I have no position in Shopify (SHOP) – long or short – plus I have
NO opinion whether Shopify is a good or bad investment. My interest
in Shopify is purely as a spectator.
Shopify’s cash flow is different compared to many of its peers. That’s
because Shopify’s change in deferred revenue is only a minor source of cash.
For most of its peers, the change in deferred revenue is the MAJOR contributor
to cash flow.
I’ve tried to show the difference using the table below. It shows the change
in deferred revenue from the cash flow statement as a percent of revenue. I
used salesforce (CRM) as it was back a few years after its IPO when it was then
about the size that Shopify is now. I also show salesforce today. In addition,
I’ve included some other SaaS companies of different sizes to give another
perspective. Note: these figures are as of the most recent fiscal year-end.
Change in Deferred As a pct Revenue Revenue of Rev ---------- --------- ----- Shopify (SHOP) 673,304 10,960 2% salesforce (CRM) 2007 748,700 196,831 26% salesforce (CRM) 2017 10,480,012 1,551,904 15% Box (BOX) 506,142 78,939 16% Coupa Software (COUP) 186,780 36,072 19% Everbridge (EVBG) 104,352 16,378 16% Okta (OKTA) 259,990 54,945 21% ServiceNow (NOW) 1,933,026 381,562 20% Veeva ( VEEV) 685,571 61,773 9% Wix (WIX) 425,636 58,353 14% Workday (WDAY) 2,143,050 315,584 15% Zendesk (ZEN) 430,492 51,204 12%
What does this mean? If you think about SaaS firms and their major
sources of cash, it’s typically a three legged stool. The first leg
is depreciation, usually the smallest leg for these firms. The other two
much bigger legs are stock compensation and change in deferred
revenue. Shopify is missing a leg.
Not only that, but the Shopify Capital progam is going to be an
increasing drain on cash. Fortunately, the capital raises in the last
few years give them some flexibility here.
Although…the new CFO said “stay tuned” about deployment of that cash.