Author Topic: SHOP - Shopify  (Read 13371 times)

menlo

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Re: SHOP- Shopify
« Reply #10 on: October 09, 2017, 10:36:09 AM »


flesh

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Re: SHOP- Shopify
« Reply #11 on: October 09, 2017, 11:30:46 AM »
I don't know much about the company but any large co that's reliant on aggressive copy for a large portion of it's revs/earnings I would be extra careful with. I was in the aggressive copy business 02-2014 and it's being scrutinized by govt authorities at increasing rates. Without aggressive copy obviously your response rates go down and often to the point where they are unsustainable. If this is the top of the funnel, the rest goes with it.

It's a difficult situation because if your competition is doing it and your not, you don't have the margins to compete on the marketing buys. Meanwhile, many of the customers resulting from aggressive marketing simply would not buy at all without it.

Naturally, governing authorities always go after the big fish first. Some of what's being proposed in terms of required disclosures to customers would totally eliminate most of your customers= go out of business.

I've seen many companies shut down in the last few years, some of them by the ftc. 

rishig

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Re: SHOP- Shopify
« Reply #12 on: October 09, 2017, 12:07:18 PM »
I don't know much about the company but any large co that's reliant on aggressive copy for a large portion of it's revs/earnings I would be extra careful with. I was in the aggressive copy business 02-2014 and it's being scrutinized by govt authorities at increasing rates. Without aggressive copy obviously your response rates go down and often to the point where they are unsustainable. If this is the top of the funnel, the rest goes with it.

It's a difficult situation because if your competition is doing it and your not, you don't have the margins to compete on the marketing buys. Meanwhile, many of the customers resulting from aggressive marketing simply would not buy at all without it.

Naturally, governing authorities always go after the big fish first. Some of what's being proposed in terms of required disclosures to customers would totally eliminate most of your customers= go out of business.

I've seen many companies shut down in the last few years, some of them by the ftc.

What does "aggressive copy" mean?

flesh

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Re: SHOP- Shopify
« Reply #13 on: October 09, 2017, 12:20:35 PM »
I don't know much about the company but any large co that's reliant on aggressive copy for a large portion of it's revs/earnings I would be extra careful with. I was in the aggressive copy business 02-2014 and it's being scrutinized by govt authorities at increasing rates. Without aggressive copy obviously your response rates go down and often to the point where they are unsustainable. If this is the top of the funnel, the rest goes with it.
 

It's a difficult situation because if your competition is doing it and your not, you don't have the margins to compete on the marketing buys. Meanwhile, many of the customers resulting from aggressive marketing simply would not buy at all without it.

Naturally, governing authorities always go after the big fish first. Some of what's being proposed in terms of required disclosures to customers would totally eliminate most of your customers= go out of business.

I've seen many companies shut down in the last few years, some of them by the ftc.

What does "aggressive copy" mean?

"Someday Millionaires" is a red flag, the state and feds despise anything approximating an earnings claim. Anything resembling an earnings claim will be more heavily scrutinized in the future. Disclosures will increase = fewer customers.

People want to be someday millionaires, they don't want to make the average of all past customers, which is very little. They want the dream, not the work. Using this microcosm as an example, if the headline was "1/10000 of our clients are millionaires and here's what they did differently, if you do these things too, you may have a chance of success greater than if you don't". That's the sort of thing that happens with increased scrutiny/disclosure. Plus you'd have an asterisk and the following lawyer speak at the bottom.

I'd bet money that the "someday" wasn't there as some point in the past.

Edit: Memory is being jogged by your question.

I'd add that another thing being cracked down on assisted marketing. The business opportunity act has been around for awhile, can't remember, maybe since 2010ish.... however it's only been the last few years that it's actually being enforced, which is what matters. Assisted marketing is a large part of the sales pitch/why customers buy and it may no longer exist in the future.

If you're selling a dreamer a website it's a much stronger pitch to say that you will build and market a web site for them vs providing the tools to do so, they want all the hand holding they can get. You can see this in just how easy everything is made to seem to potential customers. You don't need inventory, we'll provide merchant accounts (although you may not qualify, we'll leave that out). You don't need money because you can buy at xxx and have it drop shipped to x customer and make the difference. I guarantee that if shopify isn't up selling them atrocious amounts of stuff at huge mark ups, they are selling their customer lists to someone who will and taking a 30-50% cut. With the leads that are generated but never up sold, they will sell these lists as well.... however that market is being scrutinized as well. They are requiring that you the seller of your customer/lead lists qualify the marketing copy being used by the companies that will market it, reducing the size of this market.

Another thing that is recent, is the FTC is shutting down the lead gen guys and then perusing their client lists and sending them cease and desist orders.

Funnel goes, lead gen, sales floor, coaching/ products/ services/workshops, up sells of bigger and better stuff plus corp and accounting services. Every point in this funnel is being more scrutinized.

Unless you can disprove everything I've written in the case of shopify, I'd look elsewhere.

Geez, another edit. I'll add that many of these claimed "zero to 1.5m in a year" success stories..... the 1.5m is often revenue, which isn't mentioned. Often at tiny margins.

Also, I would want to know what they are charging for merchanting services. Because some of what's sold on the customer websites are high risk, this often means higher rates/per transaction charges. By grouping the bad with the good risk, they probably keep this down. Anyone who is doing mass sales and has a merchant history that is clean, would likely see a lower rate through traditional channels.
« Last Edit: October 09, 2017, 01:18:00 PM by flesh »

mrholty

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Re: SHOP- Shopify
« Reply #14 on: October 09, 2017, 01:05:25 PM »
In the past 18 months I have started to sell on Amazon and then on Shopify with 1 product and starting on a second.  Therefore I'm pretty familiar with the space.  I spent a lot of time figuring out what I wanted to do and I think Shopify has the best product and setup.  That said - the sites you see being sold are set up to be flipped and not indicative of the power of the marketplace.  I am aware of 2-3 shop owners that I have met that are doing $1M-$5M on sales on Shopify so there are real success stories. 

That said the churn is ridiculous.  What I've generally seen is someone follows the copy - tries to build a site.  Gets guidance to make it more professional, hires someone to clean it up.  They source products via Alibaba and not their own.  They push ads (via Instragram and Facebook) to their website.  They do this for $5/day in ads and after 3 months of trying the close their shop and don't tell anyone about it.  Or they are simply selling or stealing trademark shit (such as Disney or whatever).  Disney hits the website and Shopify with notice.  The guys are in Thailand or Philipines so they close it and then reopen 2 days later and just restart all over again.

When I first started this I realized how great Shopify was vs the competition and I bought a little bit ($43 USD) and sold when it doubled as I spent more time in the environment.  I went to unaffliated conference with some big sellers (who were all selling their add-ons) and I looked around it felt like a home flipping seminar but with multiple sellers/sharks.

There are winners and the tool(s) that Shopify has done to create the ecosystem is there but there is no way there are 500k websites.  Even 50k seems high to me.

 


jschembs

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Re: SHOP- Shopify
« Reply #15 on: May 03, 2019, 10:06:16 PM »
Bumping this one.

I'll donate $100 to the human fund to anyone who can put forth a simple DCF suggesting a price at least 50% of where it currently trades.

fuzzhead1506

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Re: SHOP- Shopify
« Reply #16 on: May 06, 2019, 08:20:13 AM »
Bumping this one.

I'll donate $100 to the human fund to anyone who can put forth a simple DCF suggesting a price at least 50% of where it currently trades.

How simple?   If you assume they grow subs/merchants to 3x what they have now (800,000 --> 2.4M) over the next 10 years and (on average) 2x the amount of revenue they extract from each of their customers that gets you to $7B in revenues.  As they move toward 35% operating margins that should support a 9x EV/Sales exit multiple.  If they continue to use equity to fund their growth instead of debt, they might double their outstanding share count... ?  That gets you to a $400 share price by 2030.  Discounted back to today is a 4% CAGR

Edit: clarification
« Last Edit: May 06, 2019, 08:42:29 AM by fuzzhead1506 »

blainehodder

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Re: SHOP- Shopify
« Reply #17 on: May 06, 2019, 08:42:47 AM »
I have an old friend who has worked in UX design there since they were absolutely a fairly small company.  The company is unquestionably the leader in enabling absolutely anyone to sell products online and market under their own brand instead of just listing as a 3rd party seller on Amazon. I can't believe how easy it is to sell things online these days. You don't even need to stock products. Simply market vapor and fill it with 3rd party orders once you have already sold. Truly incredible what this has done to working capital of retail.

The business economics are incredible, but the valuation seems absolutely off the charts. Is this market going to continue to grow at the pace we have been seeing?

I'm torn on the growth that is implied by the price doing a reverse DCF like Damadoran would do. I can't help but think the price is too high, yet the revenue growth continues at an absolute rocket ship pace. Are longs thinking that Spotify will eat a significant portion of Amazon and Ebay's 3p market share?

I am also wondering at what scale do people churn from Shopify and move onto their own cheaper custom solution. At what level of sales would you abandon Shop and hire a team to build a site with open source tools and payment processing instead? The rake that Shopify is currently charging seems quite extreme once you achieve over ~$1M in annual revenue.

On a side note, has anyone on this forum tried opening a store using Shopify? How is it doing? Just how hard is it to line up the supply chain?  I am thinking of getting into it for some niche guitar products that I can probably source through Chinese manufacturing.
« Last Edit: May 06, 2019, 08:45:26 AM by blainehodder »

Pelagic

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Re: SHOP- Shopify
« Reply #18 on: May 06, 2019, 09:08:26 AM »
I am also wondering at what scale do people churn from Shopify and move onto their own cheaper custom solution. At what level of sales would you abandon Shop and hire a team to build a site with open source tools and payment processing instead? The rake that Shopify is currently charging seems quite extreme once you achieve over ~$1M in annual revenue.

This SeekingAlpha article (https://seekingalpha.com/article/4259026-shopify-valuation-makes-sense) references a 77% churn rate. Although it attributes that mainly to new companies trying and failing something. I think from a client perspective with an established store on Shopify, yes a custom solution will probably save you money but if you're growing sales significantly you're likely more focused on allocating capital to marketing, product line, etc. than to spending a large chunk on a new site.

Additionally I think there's a healthy marketplace for buyers and sellers of Shopify stores so there's incentive for users who want to grow a store and sell it to use the platform rather than create a custom solution even if the price difference between the two is negligible. I suspect given Shopify's internal marketplace and its vetting tools there is likely a premium attributable to Shopify stores relative to a custom site with similar sales/margins.

Their internal marketplace itself is actually a pretty interesting glimpse into valuation, some crazy multiples there as well.




glorysk87

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Re: SHOP- Shopify
« Reply #19 on: May 06, 2019, 09:39:34 AM »
Bumping this one.

I'll donate $100 to the human fund to anyone who can put forth a simple DCF suggesting a price at least 50% of where it currently trades.

How simple?   If you assume they grow subs/merchants to 3x what they have now (800,000 --> 2.4M) over the next 10 years and (on average) 2x the amount of revenue they extract from each of their customers that gets you to $7B in revenues.  As they move toward 35% operating margins that should support a 9x EV/Sales exit multiple.  If they continue to use equity to fund their growth instead of debt, they might double their outstanding share count... ?  That gets you to a $400 share price by 2030.  Discounted back to today is a 4% CAGR

Edit: clarification


...........how is this a DCF?