.9% 65.4% 66.6% 64.4%
2018 61.4% 54.6% 46.2% 42.2% 50.0%
GP% Mar Jun Sep Dec Tot
2015 77.5% 78.7% 78.3% 77.9% 78.1%
2016 78.7% 79.2% 78.8% 78.8% 78.9%
2017 80.3% 80.9% 81.2% 78.8% 80.2%
2018 76.9% 77.9% 77.9% 80.0% 78.3%
---------------------------------------------
Mer Mar Jun Sep Dec Tot
2015 15.0 19.5 23.2 35.7 93.3
2016 34.0 43.0 49.7 74.0 200.7
2017 65.3 80.1 89.0 128.9 363.3
2018 114.1 134.2 149.5 210.3 608.2
Grth Mar Jun Sep Dec Tot
2015
2016 126.8% 120.7% 114.2% 107.5% 115.0%
2017 92.0% 86.3% 79.0% 74.2% 81.0%
2018 74.8% 67.7% 68.0% 63.2% 67.4%
GP% Mar Jun Sep Dec Jan
2015 28.3% 26.8% 24.1% 27.0% 26.4%
2016 25.9% 27.0% 26.5% 31.5% 28.3%
2017 34.3% 36.1% 37.1% 36.5% 36.2%
2018 41.0% 37.8% 37.3% 37.5% 38.2%
---------------------------------------------
Note the improvement, albeit small, on the Merchant Solutions margins.
Although growth is slowing, the market seems to be paying a nice premium for international expansion (and its impact on the TAM) and perhaps an expectation that the deceleration of growth will slow. With the introduction of new features like Launchpad, Scripts and Flow, we see optionality at work. This optionality will only increase as international growth expands.
So Shopify is richly valued with slowing growth, which may not slow down too much for the foreseeable future. But there are other companies growing faster than Shopify (Twilio, MongoDB, Square, zscaler and a few others).
For me, I feel like Shopify will be a long term success. While I may be able to get more growth elsewhere, I like having the company as a good part of my portfolio (almost 6.5%). My intention is to hold the shares until the investment thesis breaks. It makes my life easier not having to keep learning a lot about new companies. Saul, on the other hand, is among the best at learning new companies and making important decisions fast. I have a long way to go in order to get there.
DJ
and more really trying to understand your decision process…