The Shopify Conundrum

Shopify was discussed in another thread and I thought I’d start a new one focusing on what to do with Shopify today. We know that Shopify had an enormous run up in 2019 after stagnating for what seemed to be a long time as a holder of the stock. FWIW, Shopify is my #1 position around 16% of my portfolio and has returned just under 8x since my purchases.

Shopify is currently the most highly valued name in my portfolio. I do not own ZM or DDOG. SHOP trailing EV/S is 30.4 and they sport a whopping P/GP (Bear’s metric) of 58.1. Stacking Shopify’s business metrics against the likes of CRWD and looking at the valuation will simply leave one scratching their head.

Revenue growth has been in the mid-40s range and if they beat Q4 by $9M (I expect they can do a bit better), growth will come in at 42.7% which is still dropping though not nearly as fast as it was. Gross margins are in the mid-50s. Shopify has been operating the business at roughly breakeven and doesn’t seem to be focused on profits today at all. They are not losing ground, but not really gaining either.

What is missing above is their competitive advantage period (CAP). The market this year woke up to Shopify’s CAP. Their CAP is quite large with a very long time horizon. The reasons why they have such a large CAP are relatively evident to me, but I won’t get into them for the purposes of this post as it is getting a bit long in the tooth. If others are interested in discussing their CAP, we can do so.

As far as what to do with Shopify, it is a bit difficult. First, Shopify may never have another year like 2019 in terms of price appreciation unless recovering from a market meltdown or some serious FUD. However, Shopify is a great business, and I’m not one to sell out of great businesses simply on valuation alone. I may do a bit of trimming, but Shopify will remain a core position for me. It is one I anticipate holding onto for many, many years.

For those who don’t own Shopify, buying today would be quite difficult and require a leap of faith and a long term mindset at these prices. Undoubtedly, Shopify will show valuation compression at some point. Who knows when that will be. However, I would be watching out for dips such as the one we saw this past year.

I leave it to others to continue this conversation if it is of interest.

Happy 2020!



OK. I’ll bite here. I owned SHOP most of 2019 and there’s no doubt it goosed my returns in a big way. Despite its bigger market cap and the law of large numbers, the stock posted an incredible 187% gain this year. Looking back, I commented on it in all 12 of my writeups. I don’t own it heading into 2020 but can’t say for certain I wouldn’t again given my comfort with their story and plan. I currently view SHOP as more of a portfolio stabilizer than a driver of returns even though it proved it can drive returns just fine during 2019.

Below is a compilation of my summaries. You might find it helpful if considering Shopify. If you’ve already decided SHOP’s a pass, this is definitely tl;dr and I’d click “Next” above as quickly as you can.

Monthly Allocations:
(“–” denotes exiting position)

	2018	2019											
	31-Dec	31-Jan	28-Feb	31-Mar	30-Apr	31-May	30-Jun	31-Jul	31-Aug	30-Sep	31-Oct	30-Nov	31-Dec
SHOP	3.4%	3.4%	3.4%	4.8%	5.2%	5.9%	4.5%	--	 	3.6%	3.5%	3.2%	--

Monthly Comments:

January – A lower conviction position entering 2019 even though I bought a small trading position in December when I thought the market overreacted to their secondary offering. Fortunately, that purchase has worked out so far. I thought I might sell either the trading lot or the whole position this month, but the generally strong holiday season and Ant’s take on the Canadian cannabis market (…) has me at least curious about earnings. I decided to hold for now and exit ILMN instead.

February – SHOP was on my bubble entering 2019, but as I wrote last month the strong holiday season and their foray into the Canadian cannabis market made me curious enough to hold through earnings. While growth technically slowed, SHOP still posted an impressive 54% Q4 rate and 59% for FY18. Shopify touted that as record growth for a company posting a $1B revenue year. Most metrics are understandably sliding though as the company gets larger. The question is when SHOP will start to leverage more of those revenues to the bottom line. When asked about that leverage on the call, they stated they are still in full growth mode and have a very healthy $2B in cash on their balance sheet to fuel that growth via investment or merger. They’ve guided Q1 at 44.6% growth and FY19 at 37.9%. I’d expect >40% for the year as long as there is not an economic slowdown limiting sales volume through their platform.

SHOP seems to be a controversial holding around these parts. Are those slowing rates? Yes. But in trying not to overthink this, I have other unprofitable or barely profitable companies with similar growth rates that are a fraction of the market cap. To me that means SHOP is less likely to provide an upside surprise, but it also might be a little more predictable in continuing growth at a >40% clip for at least a little while longer. I can’t say I have 14 better ideas than SHOP right now, and it was my sixth-biggest price gainer in February. Compared to my other holdings and watch list, I’m comfortable with it as a tail position even at these “depressed” growth rates. I’m basically ending the month valuing it as a great place to park some capital until a better idea presents itself or I decide to hold fewer positions.

March – Another month, another 9.2% of yawn-inducing but market beating price appreciation (fourth best of all my stocks in March). They’ve been on my bubble list since the start of the year, but the stock just keeps marching upwards (49.2% YTD so far – sixth best). Last month I wrote SHOP had a spot in my portfolio because I didn’t have 14 better ideas. After lining up my convictions this month, I realized I didn’t have nine ideas I like better than SHOP. So that’s the spot it landed after I added a touch to bring it more in line with my conviction. At some point I have to acknowledge that SHOP is doing some pretty darn good things and deserves a chance to keep on keepin’ on.

That being said, Square’s recent online storefront announcement is a clear entry into Shopify’s e-commerce world. It’s an enormous market with room for both companies, but this is something I’ll be watching closely over the next couple of months.

April –Retailers had a surprisingly strong March as U.S. consumer spending posted its biggest gains since 2009. This in turn created positive momentum for e-commerce providers like SHOP that host them. Shopify also announced the release of point of sales hardware that potentially increases their stickiness with merchants who also have a brick and mortar presence (…). Those developments helped the stock climb another sneaky-good 9.3% this month before their pre-market earnings announcement on 4/30.

Those earnings were solid as the company posted a beat, kept revenue growth at 50% and raised guidance slightly for the year. The law of large numbers continues to come into play, but SHOP should comfortably grow somewhere in the low-to-mid 40’s this year and their secondary numbers continue to fall right in line with prior results. The market liked what it saw enough for one final shove, making SHOP’s final April tally up 17.9% for the month and 75.9% YTD. My portfolio allocation continues to organically creep as a result.

Thinking about it I wonder if SHOP hasn’t found some sort of temporary market sweet spot where it provides the headline growth of much smaller companies at a market cap that’s more comfortable for many individual and institutional investors. In fact, I can’t see how anyone managing a growth mutual fund of any size can avoid owning it (TDAmeritrade lists 75.1% institutional ownership). I have no doubt at some point SHOP’s slowing growth will force me to look elsewhere. However, it appears today is not that day.

May – Yet another positive month despite at least one valuation-based analyst downgrade. In fact, SHOP became my second stock (after ZS) to touch a double for the year and ends May as the leader in my personal 2019 clubhouse with 98.6% returns YTD. As I think about my portfolio’s performance the past several months, it’s become apparent the market currently values Shopify’s e-commerce lead, substantial international efforts and initial foray into point-of-sales (POS) hardware much more than Square’s POS lead, arguably lesser international footprint and initial foray into e-commerce. I’d have to think that dynamic changes at some point given their comparative numbers, but for now who am I to argue? Ride the wave, baby.

June – I finally decided it was time to start paring SHOP, though not before it posted yet another double-digit rise to start the month. It climbed even more afterwards before dropping with everything else to end the month. I’ve mentioned several times that I’ve been waiting for a lull in the stock price to begin selling, but to Shopify’s credit it’s been on an absolutely phenomenal 2019 run. In this case my decision wasn’t driven by any angst over SHOP as much as simply wanting a bit more exposure to Anaplan. I decided a trim here was the best place to find the cash.

I think SHOP is a fantastic company that continues to innovate. Whether it be point of sales hardware, additional languages or the recent announcement of a new fulfillment network, they have several irons in the fire with the potential to create additional revenues. Their fulfillment plans in particular could be a huge win, and they “expect incremental revenue to largely offset costs” as they build it out. The downside is establishing that network will be a very lengthy process with the “bulk of net return expected beyond 2023”. While I can’t argue against any of their plans, their business is 1) becoming more complicated to follow and 2) expanding into areas which will likely pressure margins in the short to medium term. That’s convinced me it’s finally time to start looking elsewhere. I’m not exactly sure of the timing, but I anticipate phasing out of Shopify prior to its next earnings. I’ll have no complaints if and when I close this position though because SHOP been berry, berry good to me (…).

July – For better or for worse, I’ve followed through on last month’s musings about finally rotating out of SHOP. As alluded to elsewhere in this recap, I exited ~1/3 of my position to start July for roughly equal nibbles at AYX, ROKU and ZS. I swapped the remainder mid-month for a starting position in ESTC. It’s important to note here I have zero complaints with either Shopify the company or the business it continues to build. I’m simply making a judgement call that I can find better returns elsewhere as Shopify enters its next phase. I’ll keep tracking it though, starting with August 1 earnings.

August – I sold Shopify last month after a tremendous run but was impressed enough by their 8/1 earnings to make notes for future reference. SHOP held 48% revenue growth at a roughly $1.5B run rate, which I find remarkable. Their merchant solutions, which is the faster growing portion of their revenue base, grew 56% and is now ~58% of total revenues. All their other metrics stayed roughly in line with past performance, and gross profit growth even ticked up a notch to 50%.

Even more impressive, their conference call expressed palpable enthusiasm for the company’s prospects. They seem to be killing it internationally. They launched their service in 11 more languages and their apps are now available in 18 languages overall. They have expanded Payments to 13 countries in varying currencies. Their Shipping service is now used by more than 42% of eligible merchants overall, and their Capital branch saw a 36% bump in advances and loans to $93M. They clearly have a lot going on, but it’s also readily apparent SHOP has all kinds of avenues for continued growth.

Most interestingly, Shopify apparently has candidates beating down their doors to serve as initial partners in their recently launched fulfillment network. The money quote:

“Since announcing Shopify Fulfillment Network at our Unite Conference, we have received an incredible amount of interest that has exceeded our expectations. Thousands of merchants have expressed their desire to be a part of our early access program and dozens of partners are eager to join us in being a part of the solution…Given that the uptake and interest for Shopify Fulfillment Network has been much stronger than anticipated, our plan is to accelerate investing so we can move fast and execute on this opportunity for our merchants.”

If those fulfillment plans do indeed gain rapid traction, how many merchants currently locked into Amazon might be tempted to give Shopify a look? This link leads to an excellent article explaining that while Amazon’s middleman system is extremely effective, Shopify might be a better choice for merchants seeking direct interaction with their customers (…). I never fully realized the stark difference in the underlying business models of AMZN and SHOP. All services being equal – including fulfillment, of course – there’s a real argument that merchants who don’t necessarily need Amazon’s built-in traffic might be better off with Shopify. SHOP has always been extremely customer-driven, and right now it seems the company can do little wrong with those customers.

In the big picture Shopify appears to be transforming itself into a one-stop shop for any business of any size quite literally anywhere in the world. I don’t know exactly what their potential TAM might be except to say it is almost certainly magnitudes bigger than most. It also appears SHOP is positioned to temporarily slow or possibly even halt the recent growth declines caused mostly by the law of large numbers (at least as long as the economy holds, which is no guarantee). So in essence you now have a company barreling toward a $2B run rate that should maintain something in the range of mid-40%’s growth for the next few quarters at least. That’s almost mind-boggling to me. SHOP’s market cap and already massive price appreciation this year have kept me from rebuying even as it continues to march upward. However, it stays high on my watch list and would definitely be a purchase candidate if it went on sale or I soured on something else in my portfolio.

September – Just when I thought I was out…SHOP pulled me back in ( I had already mentioned last month I was impressed with their earnings report. The big news this month was the acquisition of 6 River Systems to help build out its new fulfillment network (…). The purchase adds an established cloud-based fulfillment software with a mobile robot system for warehouse operations. The cost is $450M (~60% cash/~40% shares) with an expected Q4 close. The transaction isn’t expected to have a material impact on 2019 revenues but should increase expenses by ~$25M. According to the release, “6 River Systems solution is operating in more than 20 facilities in the U.S., Canada and Europe, fulfilling millions of units each week for companies including Lockheed Martin, CSAT Solutions, ACT Fulfillment, DHL, XPO Logistics, and Office Depot”. So this tuck in not only adds cutting edge tech but also a strong pre-existing customer base. I guess SHOP wasn’t screwing around last earnings call when they said they were looking to accelerate their fulfillment plans. I bought back a small position when Shopify plunged right along with everything else mid-month. Unfortunately, that purchase was just prior to SHOP issuing a secondary offering exchanging ~2% dilution for just under $700M in additional capital (before underwriting costs). The offering priced at $317.50, which I view as some sort of support. Given Shopify’s underlying fundamentals are still very much intact, I felt the drop below $300 was a temporarily oversold situation and am glad to see the stock has bounced back a bit. I’m willing to hold my small rebuy at least a little longer to see if it recovers further. However, this is likely the first place I’ll go for cash if I see something more appealing.

October – If you remember, I repurchased Shopify for the back of my portfolio after a September allocation review that caused some cash to shake loose. Even though it entered October as my smallest allocation and lowest-conviction stock, I decided SHOP had enough interesting things going on to at least hold through 10/29 earnings. The quarter itself came in about as expected. They beat on revenues ($390.6M) with growth clocking in at 45%. Subscription solutions, monthly recurring revenues and Shopify Plus numbers all came in at reasonable rates. The one glitch was a -$28.3M net loss affected by a one-time $48.3M tax provision, but that final number still came in a little better than guided. SHOP also raised guidance for both Q4 and the FY.

After combing through the release and call, there’s really nothing to complain about. Shopify’s story remains intact and the company continues to deliver on its promises. It’s just that SHOP is now at a size where there are few avenues for any upside surprise. The market seemed to agree with the steady-as-she-goes premise. After initially dipping post-earnings the stock quickly rebounded to about the price of their recent secondary offering (which I rightly or wrongly view as sort of a short-term equilibrium price). I decided to hold a few days with the intention of it being a candidate for cash if one of my other companies posted knockout earnings. It’s now just a straight hold for me while I figure out what to do with my newly found TWLO loot.

November – A relatively quiet month for Shopify. I’ve owned it twice this year, and its overall returns have been excellent for me. I viewed my small September purchase as more of a better-than-cash placeholder at the back of my portfolio than a spot that was going to drive my returns. Unfortunately, it turns out cash would have been a tick better. I’d like to find somewhere else for the money but haven’t stumbled upon a clean solution yet. First, last month’s TWLO funds have taken a little longer than I thought to redeploy. Second, Elastic’s wobbly hold on its current spot has me taking pause as well. That means reallocating SHOP keeps getting bumped to the back burner. I’m hoping ESTC, SMAR and/or ZM have strong enough reports to alleviate this issue for me. Regardless, I’m entering December looking to swap this position out at some point.

December – Good ol’ Shopify. I bought a small position in September as a better-than-cash play that as of 11/30 hadn’t quite worked out (-6%). SHOP responded with an early December surge that put the shares ~5.5% in the black. Not wanting to look a gift horse in the mouth, I liquidated the position to reallocate after the early-month reporting rush. It’s now spread amongst my post-earnings buys. Shopify has been a consistent highlight for my portfolio this year, and kudos to those still holding it as the stock is once again bouncing around the $400 mark and challenging new highs. Thanks, Tobi. I’ll tip a Labatt in your honour (Canadian spelling!) next time I’m in Ottawa.


Hi; my name is Harley…and I’m a Shopify owner. Whew…that is a weight off of my shoulders!

Like A.J.; Shopify is the largest position in my portfolio. Unlike A.J.; Shopify represents a 4x return and not the enviable 8x.

I am committed to staying long on Shopify and seeing where it goes. Although I have no clear path of predictability, I believe that Tobi and the leadership team will continue to evolve to the point where the Shopify of today will not be the Shopify of 2025 and I am prepared for that ride. [If you haven’t listened yet; check out his interview on NPR’s “How I Built This” podcast.]

As I recall reading from another service to which I subscribe; staying long on Shopify is betting on the thesis that e-commerce is overdue for disruption. With Amazon’s predatory pay structure being far less than fair to merchants at 26% and with eBay stagnant in revenue growth for nearly 10 years; Shopify fairly quickly became the third largest online retailer in the United States. Shopify has done this while at the same time emphasizing the merchant as opposed to Amazon’s focus on the customer.

Time will only tell if this strategy, focusing on the merchant vs. the customer, will carry the day for Shopify. Currently, with a 4x return; I have some patience to see how this plays out and would most likely add to my position on significant dips like we saw in recent past.



Admitting you have a problem is the first step!

Seriously, great job of summarizing their competitive position against Amazon and other marketplaces.

The downside is Shopify’s customers need to find their own customers. Marketplaces eliminate that need but at a hefty price. That is the battle being waged. I believe Shopify’s model is better for businesses in the long run and international will be huge.

Thanks for your input.




Glad to see that my warped sense of humor is not lost on all!

Here are a few other points that you may find to be of interest, given your sizable position in Shopify. I feel that both of these items indicate that Shopify understands the need to develop systems and infrastructure to support the merchant in an effort to better serve the merchant’s customer base. Your comment on customer acquisition is well placed.

Please note based on the italics that these comments are not original comments to me:

  1. In June, Shopify announced the Shopify Fulfillment Network to serve as a dedicated fulfillment center and to speed up deliveries to help merchants remain competitive. The goal of the fulfillment center is to put independent retailers with 10 to 10,000 orders per day on par with the fulfillment centers of larger retailers. To date, only early access to the fulfillment center is available.
    In the most recent earnings call, COO Harley Finkelstein stated Shopify will spend $1 billion on the fulfillment center over the next five years, while CFO Amy Shapero said the company plans to bring seven warehouses online this year. The announcement of the fulfillment center places Shopify closer to online retail rivals, such as Amazon and eBay, while distancing Shopify competitively from point of sale systems, such as Square or Stripe. Shopify will also offer custom shipping boxes and additional value adds, although the real value is in easing the inventory and fulfillment details that can become complicated with third-party logistics providers.

  2. Shopify announced the acquisition of 6 River Systems, which will add collaborative robot fleets to Shopify’s Fulfillment Network. 6 River Systems builds robots that speed up production in warehouses. The company’s collaborative robot named “Chuck” guides employees through facilities and each step of the packaging process. The acquisition will bring on board robotics experts who worked on Amazon’s Kiva Systems. The acquisition of 6 Rivers is strategic as the company will have annual revenue of $30 million in 2020 and will increase the company’s expenses by $25 million in the current year, adding no material value. Last May, Shopify acquired the B2B wholesale purchasing platform, Handshake. Handshake’s platform offers the ability for merchants to handle sales directly rather than pass off the sale to a third-party marketplace. The team from the acquisition became part of Shopify Plus, the enterprise-level part of the business that can handle over 10,000 transactions per minute. B2B e-commerce sales in the United States reached $1 trillion in 2018, with Shopify Plus making up 24% of revenue in 2018.

Perhaps this provides additional support to your thesis; but at 8x, I’m not sure you need more support.



My simple takeaway on Shopify is that there is money to be made here, but not if you are aiming to time the market, to time the share price or to be a short-term holder (like others’ write-ups make it appear). Anyone who bought in pretty much anytime in the last 2-3 years is probably net-positive to some degree. Obviously the longer the hold time, the more net-positive. If you bought in late 2016 or early- to mid-2017, you’re pretty happy with >100% annualized returns.

I gritted my teeth really hard in 2017 and 2018 when everyone was cashing out their >50% gains. I actually tripled-down in 2018 AFTER a 60% gain, buying 2x more shares than the first batches. Does that guarantee that my >225% gains* on the whole (and over 300% on the first batches) stick around? Certainly not… But this is the kind of business that can be hugely-huge, like Amazon, and takes time to fully develop. If you don’t want to be in that long, you should probably be invested in something else, or just acknowledge that you won’t see the same view. But if you can stomach a little volatility and risk along the way, a company like this can really be a game-changer for your portfolio.

*I did trim my SHOP position in May 2019, along with AYX and a few others, because those position sizes had grown too big… it could have been an even larger gain if I hadn’t – proving my own point again.


Please note based on the italics that these comments are not original comments to me:

Quoting without attribution can bring down the wrath of TMF on the basis of copyright infringement.

Shopify turned in an excellent quarter beating their high end of guidance by $23.2M posting 47% growth for Q4. Annual sales came in north of $1.5B. Guidance for 2020 calls for growth of 37% which should most assuredly be beat. Let’s call it 40%. It is very rare to see a company of this size growing revenues at that pace.

The only negative thing I could find in the numbers was a minor drop in gross margin. I expect this is due to Merchant sales continuing to increase more rapidly than Subscription.

Lots of great stuff going on with the company as they expand internationally and expand their offerings to merchants. Shopify is one amazing company, but I caution that today’s price is extremely lofty.

More to follow after listening to the call.

Take care,


Hey AJ - seriously, no conundrum that I can see.

They were obviously going to smash expectations this year with the 75% uplift in BFCM results were shared previously. (The EPS beat was a nice surprise).

We also know that they have a 40% growth franchise that has been on a stabilising glide path and that is the second or third largest e-commerce platform in Nth America and are growing their solution set and international footprint.

It’s a 20% holding for me (my largest) and I just had my first double spiffy pop. No conundrum here.

No business out there of this size ($2bn run rate) is growing at this rate - with the exception of Ali Baba which I also hold.



Ant, I believe is MercadoLibre growing faster at a higher run rate. And selling for a much more reasonable valuation.


True Bobby - I stand corrected and and I hold MercadoLibre too (a 2% holding). I don’t believe MELI has anywhere near the potential of Shopify or Ali Baba but I do like them as well as their management/leadership, their growth, their moat and their valuation.

Assuming I’m not barred from travelling from Singapore due to the coronavirus travel restrictions, I’m going to be going to Buenos Aires and São Paulo beginning of March and will check out how they are doing on the ground and get a better feel for the local geopolitical risk down there if I can, (especially in Argentina). (Chris if you re-route your Asia trip to a LatAm flight plan maybe we could meet up there instead).

Btw in the prepared ER presentation Shopify clarifies it is now #2 behind Amazon in US for e-commerce sales. They have overtaken eBay and are ahead of Walmart etc in e-commerce in US and in Nth America.



Not sure the below fact was pointed out on this board (it was on the SHOP board), but I found it to probably be the main reason SHOP stock price was able to have a nice jump after the ER even though it was already so highly valued and had grown so much in the past year (basically from $150 to $550).

Revenue growth accelerated in the fourth quarter, the first time since 2015, expanding 47% year-over-year to $505.2 million. This acceleration of the top line was entirely driven by Shopify’s organic operations

SHOP was a top 3 holding of mine when it went over $300 last year, it seemed pretty overvalued at the time and I wanted to sell but didn’t want to take the large tax hit I would take as it was in a taxable account and my income for the year was already way higher than planned for (thanks to this board!). So instead I ended up just trimming about 25% In the high $300s IIRC. Then it of course continued back up into a top 5 holding again, and I trimmed another 25-30% earlier this year in the high $400s. And I’m again thinking of trimming more now that it’s up in the mid $500s.

One rule I started following a few years ago was to not sell out COMPLETELY based solely on valuation concerns, but instead to just trim the position if valuation seems to be out of wack, and it does seem to be in SHOP at this time, but I do still like the company, their prospects, and what they’re doing, so I don’t want to sell out completely.

I know some others on this board still own it, too, so congrats to those, and MANY THANKS to Saul and this board as that is why I got into SHOP in the first place!