Corner of Berkshire & Fairfax Message Board

General Category => Investment Ideas => Topic started by: jeffmori7 on October 05, 2017, 06:45:03 AM

Title: SHOP - Shopify
Post by: jeffmori7 on October 05, 2017, 06:45:03 AM
I am surprise there is nothing on Shopify here. When everybody is looking at Amazon and how it is transforming the retail industry, and much more, there are probably other players benefitting from this transition to e-commerce.

Shopify is a good enabler, allowing anyone to build a platform to do e-commerce. Even Amazon are customers.

Like Amazon during a long time, or any other large tech "startup", we are talking about a company not yet profitable, but growing at a decent rate, and where it is obvious that the value will probably go up at a decent rate over time. But there are no easy ratio to price it with the usual suspect. They don't have a large debt, they are growing fast, they are quite dominant, and there is a strong tailwind in their sector.

Here is a little overview: https://www.fool.com/investing/2017/08/30/shopifys-draws-inspiration-from-amazon.aspx

And here is the last investor presentation: https://s2.q4cdn.com/024715446/files/doc_presentations/2017/09/Investor-Deck-Q2-2017-(1).pdf

What do you think?
Title: Re: SHOP- Shopify
Post by: Liberty on October 05, 2017, 07:15:19 AM
And here's the Andrew Left short report that made it tank in the past few days:

http://www.citronresearch.com/citron-exposes-the-dark-side-of-shopify/
Title: Re: SHOP- Shopify
Post by: KCLarkin on October 05, 2017, 08:09:07 AM
It's a very interesting business. As Amazon hollows out the retail industry, especially department stores, there are many niche brands that will need to find a new channel. In many cases, I think a direct-to-consumer model can be powerful if the brand is strong enough.

The alternative is selling on Amazon. But the issues with counterfeiting and brand dilution should discourage many brands from selling on Amazon.

It seems like SHOP is a winner. But obviously, it is hard to say how much is already priced into the stock. I'm tempted to take a speculative bet on this, just because I don't think Left is that bright.

Disclosure: I know some people who work at Shopify's Toronto office. They are smart people, so this may bias my opinion in favour of Shopify.
Title: Re: SHOP- Shopify
Post by: DooDiligence on October 05, 2017, 08:41:43 AM
I just browsed the sight for 5 minutes & didn't see any of the stuff he talked about.

The 50K vs 500K argument seems like BS (80/20 & all that.)

At 1st glance they appear to offer a nice set of tools for medium, small & micro sized operators.

Gerber's E-Myth, living & breathing if a shop operator is successful & puts their business up for sale (and really has supply chain, etc., to back it up - caveat emptor...)

Does look expensive & the market lopped over $1B off (maybe he can talk it down a bunch more?)

Might sharpen management on potential regulatory actions against any kind of whiffy DRM.

Then Left covers & goes long?
Title: Re: SHOP- Shopify
Post by: DCG on October 05, 2017, 01:33:58 PM
It's a good company, and I've looked at it as an investment before, but I generally don't invest in companies that are not profitable.


It seems like it should be easier for them to turn a profit. How much are they spending on things like marketing?
Title: Re: SHOP- Shopify
Post by: MikeTheCannon on October 05, 2017, 01:43:41 PM
I just browsed the sight for 5 minutes & didn't see any of the stuff he talked about.

Resignation letter: https://www.shopify.ca/blog/75848773-ready-to-become-a-full-time-entrepreneur-heres-how-to-quit-your-job

Affiliate Program: https://www.shopify.ca/affiliates

"Online store for someday millionaires": https://www.shopify.ca/facebook/millionaire

"2700 people become millionaires each day": https://www.facebook.com/shopify/posts/10153167684546881

Find products to sell: https://www.shopify.ca/oberlo

4 Tips to help you create a profitable affiliate blog post: https://www.shopify.com/partners/blog/creating-a-profitable-affiliate-blog-post


Title: Re: SHOP- Shopify
Post by: gjangal on October 05, 2017, 04:38:16 PM
if you believe in Amazon's or any other ecommerce platforms 3rd party seller story, SHOP is enabling them in a big way. Drop shipping, company stores etc. 500k across the world sounds like a low number for the core order processing platform they have
Title: Re: SHOP- Shopify
Post by: DooDiligence on October 05, 2017, 04:44:11 PM
I just browsed the sight for 5 minutes & didn't see any of the stuff he talked about.

Resignation letter: https://www.shopify.ca/blog/75848773-ready-to-become-a-full-time-entrepreneur-heres-how-to-quit-your-job

Affiliate Program: https://www.shopify.ca/affiliates

"Online store for someday millionaires": https://www.shopify.ca/facebook/millionaire

"2700 people become millionaires each day": https://www.facebook.com/shopify/posts/10153167684546881

Find products to sell: https://www.shopify.ca/oberlo

4 Tips to help you create a profitable affiliate blog post: https://www.shopify.com/partners/blog/creating-a-profitable-affiliate-blog-post

Thanks; so they promote DRM thru affiliates (with extremely aggressive & some may say dubious copy) in order to open more stores & get more affiliates & they train the affiliates to keep them on message.

When you say it like that it kinda does sound like Herbalife (all that & still not turning a profit, unlike Herbalife.)

Any evidence of channel stuffing?

Are e-commerce operators actually making money or are they just building pretty stores & selling them to naive buyers?
Title: Re: SHOP- Shopify
Post by: jeffmori7 on October 06, 2017, 04:52:05 PM
https://www.forbes.com/sites/parmyolson/2017/10/05/shopifys-customers-shoot-down-scam-claims/#184823e35732
Title: Re: SHOP- Shopify
Post by: Pelagic on October 09, 2017, 09:50:35 AM
Anyone taken a look at the Shopify Store Marketplace where store owners can sell their stores?

https://exchange.shopify.com/shops?category_ids=&sortBy=trending_value_high_to_low&total_revenue=50000%2C500000

I realize there are other sites available to market Shopify stores but some first impressions from Shopify's own store marketplace.

Most of the higher revenue stores appear to have been created to sell. Revenue has a distinct inverted V shape where a year ago it was almost nothing then it spikes up quickly and then falls off as the seller moves to "pursue other ventures". Very few stores for sale have multiple months of high earnings, there isn't the plateau in an earnings graph you'd see in more mature businesses. Since stores are mainly priced off total sales and traffic, there's an incentive to source a hot product, dump money into ads to drive traffic, sell large volumes at low cost (low margins) to inflate total sales, and then sell the store citing its potential revenue and repeat the process.

I'd be interested in seeing what % of Shopify's millionaires came through the stores they run versus through selling the stores themselves.
Title: Re: SHOP- Shopify
Post by: menlo on October 09, 2017, 10:36:09 AM
From a local VC:  http://tomtunguz.com/shopify-s-1/

Title: Re: SHOP- Shopify
Post by: flesh 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. 
Title: Re: SHOP- Shopify
Post by: rishig 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?
Title: Re: SHOP- Shopify
Post by: flesh 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.
Title: Re: SHOP- Shopify
Post by: mrholty 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.

 

Title: Re: SHOP- Shopify
Post by: jschembs 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.
Title: Re: SHOP- Shopify
Post by: fuzzhead1506 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
Title: Re: SHOP- Shopify
Post by: blainehodder 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.
Title: Re: SHOP- Shopify
Post by: Pelagic 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.



Title: Re: SHOP- Shopify
Post by: glorysk87 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?
Title: Re: SHOP- Shopify
Post by: fuzzhead1506 on May 06, 2019, 09:54:25 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?

should I adjust my language to indicate that 105% of the valuation currently rests in the terminal value?  PV of cash flows in years 1-10 is negligible by comparison to what happens between year 10 and infinity.... if the cash flows between here and 2030 are negative/minuscule that doesn't matter if they are able to eventually be as profitable as the market is implying

I could need to go back to Valuation 101 if none of this actually makes sense, but I suppose it has made sense to me. 
Title: Re: SHOP- Shopify
Post by: fuzzhead1506 on May 06, 2019, 10:46:08 AM
I have attached the screenshot of my Excel model .  Numbers are moderately different than what I did with my simple numbers a few posts back, but the range is pretty close....

Edit: language clarification
Title: Re: SHOP- Shopify
Post by: glorysk87 on May 06, 2019, 11:50:44 AM
Holy generous terminal value assumptions.

You expect this company to grow at double the rate of the economy forever?

And even with those assumptions you only expect a low single digit annualized return out of the equity? Sounds like something you should run screaming from.
Title: Re: SHOP- Shopify
Post by: fuzzhead1506 on May 06, 2019, 11:54:22 AM
well...that is probably poor form, but i could instead discount at 5% and use a terminal growth of 3.25% to get the same multiple (which shouldn't be unreasonable if 10 year rates aren't much above 4% as the model assumes)....
Title: Re: SHOP- Shopify
Post by: fuzzhead1506 on May 06, 2019, 12:01:59 PM
well...that is probably poor form, but i could instead discount at 5% and use a terminal growth of 3.25% to get the same multiple (which shouldn't be unreasonable if 10 year rates aren't much above 4% as the model assumes)....

Also, I am not trying to make the bull case.  I was just trying to make a simple model that would perhaps be able to justify the current price.  There are a lot of paths that this could instead take as well.  Maybe revenues grow faster than assumed and the interest rates return to a 6% ish rate... maybe margins improve faster than I assumed but at the risk of debt growth.  There are a lot of ways to skin the cat on what a 35x FCF multiple is really saying
Title: Re: SHOP- Shopify
Post by: mcliu on May 06, 2019, 08:03:13 PM
Just keep lowering that discount rate. Base it on 10 year risk-free rate and you can justify anything. :)
Title: Re: SHOP- Shopify
Post by: deadspace on May 06, 2019, 09:03:48 PM
Why not just take a step back from the DCF trees to look at the forest ?

Is a company that is on its way to become the effective digital landlord for a large proportion of the worlds  small and medium size digital businesses worth more than $40 billion ?  -- there's your answer
Title: Re: SHOP- Shopify
Post by: fuzzhead1506 on May 06, 2019, 10:38:22 PM
Just keep lowering that discount rate. Base it on 10 year risk-free rate and you can justify anything. :)

This thread might not be the place, but it perhaps adds to the discussion so I’ll respond here. 

I don’t think that SHOP is nearly on the same level of predictability in terms of cash flows as other companies and hence why I am not long given my model.  I dont know if SHOP ever gets to 35 % margins nor that they will hit the revenues suggested in my spreadsheet.  I am merely offering one way that someone could do an analysis that justifies the current price.  Maybe this stops someone from loosing their shirt as a short is really my hope by posting, lest they fall victim the same way that CRM shorts were burned 10 years ago. 

Do you suppose KO, KDP, or BF.B are properly valued here? I do... the list goes on....Efficient Market Theory and all that.  These are the most followed, no growth, steady-state companies, trading at cash flow ratios in the high 20s.  I imagine they are valued often to have the nearly the same discount as I applied above (5.5% discount and 3% terminal growth, maybe explicitly stated but likely implied) in many investors’ valuations because interest rates remain quite low.  Margins, revenues and the balance sheet drive most valuations and I believe I have provided a simple yet sufficient model for satisfying the request - it seems others disagree.  In which case, I am sorry for cluttering the thread.

I am appreciative of the quippy remarks and others that have made me understand that I need to double check my math/assumptions because it helps me to put my feelings in writing as well as improving my attention to detail. 8)

In my mind, a discount rate is only suggesting what returns will get an investor to the exit multiple implied by the valuation - sort of... reverse DCF type of thinking.  I still consider myself to be in the elementary school of valuation, so if you have constructive criticism on my thoughts I’d appreciate some discussion (perhaps on another thread or via PM).
Title: Re: SHOP - Shopify
Post by: Liberty on July 11, 2019, 08:04:30 AM
https://stratechery.com/2019/shopify-and-the-power-of-platforms/
Title: Re: SHOP - Shopify
Post by: lucasnascimento on September 11, 2019, 02:59:18 PM
Honest question: why don't Shopify try to make their own accounting software to compete with Quickbooks? It seems to be a very high margin business, and it appears to be easy to cross-sell it to their platform's customers. Maybe I don`t really understand the moat around accounting software or how painful it can be to develop this kind of software. Does anybody have a clue?
Title: Re: SHOP - Shopify
Post by: chesko182 on September 12, 2019, 03:28:47 PM
https://techcrunch.com/2019/09/09/shopify-buys-warehouse-automation-tech-developer-6-river-systems-for-450-million/

This is pretty relevant news, basically following the Amazon playbook back when they bought KIVA Systems a couple of years ago (now Amazon Robotics). 6river was founded by ex-Kivas and was considered one of the independent leaders in warehouse automation. Warehouses and FCs are pretty ripe for automation disruption and this makes perfect sense if they want to achieve scale and compete with Amazon. Amazon Robotics is the clear leader in warehouse automation by now and a big part of their moat around logistics. Typically these robots can achieve 2-3x productivity gains vs. manual labor.
Title: Re: SHOP - Shopify
Post by: Liberty on October 28, 2019, 07:23:42 AM
https://traviswiedower.com/2019/10/28/shopify-and-its-strong-competitive-advantages-continue-to-take-market-share/
Title: Re: SHOP - Shopify
Post by: Liberty on November 06, 2019, 08:00:21 AM
20-min interview of Tobi:

https://www.youtube.com/watch?v=gCac723JDXE
Title: Re: SHOP - Shopify
Post by: Liberty on November 08, 2019, 11:39:23 AM
Negative article about Shopify (for a change):

https://www.modernretail.co/platforms/almost-a-scam-as-dtc-brands-grow-shopify-is-struggling-to-keep-up/

h/t Marcelo P. Lima
Title: Re: SHOP - Shopify
Post by: Liberty on December 06, 2019, 12:43:04 PM
New interview with Tobi:

https://pca.st/olctiemg
Title: Re: SHOP - Shopify
Post by: Liberty on January 13, 2020, 07:09:53 AM
Scuttleblurb analysis of WIX and SHOP (subscription required):

https://www.scuttleblurb.com/shop-wix/
Title: Re: SHOP - Shopify
Post by: mcliu on January 13, 2020, 11:59:01 AM
That valuation though:
$50 billion for 100% of Shopify (100% of "$1.5B in revenue/$0 earnings")
vs
$50 billion for 9% of BRK.B (9% of "$225B in revenue/$20B operating earnings" + 9% of "$250B stock portfolio")
 :o
Title: Re: SHOP - Shopify
Post by: gary17 on January 13, 2020, 12:07:59 PM
the same analogy can be said about AMZN 10 years ago vs Berkshire 10 years ago - but clearly for the last 10 years AMZN has been a better investment.
gary
Title: Re: SHOP - Shopify
Post by: mcliu on January 13, 2020, 01:08:27 PM
the same analogy can be said about AMZN 10 years ago vs Berkshire 10 years ago - but clearly for the last 10 years AMZN has been a better investment.
gary

So this is the next Amazon?
Title: Re: SHOP - Shopify
Post by: gary17 on January 13, 2020, 01:32:03 PM
nobody knows

even warren 10 years ago couldn’t see amazon’s success today

Title: Re: SHOP - Shopify
Post by: Spekulatius on January 13, 2020, 03:20:38 PM
the same analogy can be said about AMZN 10 years ago vs Berkshire 10 years ago - but clearly for the last 10 years AMZN has been a better investment.
gary

So this is the next Amazon?

AMZN 10 years ago didn’t trade at the valuation that SHOP is trading now.
Title: Re: SHOP - Shopify
Post by: gary17 on January 13, 2020, 03:59:57 PM
the same analogy can be said about AMZN 10 years ago vs Berkshire 10 years ago - but clearly for the last 10 years AMZN has been a better investment.
gary

So this is the next Amazon?

AMZN 10 years ago didn’t trade at the valuation that SHOP is trading now.

i am by no means suggesting SHOP's valuation makes sense
but two things that are diff than 10 years ago:
1) the e commerce platform is much more developed today (IG, FB, etc)
2) interest rates are higher 10 years ago.
it's hard to do an apples to apples comparison...
Gary
Title: Re: SHOP - Shopify
Post by: Liberty on January 13, 2020, 05:15:44 PM
AMZN 10 years ago didn’t trade at the valuation that SHOP is trading now.

It was also a completely different business with different end-state economics (the retail part, AWS at the time was nothing). But definitely some of the same dynamics (investments in growth and underpricing to accelerate growth masking true earning power).
Title: Re: SHOP - Shopify
Post by: valueinvestor on April 20, 2020, 08:09:55 PM
For many years I've been interested in "optically" expensive and messy un-modelable stocks because they are the largest basket of stocks that came up year-after-year consistent outperformance.

Looking at Shopify many may believe the run-up from April 2 to now is unbelievable, but with the coronavirus, I think this stock is more compelling (dare I say - undervalued).

The "aha moment" is when I spoke to people/businesses with e-commerce websites and created e-commerce websites myself, Shopify is the Google of e-commerce builders versus the bings of the world. There are many instances where businesses tried to move away from Shopify but end up going back to them - hence there's also huge pricing power with their products.

Would this be a bet-the-farm type of situation? No... but I feel like my grandchildren will scoff at me not investing.

After the run-up, I haven't sold and in fact, bought more (not huge since it is a big part of my portfolio).

However, the way I look at this is a company with very stable economics with hidden assets, such as their app store, AR, Shopify Capital, e-commerce business sale page, and much more.

To justify it at today's valuation - in ten years it has to do about $100B in revenues, which I believe it can if it issues stocks at highs and invest in long run-way projects that could be huge winners.
Title: Re: SHOP - Shopify
Post by: K2SO on April 22, 2020, 08:43:39 AM
To justify it at today's valuation - in ten years it has to do about $100B in revenues, which I believe it can if it issues stocks at highs and invest in long run-way projects that could be huge winners.

It's a great company, no doubt.

But 10 years is a long time to wait to justify today's valuation. What's your discount rate?
Title: Re: SHOP - Shopify
Post by: Orange on April 22, 2020, 11:20:38 AM
I don't comment in this forum normally, but as someone who has ran an ecommerce business full time for the last 3 years, reading this thread full of investors who clearly don't have a deep understanding of the ecommerce game, is particularly illuminating.

 It gives me a better perspective of how Mr. Market can get things wrong for long periods of time. Shopify is going to make $100B in revenue in ten years apparently. According to a "valueinvestor." Just... wow.


The most important thing is really- Shopify sells a tool. It's a nice tool, they do a good job of marketing that tool, it's a well known quality tool. But it's just a tool. The engine to any ecommerce business is web traffic, or customers. Cost of customer acquisition makes or breaks you.

Shopify provides no way to gain attention, they have no retail customers. Speaking on behalf of ecommerce store owners, we are slaves to the platforms where the customers hangout. Slave to Facebook, slave to Instagram, slave to Pinterest, slave to Google, super-slave to Amazon. I sell on Amazon, if I wanted to switch to another platform, I would have to entirely rebuild my marketing strategy and core business model. THAT is what high switching costs look like. THOSE businesses are truly valuable, and deserve rich valuations.

Shopify does not have truly high switching costs for us ecommerce sellers. They really do not have as much pricing power as investors think, and a large % of their customer base is relying on supply chains that have been permanently disrupted due to Covid. This is a dangerous time to invest in this company IMO, unless the purpose is pure speculation over the short term.

Title: Re: SHOP - Shopify
Post by: arcube on April 22, 2020, 12:31:59 PM
I don't comment in this forum normally, but as someone who has ran an ecommerce business full time for the last 3 years, reading this thread full of investors who clearly don't have a deep understanding of the ecommerce game, is particularly illuminating.

 It gives me a better perspective of how Mr. Market can get things wrong for long periods of time. Shopify is going to make $100B in revenue in ten years apparently. According to a "valueinvestor." Just... wow.


The most important thing is really- Shopify sells a tool. It's a nice tool, they do a good job of marketing that tool, it's a well known quality tool. But it's just a tool. The engine to any ecommerce business is web traffic, or customers. Cost of customer acquisition makes or breaks you.

Shopify provides no way to gain attention, they have no retail customers. Speaking on behalf of ecommerce store owners, we are slaves to the platforms where the customers hangout. Slave to Facebook, slave to Instagram, slave to Pinterest, slave to Google, super-slave to Amazon. I sell on Amazon, if I wanted to switch to another platform, I would have to entirely rebuild my marketing strategy and core business model. THAT is what high switching costs look like. THOSE businesses are truly valuable, and deserve rich valuations.

Shopify does not have truly high switching costs for us ecommerce sellers. They really do not have as much pricing power as investors think, and a large % of their customer base is relying on supply chains that have been permanently disrupted due to Covid. This is a dangerous time to invest in this company IMO, unless the purpose is pure speculation over the short term.

+1. Shopify is now the 2nd largest company in Canada by market cap, passing TD Bank today -- behind only the Royal Bank of Canada.

I believe the attached is driving the current momentum. Not sure how long this will last.

Title: Re: SHOP - Shopify
Post by: rb on April 22, 2020, 01:00:03 PM
+1. Shopify is now the 2nd largest company in Canada by market cap, passing TD Bank today -- behind only the Royal Bank of Canada.

I believe the attached is driving the current momentum. Not sure how long this will last.
Ouch! History is hasn't been kind to Canadian companies that shot to the top of market cap list and weren't a bank.
Title: Re: SHOP - Shopify
Post by: matts on April 22, 2020, 01:07:21 PM
I don't comment in this forum normally, but as someone who has ran an ecommerce business full time for the last 3 years, reading this thread full of investors who clearly don't have a deep understanding of the ecommerce game, is particularly illuminating.

 It gives me a better perspective of how Mr. Market can get things wrong for long periods of time. Shopify is going to make $100B in revenue in ten years apparently. According to a "valueinvestor." Just... wow.


The most important thing is really- Shopify sells a tool. It's a nice tool, they do a good job of marketing that tool, it's a well known quality tool. But it's just a tool. The engine to any ecommerce business is web traffic, or customers. Cost of customer acquisition makes or breaks you.

Shopify provides no way to gain attention, they have no retail customers. Speaking on behalf of ecommerce store owners, we are slaves to the platforms where the customers hangout. Slave to Facebook, slave to Instagram, slave to Pinterest, slave to Google, super-slave to Amazon. I sell on Amazon, if I wanted to switch to another platform, I would have to entirely rebuild my marketing strategy and core business model. THAT is what high switching costs look like. THOSE businesses are truly valuable, and deserve rich valuations.

Shopify does not have truly high switching costs for us ecommerce sellers. They really do not have as much pricing power as investors think, and a large % of their customer base is relying on supply chains that have been permanently disrupted due to Covid. This is a dangerous time to invest in this company IMO, unless the purpose is pure speculation over the short term.

Thank you. This is the kind of first-hand expertise we need more on the forum. I hope you post more often going forward.
Title: Re: SHOP - Shopify
Post by: KCLarkin on April 22, 2020, 01:15:10 PM
If you are a seller who relies on Amazon or Google, you have a job not a business.

Disclosure: No position. I question the economics of the business but they meet an important need and do it very well.
Title: Re: SHOP - Shopify
Post by: valueinvestor on April 22, 2020, 01:33:53 PM
I don't comment in this forum normally, but as someone who has ran an ecommerce business full time for the last 3 years, reading this thread full of investors who clearly don't have a deep understanding of the ecommerce game, is particularly illuminating.

 It gives me a better perspective of how Mr. Market can get things wrong for long periods of time. Shopify is going to make $100B in revenue in ten years apparently. According to a "valueinvestor." Just... wow.


The most important thing is really- Shopify sells a tool. It's a nice tool, they do a good job of marketing that tool, it's a well known quality tool. But it's just a tool. The engine to any ecommerce business is web traffic, or customers. Cost of customer acquisition makes or breaks you.

Shopify provides no way to gain attention, they have no retail customers. Speaking on behalf of ecommerce store owners, we are slaves to the platforms where the customers hangout. Slave to Facebook, slave to Instagram, slave to Pinterest, slave to Google, super-slave to Amazon. I sell on Amazon, if I wanted to switch to another platform, I would have to entirely rebuild my marketing strategy and core business model. THAT is what high switching costs look like. THOSE businesses are truly valuable, and deserve rich valuations.

Shopify does not have truly high switching costs for us ecommerce sellers. They really do not have as much pricing power as investors think, and a large % of their customer base is relying on supply chains that have been permanently disrupted due to Covid. This is a dangerous time to invest in this company IMO, unless the purpose is pure speculation over the short term.

If you look at Shopify as a company that sells a tool, then your analysis makes sense. However, it's like saying Apple sells phones, and Netflix rents videos.

You are completely dismissing the possibility that Shopify will become an integral tool for all omnichannel providers and possibly the only tool. Shopify's R&D budgets are essentially the size of its next largest competitor's revenues.

Even, Amazon has closed their "webstore" services and recommended people to use Shopify.

I'm not sure what e-commerce business you ran - but am I safe to assume you started with a dropshipping website and turned into an FBA store (I guess because you were mentioning the importance retail customers on these platforms)? If you're basing your investment thesis on this, then it's heavily flawed.

Businesses, especially small businesses will need to have e-commerce in the future, and when they choose which platform to use - I'll argue Shopify is the only option out there for them. In order to gain customer attention, they will use other advertisers to run traffic to their store.

At the end of the day, I may not be right that this could be a $100B revenue-generating company in ten years. However, I'm sure it's wrong to base your investment opinion because Shopify is just a "tool". Unless you believe 100% of e-commerce transactions will only go through Amazon, then I wouldn't agree with you.

+1. Shopify is now the 2nd largest company in Canada by market cap, passing TD Bank today -- behind only the Royal Bank of Canada.

I believe the attached is driving the current momentum. Not sure how long this will last.
Ouch! History is hasn't been kind to Canadian companies that shot to the top of market cap list and weren't a bank.

I know! :P

I've been burned before by investing in Valeant - so maybe you should render all my opinions as a zero for that fact alone haha.

To justify it at today's valuation - in ten years it has to do about $100B in revenues, which I believe it can if it issues stocks at highs and invest in long run-way projects that could be huge winners.

It's a great company, no doubt.

But 10 years is a long time to wait to justify today's valuation. What's your discount rate?


Not exact as I did a simple one in my head but I used a discount rate of 10%.

Ending Remarks:

Please note that I just offered my opinion, not making a recommendation or no way shape or form saying this is a value investment. This stock can well be expensive if they don't hit their targets. Once they don't hit their targets, then this will most likely go down so fast.
Title: Re: SHOP - Shopify
Post by: valueinvestor on April 22, 2020, 01:35:50 PM
If you are a seller who relies on Amazon or Google, you have a job not a business.

Disclosure: No position. I question the economics of the business but they meet an important need and do it very well.

+1
Title: Re: SHOP - Shopify
Post by: valueinvestor on April 22, 2020, 01:37:15 PM
Thank you. This is the kind of first-hand expertise we need more on the forum. I hope you post more often going forward.

Me too! It's good to have new opinions. Edit: To challenge your views, however, I feel I agitated Orange with my post - hope it's not the case, and it's me misinterpreting the tone on a forum like I would with a text.
Title: Re: SHOP - Shopify
Post by: Gregmal on April 22, 2020, 01:41:57 PM
Yea.... first, shorting this on valuation is stupid. But some never learn.

Second, this is the type of company old fashioned value investors will buy 10 years from now at much higher prices because all of a sudden it "makes sense" to them, just the same as they are currently doing with Netflix and Amazon....

I dont own this, if I had a gun to my head, I'd be short, but the "valuation" thesis is just evidence that people dont learn from their mistakes.
Title: Re: SHOP - Shopify
Post by: valueinvestor on April 22, 2020, 02:30:10 PM
Yea.... first, shorting this on valuation is stupid. But some never learn.

Second, this is the type of company old fashioned value investors will buy 10 years from now at much higher prices because all of a sudden it "makes sense" to them, just the same as they are currently doing with Netflix and Amazon....

I dont own this, if I had a gun to my head, I'd be short, but the "valuation" thesis is just evidence that people dont learn from their mistakes.

Since I always loved your insights - what would make you go long?
Title: Re: SHOP - Shopify
Post by: Gregmal on April 22, 2020, 02:55:53 PM
I cant say I'd ever go long this because I dont understand the advantages and technology to the degree I think one should if you're doing anything more than swinging a momentum trade. Originally, I'd say a large market wide selloff and steep decline, but that just happened and I stuck to shit like GOOG, MSFT, CIBR in the tech sphere.

At the same time, what would make me bullish is the continued bang the head against the wall pundits and people who's surface understanding of how markets work let that compel them to short away on valuation or fall into the same bear traps you see over and over with stocks like this. Of course, when the market(and everything else crashes) those folks are there to say "I knew I was right", but then weeks later the resiliency of stocks like this, and Tesla, and big tech, is on full display again, but at or near the highs, having outperformed all the "value" stuff that was supposed to be a safe haven. At which point we start up the "its a bubble" rhetoric to justify being wrong again.

As I said, no position, but the narratives and market fodder is always entertaining. If you understand these types of companies and what drives them, you've got the tiger by the tail. Most dont. I dont. I've had similar luck trading with companies like NVTA. 100x revenues is absurd. But its not as reason to immediately write anything off. Like I said, I laugh at the folks who are NOW "enlightened" with Amazon, etc... you dont get multi baggers unless there is some sort of degree of skepticism and controversy around a compelling. Usually "valuation" debate is the major provider of that.
Title: Re: SHOP - Shopify
Post by: Jurgis on April 22, 2020, 03:27:35 PM
If you are a seller who relies on Amazon or Google, you have a job not a business.

EXPE and BKNG say "Ouch!".
Title: Re: SHOP - Shopify
Post by: valueinvestor on April 22, 2020, 06:34:37 PM
If you are a seller who relies on Amazon or Google, you have a job not a business.

EXPE and BKNG say "Ouch!".

I think they are if I remember their quarterlies correctly - you know - to be fair.
Title: Re: SHOP - Shopify
Post by: mloub on April 23, 2020, 08:54:22 AM
To summarize this market:

Shopify is the next Amazon
Wayfair is the next Amazon
Chewy.com is the next Amazon for Pet Owners
Tesla is the next Apple

Value investing is quaint, but what is the point of fundamental analysis when it just keeps passing over these great new Economy companies that are clearly going to be the next Amazon/Apple? These companies aren't over-valued. This time really is different!

Silly value investors, Mr. Market is offering you all these early-stage Amazons and Apples and you're asking about the financials? Can't you see, the financials don't matter. All that matters is the mildly plausible story about how these companies will become the next Amazon or Apple.

I mean could you really live with yourself if you didn't get in on the ground floor (or middle floor, I guess) of the next best thing? YOLO, and all that.

M.
Title: Re: SHOP - Shopify
Post by: mloub on April 23, 2020, 09:10:27 AM
I'm so old, I actually remember reading this Scott McNealy quote in Businessweek when it came out in 2002. McNealy, the CEO of Sun Microsystems thought things got crazy in the DotCom bubble because Sun was selling for 10x Revenues:

"At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?"— Scott McNealy, Business Week, 2002

But that just seems quaint now, doesn't it? SHOP is selling at almost 50x 2019 revenues. You know, because it is going to be the next Amazon, and it has unlimited growth potential as basically an intermediary for small mom and pop on-line businesses. By collecting 2.9% of its merchant's sales, and a small fixed fee, SHOP would only need to get 36 million merchants, and $3 trillion in sales moving through their platform to get revenues up to $100 billion from $1.5Bn where they currently sit. That all seems completely plausible.

M.


Title: Re: SHOP - Shopify
Post by: matts on April 23, 2020, 09:30:59 AM
I'm so old, I actually remember reading this Scott McNealy quote in Businessweek when it came out in 2002 in a glossy magazine. McNealy, the CEO of Sun Microsystems thought things got crazy in the DotCom bubble because Sun was selling for 10x Revenues:

"At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?"— Scott McNealy, Business Week, 2002

But that just seems quaint now, doesn't it. SHOP is selling at almost 50x 2019 revenues. You know, because it is going to be the next Amazon, and it has unlimited growth potential as basically an intermediary for small mom and pop on-line businesses. By collecting 2.9% of its merchant's sales, and a small fixed fee, SHOP would only need to get 36 million merchants, and $3 trillion in sales moving through their platform to get revenues up to $100 billion from $1.5Bn where they currently sit. That all seems completely plausible.

M.

that all sounds nice. but now rewrite what you wrote, but change SHOP to AMZN and pretend it's 1998. amazon used to trade at what? 40x sales in the 90s? That turned out ok. and back then it was "just a bookstore". it was ONLY collecting a small fee on each sale of...a book. how quaint! They used their customer base to expand into other businesses, something SHOP could potentially do.


I'm not even advocating for SHOP, but your analysis is way too simplistic.

Title: Re: SHOP - Shopify
Post by: Gregmal on April 23, 2020, 10:08:51 AM
Yea my major point was that I try to learn from the past, both mistakes and successes; both my own and that of others. This company has a lot of the hallmarks of those home run types. Which is not to say it cant be a bust, because thats always a possibility. But the beauty of investing on the long side is that all you can lose is your investment. Thats quite powerful when it comes to taking risks with multi bagger potential. So while I may not go long, I know better than to be tempted to go short.
Title: Re: SHOP - Shopify
Post by: thowed on April 23, 2020, 10:21:25 AM
change SHOP to AMZN and pretend it's 1998.

I'd forgotten that fantastic Scott McNealey quote.

Yes, for Amazon, but I suppose I think that for every Amazon there were a lot more pets.com, and it's much easier to have chosen the right one in retrospect.

If one was to have chosen Amazon (and held on during the bad times - requiring a great deal of blind faith) I think it was likely to have been because a) it had SUCH a first-mover advantage and b) Bezos appeared to be quite special and driven.

So sure, maybe Shopify will be big.  But my confidence levels would not make me size it much in a portfolio.
Title: Re: SHOP - Shopify
Post by: mloub on April 23, 2020, 10:32:23 AM
I'm so old, I actually remember reading this Scott McNealy quote in Businessweek when it came out in 2002 in a glossy magazine. McNealy, the CEO of Sun Microsystems thought things got crazy in the DotCom bubble because Sun was selling for 10x Revenues:

"At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?"— Scott McNealy, Business Week, 2002

But that just seems quaint now, doesn't it. SHOP is selling at almost 50x 2019 revenues. You know, because it is going to be the next Amazon, and it has unlimited growth potential as basically an intermediary for small mom and pop on-line businesses. By collecting 2.9% of its merchant's sales, and a small fixed fee, SHOP would only need to get 36 million merchants, and $3 trillion in sales moving through their platform to get revenues up to $100 billion from $1.5Bn where they currently sit. That all seems completely plausible.

M.

that all sounds nice. but now rewrite what you wrote, but change SHOP to AMZN and pretend it's 1998. amazon used to trade at what? 40x sales in the 90s? That turned out ok. and back then it was "just a bookstore". it was ONLY collecting a small fee on each sale of...a book. how quaint! They used their customer base to expand into other businesses, something SHOP could potentially do.


I'm not even advocating for SHOP, but your analysis is way too simplistic.

Sadly, simplistic analyses are all I'm capable of.

But just think of how fortunate we are to live in this time. While our predecessors had to settle for just one Amazon, and one Apple, we have dozens of each just waiting to be scooped up by those smart enough to have learnt from the earlier generation's mistakes of omission. I for one am holding out for the next Amazon that is selling for 100x sales. None of that half-baked 50x sales stuff. I mean it's just capital, and if you're not willing to risk it (or some fraction of it) hitting a grand slam, are you even really an investor?

M.
Title: Re: SHOP - Shopify
Post by: Gregmal on April 23, 2020, 10:40:28 AM
I'm so old, I actually remember reading this Scott McNealy quote in Businessweek when it came out in 2002 in a glossy magazine. McNealy, the CEO of Sun Microsystems thought things got crazy in the DotCom bubble because Sun was selling for 10x Revenues:

"At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?"— Scott McNealy, Business Week, 2002

But that just seems quaint now, doesn't it. SHOP is selling at almost 50x 2019 revenues. You know, because it is going to be the next Amazon, and it has unlimited growth potential as basically an intermediary for small mom and pop on-line businesses. By collecting 2.9% of its merchant's sales, and a small fixed fee, SHOP would only need to get 36 million merchants, and $3 trillion in sales moving through their platform to get revenues up to $100 billion from $1.5Bn where they currently sit. That all seems completely plausible.

M.

that all sounds nice. but now rewrite what you wrote, but change SHOP to AMZN and pretend it's 1998. amazon used to trade at what? 40x sales in the 90s? That turned out ok. and back then it was "just a bookstore". it was ONLY collecting a small fee on each sale of...a book. how quaint! They used their customer base to expand into other businesses, something SHOP could potentially do.


I'm not even advocating for SHOP, but your analysis is way too simplistic.

Sadly, simplistic analyses are all I'm capable of.

But just think of how fortunate we are to live in this time. While our predecessors had to settle for just one Amazon, and one Apple, we have dozens of each just waiting to be scooped up by those smart enough to have learnt from the earlier generation's mistakes of omission. I for one am holding out for the next Amazon that is selling for 100x sales. None of that half-baked 50x sales stuff. I mean it's just capital, and if you're not willing to risk it (or some fraction of it) hitting a grand slam, are you even really an investor?

M.

What would you call Venture Capitalists? Our Google's Moonshot division?

I try to be open minded to different strategies and while generally its a value oriented approach, theres more than one way to skin a cat.
Title: Re: SHOP - Shopify
Post by: Castanza on April 23, 2020, 10:44:38 AM
Are there any resources to see what's under the hood of Shopify? Not their tech stack, but the businesses that use their tech. It's easy to see the growth/demand in a bull market, but during a downturn I wonder if the world really needs a thousand t-shirt companies selling the same product with their own logo on it.

https://www.shopify.com/blog/shopify-stores

There are literally hundreds of examples of stores like this.
Title: Re: SHOP - Shopify
Post by: mloub on April 23, 2020, 10:45:06 AM
I'm so old, I actually remember reading this Scott McNealy quote in Businessweek when it came out in 2002 in a glossy magazine. McNealy, the CEO of Sun Microsystems thought things got crazy in the DotCom bubble because Sun was selling for 10x Revenues:

"At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?"— Scott McNealy, Business Week, 2002

But that just seems quaint now, doesn't it. SHOP is selling at almost 50x 2019 revenues. You know, because it is going to be the next Amazon, and it has unlimited growth potential as basically an intermediary for small mom and pop on-line businesses. By collecting 2.9% of its merchant's sales, and a small fixed fee, SHOP would only need to get 36 million merchants, and $3 trillion in sales moving through their platform to get revenues up to $100 billion from $1.5Bn where they currently sit. That all seems completely plausible.

M.

that all sounds nice. but now rewrite what you wrote, but change SHOP to AMZN and pretend it's 1998. amazon used to trade at what? 40x sales in the 90s? That turned out ok. and back then it was "just a bookstore". it was ONLY collecting a small fee on each sale of...a book. how quaint! They used their customer base to expand into other businesses, something SHOP could potentially do.


I'm not even advocating for SHOP, but your analysis is way too simplistic.

Sadly, simplistic analyses are all I'm capable of.

But just think of how fortunate we are to live in this time. While our predecessors had to settle for just one Amazon, and one Apple, we have dozens of each just waiting to be scooped up by those smart enough to have learnt from the earlier generation's mistakes of omission. I for one am holding out for the next Amazon that is selling for 100x sales. None of that half-baked 50x sales stuff. I mean it's just capital, and if you're not willing to risk it (or some fraction of it) hitting a grand slam, are you even really an investor?

M.

What would you call Venture Capitalists? Our Google's Moonshot division?

I try to be open minded to different strategies and while generally its a value oriented approach, theres more than one way to skin a cat.

Venture Capitalists and Google's Moonshot division are the only thing keeping me sane these days. Just when I think the world has gone to hell in a hand basket, I think of the Venture Capitalists, and Google's Moonshot division and my faith in humanity is restored. God bless them one and all, doing the Lord's work.

M.
Title: Re: SHOP - Shopify
Post by: jschembs on April 23, 2020, 10:51:49 AM
I'm so old, I actually remember reading this Scott McNealy quote in Businessweek when it came out in 2002 in a glossy magazine. McNealy, the CEO of Sun Microsystems thought things got crazy in the DotCom bubble because Sun was selling for 10x Revenues:

"At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?"— Scott McNealy, Business Week, 2002

But that just seems quaint now, doesn't it. SHOP is selling at almost 50x 2019 revenues. You know, because it is going to be the next Amazon, and it has unlimited growth potential as basically an intermediary for small mom and pop on-line businesses. By collecting 2.9% of its merchant's sales, and a small fixed fee, SHOP would only need to get 36 million merchants, and $3 trillion in sales moving through their platform to get revenues up to $100 billion from $1.5Bn where they currently sit. That all seems completely plausible.

M.

that all sounds nice. but now rewrite what you wrote, but change SHOP to AMZN and pretend it's 1998. amazon used to trade at what? 40x sales in the 90s? That turned out ok. and back then it was "just a bookstore". it was ONLY collecting a small fee on each sale of...a book. how quaint! They used their customer base to expand into other businesses, something SHOP could potentially do.


I'm not even advocating for SHOP, but your analysis is way too simplistic.

Sadly, simplistic analyses are all I'm capable of.

But just think of how fortunate we are to live in this time. While our predecessors had to settle for just one Amazon, and one Apple, we have dozens of each just waiting to be scooped up by those smart enough to have learnt from the earlier generation's mistakes of omission. I for one am holding out for the next Amazon that is selling for 100x sales. None of that half-baked 50x sales stuff. I mean it's just capital, and if you're not willing to risk it (or some fraction of it) hitting a grand slam, are you even really an investor?

M.

What would you call Venture Capitalists? Our Google's Moonshot division?

I try to be open minded to different strategies and while generally its a value oriented approach, theres more than one way to skin a cat.

What venture capitalist invests at a $75 billion valuation?
Title: Re: SHOP - Shopify
Post by: mloub on April 23, 2020, 10:52:08 AM
Are there any resources to see what's under the hood of Shopify? Not their tech stack, but the businesses that use their tech. It's easy to see the growth/demand in a bull market, but during a downturn I wonder if the world really needs a thousand t-shirt companies selling the same product with their own logo on it.

https://www.shopify.com/blog/shopify-stores

There are literally hundreds of examples of stores like this.

Castanza, these questions are making me doubt my vibe, and I have to say, I don't like it. I don't like it one bit. How many people wear T-shirts? Billions! That's all you need to know. No more boring, bone-headed questions, please.

https://www.youtube.com/watch?v=FHmy3LjcrVo

M.
Title: Re: SHOP - Shopify
Post by: BG2008 on April 23, 2020, 10:57:56 AM
Are there any resources to see what's under the hood of Shopify? Not their tech stack, but the businesses that use their tech. It's easy to see the growth/demand in a bull market, but during a downturn I wonder if the world really needs a thousand t-shirt companies selling the same product with their own logo on it.

https://www.shopify.com/blog/shopify-stores

There are literally hundreds of examples of stores like this.

As someone who has been buying clothing from Costco (great Puma socks, Jeans, flannels, not so great Kirkland T Shirts), these websites actually made me interested and curious.  I'm glad I took a look.  The visuals are great and stunning. 
Title: Re: SHOP - Shopify
Post by: Gregmal on April 23, 2020, 11:03:15 AM
I'm so old, I actually remember reading this Scott McNealy quote in Businessweek when it came out in 2002 in a glossy magazine. McNealy, the CEO of Sun Microsystems thought things got crazy in the DotCom bubble because Sun was selling for 10x Revenues:

"At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?"— Scott McNealy, Business Week, 2002

But that just seems quaint now, doesn't it. SHOP is selling at almost 50x 2019 revenues. You know, because it is going to be the next Amazon, and it has unlimited growth potential as basically an intermediary for small mom and pop on-line businesses. By collecting 2.9% of its merchant's sales, and a small fixed fee, SHOP would only need to get 36 million merchants, and $3 trillion in sales moving through their platform to get revenues up to $100 billion from $1.5Bn where they currently sit. That all seems completely plausible.

M.

that all sounds nice. but now rewrite what you wrote, but change SHOP to AMZN and pretend it's 1998. amazon used to trade at what? 40x sales in the 90s? That turned out ok. and back then it was "just a bookstore". it was ONLY collecting a small fee on each sale of...a book. how quaint! They used their customer base to expand into other businesses, something SHOP could potentially do.


I'm not even advocating for SHOP, but your analysis is way too simplistic.

Sadly, simplistic analyses are all I'm capable of.

But just think of how fortunate we are to live in this time. While our predecessors had to settle for just one Amazon, and one Apple, we have dozens of each just waiting to be scooped up by those smart enough to have learnt from the earlier generation's mistakes of omission. I for one am holding out for the next Amazon that is selling for 100x sales. None of that half-baked 50x sales stuff. I mean it's just capital, and if you're not willing to risk it (or some fraction of it) hitting a grand slam, are you even really an investor?

M.

What would you call Venture Capitalists? Our Google's Moonshot division?

I try to be open minded to different strategies and while generally its a value oriented approach, theres more than one way to skin a cat.

What venture capitalist invests at a $75 billion valuation?

I thought I'd been clear here I am not really talking about SHOP but rather the mentality of investing where you place small wagers with the expectation of letting it play its course; home run upside and wipe out downside...
Title: Re: SHOP - Shopify
Post by: jschembs on April 23, 2020, 11:06:14 AM
I'm so old, I actually remember reading this Scott McNealy quote in Businessweek when it came out in 2002 in a glossy magazine. McNealy, the CEO of Sun Microsystems thought things got crazy in the DotCom bubble because Sun was selling for 10x Revenues:

"At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?"— Scott McNealy, Business Week, 2002

But that just seems quaint now, doesn't it. SHOP is selling at almost 50x 2019 revenues. You know, because it is going to be the next Amazon, and it has unlimited growth potential as basically an intermediary for small mom and pop on-line businesses. By collecting 2.9% of its merchant's sales, and a small fixed fee, SHOP would only need to get 36 million merchants, and $3 trillion in sales moving through their platform to get revenues up to $100 billion from $1.5Bn where they currently sit. That all seems completely plausible.

M.

that all sounds nice. but now rewrite what you wrote, but change SHOP to AMZN and pretend it's 1998. amazon used to trade at what? 40x sales in the 90s? That turned out ok. and back then it was "just a bookstore". it was ONLY collecting a small fee on each sale of...a book. how quaint! They used their customer base to expand into other businesses, something SHOP could potentially do.


I'm not even advocating for SHOP, but your analysis is way too simplistic.

Sadly, simplistic analyses are all I'm capable of.

But just think of how fortunate we are to live in this time. While our predecessors had to settle for just one Amazon, and one Apple, we have dozens of each just waiting to be scooped up by those smart enough to have learnt from the earlier generation's mistakes of omission. I for one am holding out for the next Amazon that is selling for 100x sales. None of that half-baked 50x sales stuff. I mean it's just capital, and if you're not willing to risk it (or some fraction of it) hitting a grand slam, are you even really an investor?

M.

What would you call Venture Capitalists? Our Google's Moonshot division?

I try to be open minded to different strategies and while generally its a value oriented approach, theres more than one way to skin a cat.

What venture capitalist invests at a $75 billion valuation?

I thought I'd been clear here I am not really talking about SHOP but rather the mentality of investing where you place small wagers with the expectation of letting it play its course; home run upside and wipe out downside...

Okay, but this is a thread about SHOP, so I suppose I'm just trying to bring your theoretical back to the topic at hand.
Title: Re: SHOP - Shopify
Post by: Gregmal on April 23, 2020, 11:09:46 AM
I'm so old, I actually remember reading this Scott McNealy quote in Businessweek when it came out in 2002 in a glossy magazine. McNealy, the CEO of Sun Microsystems thought things got crazy in the DotCom bubble because Sun was selling for 10x Revenues:

"At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?"— Scott McNealy, Business Week, 2002

But that just seems quaint now, doesn't it. SHOP is selling at almost 50x 2019 revenues. You know, because it is going to be the next Amazon, and it has unlimited growth potential as basically an intermediary for small mom and pop on-line businesses. By collecting 2.9% of its merchant's sales, and a small fixed fee, SHOP would only need to get 36 million merchants, and $3 trillion in sales moving through their platform to get revenues up to $100 billion from $1.5Bn where they currently sit. That all seems completely plausible.

M.

that all sounds nice. but now rewrite what you wrote, but change SHOP to AMZN and pretend it's 1998. amazon used to trade at what? 40x sales in the 90s? That turned out ok. and back then it was "just a bookstore". it was ONLY collecting a small fee on each sale of...a book. how quaint! They used their customer base to expand into other businesses, something SHOP could potentially do.


I'm not even advocating for SHOP, but your analysis is way too simplistic.

Sadly, simplistic analyses are all I'm capable of.

But just think of how fortunate we are to live in this time. While our predecessors had to settle for just one Amazon, and one Apple, we have dozens of each just waiting to be scooped up by those smart enough to have learnt from the earlier generation's mistakes of omission. I for one am holding out for the next Amazon that is selling for 100x sales. None of that half-baked 50x sales stuff. I mean it's just capital, and if you're not willing to risk it (or some fraction of it) hitting a grand slam, are you even really an investor?

M.

What would you call Venture Capitalists? Our Google's Moonshot division?

I try to be open minded to different strategies and while generally its a value oriented approach, theres more than one way to skin a cat.

What venture capitalist invests at a $75 billion valuation?

I thought I'd been clear here I am not really talking about SHOP but rather the mentality of investing where you place small wagers with the expectation of letting it play its course; home run upside and wipe out downside...

Okay, but this is a thread about SHOP, so I suppose I'm just trying to bring your theoretical back to the topic at hand.

The topic had to do with why invest in SHOP? Which came back to, of course, snide "valuation" based remarks that fall into the same category of "why value investors miss great investments"(or buy them after all the gains have been made) to which I explained the logic behind investing in these types of companies, or avoided falling for the temptation to short. Thats all...
Title: Re: SHOP - Shopify
Post by: mloub on April 23, 2020, 11:10:12 AM
Yes, exactly. A great framework for investing is where you take a flyer on an asset with a large likelihood of a wipe out downside, but a small chance of a home run. I believe the old timers call this a "Margin of Safety". But if that proposition doesn't seem appealing to you, don't worry, just hold a 100 of these ideas, and then you'll have the law of averages working on your side, and you're sure to win!

M.
Title: Re: SHOP - Shopify
Post by: mloub on April 23, 2020, 11:15:36 AM
I'm so old, I actually remember reading this Scott McNealy quote in Businessweek when it came out in 2002 in a glossy magazine. McNealy, the CEO of Sun Microsystems thought things got crazy in the DotCom bubble because Sun was selling for 10x Revenues:

"At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?"— Scott McNealy, Business Week, 2002

But that just seems quaint now, doesn't it. SHOP is selling at almost 50x 2019 revenues. You know, because it is going to be the next Amazon, and it has unlimited growth potential as basically an intermediary for small mom and pop on-line businesses. By collecting 2.9% of its merchant's sales, and a small fixed fee, SHOP would only need to get 36 million merchants, and $3 trillion in sales moving through their platform to get revenues up to $100 billion from $1.5Bn where they currently sit. That all seems completely plausible.

M.

that all sounds nice. but now rewrite what you wrote, but change SHOP to AMZN and pretend it's 1998. amazon used to trade at what? 40x sales in the 90s? That turned out ok. and back then it was "just a bookstore". it was ONLY collecting a small fee on each sale of...a book. how quaint! They used their customer base to expand into other businesses, something SHOP could potentially do.


I'm not even advocating for SHOP, but your analysis is way too simplistic.

Sadly, simplistic analyses are all I'm capable of.

But just think of how fortunate we are to live in this time. While our predecessors had to settle for just one Amazon, and one Apple, we have dozens of each just waiting to be scooped up by those smart enough to have learnt from the earlier generation's mistakes of omission. I for one am holding out for the next Amazon that is selling for 100x sales. None of that half-baked 50x sales stuff. I mean it's just capital, and if you're not willing to risk it (or some fraction of it) hitting a grand slam, are you even really an investor?

M.

What would you call Venture Capitalists? Our Google's Moonshot division?

I try to be open minded to different strategies and while generally its a value oriented approach, theres more than one way to skin a cat.

What venture capitalist invests at a $75 billion valuation?

I thought I'd been clear here I am not really talking about SHOP but rather the mentality of investing where you place small wagers with the expectation of letting it play its course; home run upside and wipe out downside...

Okay, but this is a thread about SHOP, so I suppose I'm just trying to bring your theoretical back to the topic at hand.

The topic had to do with why invest in SHOP? Which came back to, of course, snide "valuation" based remarks that fall into the same category of "why value investors miss great investments"(or buy them after all the gains have been made) to which I explained the logic behind investing in these types of companies, or avoided falling for the temptation to short. Thats all...

Well, Sir, now you've got my goat! My comments have been called aloof, indifferent, arrogant, sarcastic, borderline autistic, but snide! Now you've gone too far! I remember a time when folks shared their views on the internets freely...Wait a minute, I just googled snide. I'm sorry, I didn't realize that's what it meant. Yes, carry on. I'll allow it.

M.
Title: Re: SHOP - Shopify
Post by: Jurgis on April 23, 2020, 11:29:28 AM
I'm so old, I actually remember reading this Scott McNealy quote in Businessweek when it came out in 2002 in a glossy magazine. McNealy, the CEO of Sun Microsystems thought things got crazy in the DotCom bubble because Sun was selling for 10x Revenues:

"At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?"— Scott McNealy, Business Week, 2002

But that just seems quaint now, doesn't it. SHOP is selling at almost 50x 2019 revenues. You know, because it is going to be the next Amazon, and it has unlimited growth potential as basically an intermediary for small mom and pop on-line businesses. By collecting 2.9% of its merchant's sales, and a small fixed fee, SHOP would only need to get 36 million merchants, and $3 trillion in sales moving through their platform to get revenues up to $100 billion from $1.5Bn where they currently sit. That all seems completely plausible.

M.

that all sounds nice. but now rewrite what you wrote, but change SHOP to AMZN and pretend it's 1998. amazon used to trade at what? 40x sales in the 90s? That turned out ok. and back then it was "just a bookstore". it was ONLY collecting a small fee on each sale of...a book. how quaint! They used their customer base to expand into other businesses, something SHOP could potentially do.


I'm not even advocating for SHOP, but your analysis is way too simplistic.

I am not advocating for SHOP as well, but Scott McNealy set up a rather straw-man argument.

A company trading at 10x revenues might be trading at 20 P/E if it has 50% margin or 25 P/E if it has 40% margin. Plus saying "10x revenues" does not account for growth at all. If company has 50% growth, it would be trading 4.4x revenues in 2 years assuming no price change, which could be 15PE with ~30% margin.
Title: Re: SHOP - Shopify
Post by: writser on April 23, 2020, 11:31:00 AM
What venture capitalist invests at a $75 billion valuation?

Masayoshi Son. Duh.
Title: Re: SHOP - Shopify
Post by: Castanza on April 23, 2020, 11:34:33 AM
I'm so old, I actually remember reading this Scott McNealy quote in Businessweek when it came out in 2002 in a glossy magazine. McNealy, the CEO of Sun Microsystems thought things got crazy in the DotCom bubble because Sun was selling for 10x Revenues:

"At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?"— Scott McNealy, Business Week, 2002

But that just seems quaint now, doesn't it. SHOP is selling at almost 50x 2019 revenues. You know, because it is going to be the next Amazon, and it has unlimited growth potential as basically an intermediary for small mom and pop on-line businesses. By collecting 2.9% of its merchant's sales, and a small fixed fee, SHOP would only need to get 36 million merchants, and $3 trillion in sales moving through their platform to get revenues up to $100 billion from $1.5Bn where they currently sit. That all seems completely plausible.

M.

that all sounds nice. but now rewrite what you wrote, but change SHOP to AMZN and pretend it's 1998. amazon used to trade at what? 40x sales in the 90s? That turned out ok. and back then it was "just a bookstore". it was ONLY collecting a small fee on each sale of...a book. how quaint! They used their customer base to expand into other businesses, something SHOP could potentially do.


I'm not even advocating for SHOP, but your analysis is way too simplistic.

Sadly, simplistic analyses are all I'm capable of.

But just think of how fortunate we are to live in this time. While our predecessors had to settle for just one Amazon, and one Apple, we have dozens of each just waiting to be scooped up by those smart enough to have learnt from the earlier generation's mistakes of omission. I for one am holding out for the next Amazon that is selling for 100x sales. None of that half-baked 50x sales stuff. I mean it's just capital, and if you're not willing to risk it (or some fraction of it) hitting a grand slam, are you even really an investor?

M.

What would you call Venture Capitalists? Our Google's Moonshot division?

I try to be open minded to different strategies and while generally its a value oriented approach, theres more than one way to skin a cat.

Venture Capitalists and Google's Moonshot division are the only thing keeping me sane these days. Just when I think the world has gone to hell in a hand basket, I think of the Venture Capitalists, and Google's Moonshot division and my faith in humanity is restored. God bless them one and all, doing the Lord's work.

M.

"We principally generate revenues through the sale of subscriptions to our platform and the sale of additional solutions to our merchants. Our subscription plans typically have a one-month term, although a small percentage of our merchants have annual or multi-year subscription terms. Our merchants have no obligation to renew their subscriptions after their subscription term expires. As a result, even though the number of merchants using our platform has grown rapidly in recent years, there can be no assurance that we will be able to retain these merchants. In fact, we have historically experienced merchant turnover as a result of many of our merchants being SMBs that are more susceptible than larger businesses to general economic conditions and other risks affecting their businesses. Further, many of these SMBs are in the entrepreneurial stage of their development and there is no guarantee that their businesses will succeed. Our costs associated with subscription renewals are substantially lower than costs associated with generating revenue from new merchants or costs associated with generating sales of additional solutions to existing merchants. Therefore, if we are unable to retain merchants, even if such losses are offset by an increase in new merchants or an increase in other revenues, our operating results could be adversely impacted."

But yeah, there is always the next sucker in line to take a shot and pay that subscription. Maybe that's the beauty of Shopify?

@BG2008, it's worth noting a lot of these "store fronts" require outsourcing for further web development. But yeah, there is not doubt it's a good product!
Title: Re: SHOP - Shopify
Post by: mloub on April 23, 2020, 11:34:51 AM
I'm so old, I actually remember reading this Scott McNealy quote in Businessweek when it came out in 2002 in a glossy magazine. McNealy, the CEO of Sun Microsystems thought things got crazy in the DotCom bubble because Sun was selling for 10x Revenues:

"At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?"— Scott McNealy, Business Week, 2002

But that just seems quaint now, doesn't it. SHOP is selling at almost 50x 2019 revenues. You know, because it is going to be the next Amazon, and it has unlimited growth potential as basically an intermediary for small mom and pop on-line businesses. By collecting 2.9% of its merchant's sales, and a small fixed fee, SHOP would only need to get 36 million merchants, and $3 trillion in sales moving through their platform to get revenues up to $100 billion from $1.5Bn where they currently sit. That all seems completely plausible.

M.

that all sounds nice. but now rewrite what you wrote, but change SHOP to AMZN and pretend it's 1998. amazon used to trade at what? 40x sales in the 90s? That turned out ok. and back then it was "just a bookstore". it was ONLY collecting a small fee on each sale of...a book. how quaint! They used their customer base to expand into other businesses, something SHOP could potentially do.


I'm not even advocating for SHOP, but your analysis is way too simplistic.

I am not advocating for SHOP as well, but Scott McNealy set up a rather straw-man argument.

A company trading at 10x revenues might be trading at 20 P/E if it has 50% margin or 25 P/E if it has 40% margin. Plus saying "10x revenues" does not account for growth at all. If company has 50% growth, it would be trading 4.4x revenues in 2 years assuming no price change, which could be 15PE with ~30% margin.

Agreed! Now if I do the same math for SHOP...wait, no, look over here instead: Bobble heads!
https://www.bobblesgalore.com/


Title: Re: SHOP - Shopify
Post by: SHDL on April 23, 2020, 11:46:06 AM
A great framework for investing is where you take a flyer on an asset with a large likelihood of a wipe out downside, but a small chance of a home run.

This is actually a key part of how certain equity indexes like the S&P 500 did so well, at least in recent years. They basically bought the FANGMANs and co. early and held on. They also owned a bunch of mediocre/bad stuff too but the winners were successful enough that the basket as a whole did quite well.

Now whether this strategy will keep working well going forward is another matter...
Title: Re: SHOP - Shopify
Post by: mloub on April 23, 2020, 11:57:42 AM
A great framework for investing is where you take a flyer on an asset with a large likelihood of a wipe out downside, but a small chance of a home run.

This is actually a key part of how certain equity indexes like the S&P 500 did so well, at least in recent years. They basically bought the FANGMANs and co. early and held on. They also owned a bunch of mediocre/bad stuff too but the winners were successful enough that the basket as a whole did quite well.

Now whether this strategy will keep working well going forward is another matter...

Exactly! Just like the nifty-fifty, only much, much better. The nifty-fifty ended in tears, when it is plain for all to see that this time is different. People were so simple back then. Polaroids and Xerox copiers. What a hoot.

M.
Title: Re: SHOP - Shopify
Post by: coc on April 23, 2020, 12:00:56 PM
The problem with paying 35x revenues is you have zero margin of safety.

Imagine buying the whole business. Let's say you want a 10% return starting five years out to justify buying the company. On today's price that's ~$7.2 billion after tax profit. They're likely to issue shares to employees so you might need $8 billion or more to get 10%, but let's call it $8 billion.

To achieve $8 billion, let's generously assume SHOP will have 20% after-tax margins - a true tech powerhouse. That means they'll need $40 billion in revenue in five years. 20x today's number, or 82% compounded per year.

It's possible, but note that if they compound at a mere 40% per year and their margin is 10% after tax, your return at that point will still be probably 1% on your $70B+ layout today.

That math is...challenging for a business with no profits to date. The reason people are comfortable with it is they're not doing that kind of math - they're using speculator math. (If it trades at a mere 20x revenue in 5 years and has revenue of $10 billion...etc.)
Title: Re: SHOP - Shopify
Post by: fareastwarriors on April 23, 2020, 12:01:39 PM
I got out at 400s where I thought surely this can't go any higher. Sure enough I was totally  wrong.

 ;D


Who's actually long SHOP here?
valueinvestor?
Title: Re: SHOP - Shopify
Post by: rkbabang on April 23, 2020, 12:09:59 PM
I got out at 400s where I thought surely this can't go any higher. Sure enough I was totally  wrong.

 ;D


Who's actually long SHOP here?

I just sold half of my position today at $628.  I bought at $140, sold a third of that last summer at $320, and today sold half of what remained (another 1/3rd of original position) at $628.  I'm going to hold the rest.  SHOP isn't going to $0.
Title: Re: SHOP - Shopify
Post by: Xerxes on April 23, 2020, 12:14:53 PM
I own Lightspeed, the Montreal-based payment system, and in my dream scenario, Shopify will issue its expensive shares to buy Lightspeed, and rescue me.
Title: Re: SHOP - Shopify
Post by: matts on April 23, 2020, 12:25:41 PM
I own Lightspeed, the Montreal-based payment system, and in my dream scenario, Shopify will issue its expensive shares to buy Lightspeed, and rescue me.

Lightspeed's only selling at ~18x sales. How quaint. Call me when its up to ~50x. No time for minnows in this once in a lifetime bull market.

M.

dude, why are you posting like a smug little child? People are trying to discuss this stock and you are adding no value.
Title: Re: SHOP - Shopify
Post by: mloub on April 23, 2020, 12:26:54 PM
The problem with paying 35x revenues is you have zero margin of safety.

Imagine buying the whole business. Let's say you want a 10% return starting five years out to justify buying the company. On today's price that's ~$7.2 billion after tax profit. They're likely to issue shares to employees so you might need $8 billion or more to get 10%, but let's call it $8 billion.

To achieve $8 billion, let's generously assume SHOP will have 20% after-tax margins - a true tech powerhouse. That means they'll need $40 billion in revenue in five years. 20x today's number, or 82% compounded per year.

It's possible, but note that if they compound at a mere 40% per year and their margin is 10% after tax, your return at that point will still be probably 1% on your $70B+ layout today.

That math is...challenging for a business with no profits to date. The reason people are comfortable with it is they're not doing that kind of math - they're using speculator math. (If it trades at a mere 20x revenue in 5 years and has revenue of $10 billion...etc.)

No sweat! I mean, they've been compounding at 82% per year so far, right? (Checks notes). I mean scratch that...Look over here. Bobbleheads!

https://www.bobblesgalore.com/

M.
Title: Re: SHOP - Shopify
Post by: Gregmal on April 23, 2020, 12:30:29 PM
Its a case of modern value investor derangement syndrome. They missed the boat. Have had shitty returns, and can only bemoan and deride those whom are making money through snarky intellectual blabber or requoting old value investor adages... Its OK though. We shouldn't mind the people in the stands. Whether they cheer or boo, they pay a price.
Title: Re: SHOP - Shopify
Post by: mloub on April 23, 2020, 12:35:26 PM
But can't you see, I'm chastened after my years of terrible returns. I see the light, and I am ready to change. And that is why, after a great deal of introspection and study of the current market, I'd like to announce here on COBF, the formation of my new Venture Capital Fund, Accelerant Capital Partners, because "Every Capital fire needs an Accelerant" (TM).

M.
Title: Re: SHOP - Shopify
Post by: rb on April 23, 2020, 12:37:31 PM
Its a case of modern value investor derangement syndrome. They missed the boat. Have had shitty returns, and can only bemoan and deride those whom are making money through snarky intellectual blabber or requoting old value investor adages... Its OK though. We shouldn't mind the people in the stands. Whether they cheer or boo, they pay a price.
::)
Title: Re: SHOP - Shopify
Post by: mloub on April 23, 2020, 12:37:52 PM
Damnit! Spoke too soon. These beautiful geniuses beat me to it.

http://accelerantcapital.com/

M.
Title: Re: SHOP - Shopify
Post by: jschembs on April 23, 2020, 12:39:22 PM
Its a case of modern value investor derangement syndrome. They missed the boat. Have had shitty returns, and can only bemoan and deride those whom are making money through snarky intellectual blabber or requoting old value investor adages... Its OK though. We shouldn't mind the people in the stands. Whether they cheer or boo, they pay a price.

Going to find a frame for this one.
Title: Re: SHOP - Shopify
Post by: mloub on April 23, 2020, 12:42:59 PM
Quick, I need a new name idea. Something that evokes a searing fire, so that my firm is associated with almost unbelievable growth, like an out of control wildfire....

Something like "Combustible Capital", "Explosive Dynamic Partners"...a little help please.

M.
Title: Re: SHOP - Shopify
Post by: Gregmal on April 23, 2020, 12:46:29 PM
I mean, I have no position here. Have said if I had to take one, I'd short it, but also can see why people may be excited...What I dont get is the impulsive need to belittled people interested in an investment because "you" do not understand it or because it doesnt make sense to "you". If you feel that strongly why not take the other side of the trade? Its a case where it seems folks rather be right than make money, not different than whats gone on with Amazon or Tesla or many other names. Whether you like it or dont, its amusing when folks who were adamant bears at $30 still run their mouths and mock those who own it at $700 or $2000...
Title: Re: SHOP - Shopify
Post by: mloub on April 23, 2020, 12:50:20 PM
I own Lightspeed, the Montreal-based payment system, and in my dream scenario, Shopify will issue its expensive shares to buy Lightspeed, and rescue me.

Lightspeed's only selling at ~18x sales. How quaint. Call me when its up to ~50x. No time for minnows in this once in a lifetime bull market.

M.

dude, why are you posting like a smug little child? People are trying to discuss this stock and you are adding no value.

Hey man, I'm on your team. No need to get defensive. I'm new to this game, and just getting the hang of the lingo. What I meant to say is 18x sales and no profit is super awesome. But you can do better. Just look at SHOP.

M.
Title: Re: SHOP - Shopify
Post by: SHDL on April 23, 2020, 12:53:29 PM
Quick, I need a new name idea. Something that evokes a searing fire, so that my firm is associated with almost unbelievable growth, like an out of control wildfire....

Something like "Combustible Capital", "Explosive Dynamic Partners"...a little help please.

M.

Double Exponential Capital. Slogan: “Compounds so powerfully your base doesn’t even matter!”
Title: Re: SHOP - Shopify
Post by: mloub on April 23, 2020, 12:58:33 PM
Quick, I need a new name idea. Something that evokes a searing fire, so that my firm is associated with almost unbelievable growth, like an out of control wildfire....

Something like "Combustible Capital", "Explosive Dynamic Partners"...a little help please.

M.

Double Exponential Capital. Slogan: “Compounds so powerfully the base doesn’t matter.”

Dibs! Dibs! Dibs! I trust you're all gentle men and women here and no one will try to steal the domain out from under me.

M.
Title: Re: SHOP - Shopify
Post by: thepupil on April 23, 2020, 01:05:21 PM
Quick, I need a new name idea. Something that evokes a searing fire, so that my firm is associated with almost unbelievable growth, like an out of control wildfire....

Something like "Combustible Capital", "Explosive Dynamic Partners"...a little help please.

M.

given that your contribution to board analysis and ideas (outside of the thread I refuse to read) appears to be 8-10 year old posts on such long term compounders as Rainmaker Entertainment, Pinnacle Airlines, and TEPCO, how about "Negative Nancy Capital Management Partners Global Limited"?

we get it. you don't like fast growth tech. what do you like?
Title: Re: SHOP - Shopify
Post by: mloub on April 23, 2020, 01:20:07 PM
Quick, I need a new name idea. Something that evokes a searing fire, so that my firm is associated with almost unbelievable growth, like an out of control wildfire....

Something like "Combustible Capital", "Explosive Dynamic Partners"...a little help please.

M.

given that your contribution to board analysis and ideas (outside of the thread I refuse to read) appears to be 8-10 year old posts on such long term compounders as Rainmaker Entertainment, Pinnacle Airlines, and TEPCO, how about "Negative Nancy Capital Management Partners Global Limited"?

we get it. you don't like fast growth tech. what do you like?

You missed my 11 year old posts about ATSG, and 9 year old posts on Gyrodyne. The March, 2009 post on ATSG brought a tear to my eye. But I realize that is all gargabe now. Which awesome growth company should I start with first to regain the board's trust? Zoom, SHOP, "a company to be formed, for a purpose to be determined at a future time"?

What I used to like doesn't exist anymore, so no point talking about the past.


M.

EDIT: And for the record, my post on the Rainmaker thread on July, 2012 was simply to define the acronym TIA for someone who did not know what it meant. I was never an investor or porponent of Rainmaker. And I did not inhale, and all that other stuff...
Title: Re: SHOP - Shopify
Post by: thepupil on April 23, 2020, 01:33:59 PM
Quick, I need a new name idea. Something that evokes a searing fire, so that my firm is associated with almost unbelievable growth, like an out of control wildfire....

Something like "Combustible Capital", "Explosive Dynamic Partners"...a little help please.

M.

given that your contribution to board analysis and ideas (outside of the thread I refuse to read) appears to be 8-10 year old posts on such long term compounders as Rainmaker Entertainment, Pinnacle Airlines, and TEPCO, how about "Negative Nancy Capital Management Partners Global Limited"?

we get it. you don't like fast growth tech. what do you like?

You missed my 11 year old posts about ATSG, and 9 year old posts on Gyrodyne. The March, 2009 post on ATSG brought a tear to my eye. But I realize that is all gargabe now. Which awesome growth company should I start with first to regain the board's trust? Zoom, SHOP, "a company to be formed, for a purpose to be determined at a future time"?

What I used to like doesn't exist anymore, so no point talking about the past.

M.

EDIT: And for the record, my post on the Rainmaker thread on July, 2012 was simply to define the acronym TIA for someone who did not know what it meant. I was never an investor or porponent of Rainmaker. And I did not inhale, and all that other stuff...

fair, i did a quick glance and picked out three companies that seemed like shitty ones because that's what one does to someone who is spamming non-stop and taking a mildly amusing joke that had a shelf life of 1 to 2 posts well beyond that.

so what do you like?

please start a thread with your longs to pair against your SHOP short
Title: Re: SHOP - Shopify
Post by: mloub on April 23, 2020, 01:36:52 PM
I'm not short SHOP.

And my longs aren't worth discussing.

If that changes, I'll make a post. But as you can tell, my posting comes in spurts once a decade.

M.
Title: Re: SHOP - Shopify
Post by: thepupil on April 23, 2020, 01:43:23 PM
I look forward to more productive spurts of contribution.

Title: Re: SHOP - Shopify
Post by: mloub on April 23, 2020, 01:54:25 PM
I look forward to more productive spurts of contribution.

Okay, here it goes:

Please, for the love of all that is holy, do not buy SHOP at these prices. Think of your children, think of your spouses, think of poor Charlie. The price may oscillate, it might even go up a lot in the short-term, but buying this company's shares today, at these prices, is a terrible, terrible idea.

Hopefully, that was productive enough. See you all in 2030!

M.

PS. You should probably stay away from Lightspeed too.

Title: Re: SHOP - Shopify
Post by: valueinvestor on April 23, 2020, 03:54:32 PM
I haven't read the whole thread after Gregmal's on what will make him long (if you haven't read it - I think you should give it a read - it gives an honest counterpoint).

As for those who are screaming "what about the valuation?", but really want to understand my point of view, I just ask "have you tried their product/service?"

I would recommend seeing anyone that has a Shopify store that's doing $10M+ revenues a year. In fact, the best ones to speak to are the ones that tried to migrate from the platform to another such as Magento? (I would bet a majority migrated back)

I invested because it's part of my investment strategy. A third in a great priced good businesses. A third in fair priced great businesses. A third in irrationally priced speculative businesses (TSLA, SHOP, ROKU, etc.)

By the way, I'm expecting a 50%+ percent drop as a good possibility next year or the year after, but that does not necessarily make this a bad investment - it just made it cheaper. Unless your timeline is one-to-two years, then yea the loss is unacceptable. My timeline is far longer, I would argue 40 years because that's when I would probably retire.

EDIT: I think I oversimplified my investment strategy because those irrationally speculative businesses 10 years ago became fair priced great businesses, such as Amazon, Facebook, Netflix. The only one that hasn't played out in that basket was Valeant when I invested at $200 per share, but oddly enough I have not lost money on that or made great money for the headache and pain suffered.
Title: Re: SHOP - Shopify
Post by: mcliu on April 23, 2020, 05:12:45 PM
@valueinvestor, no doubt SHOP has a great business. I was curious, what price would you consider buying or selling today? $1,000? $5,000? $10,000?
Title: Re: SHOP - Shopify
Post by: valueinvestor on April 23, 2020, 05:56:29 PM
@valueinvestor, no doubt SHOP has a great business. I was curious, what price would you consider buying or selling today? $1,000? $5,000? $10,000?

Technically I would've sold years ago, but couldn't find a suitable candidate to replace the irrationally-priced speculative stock like Shopify - closest was Kinaxis (not sure if that's the case) so stuck with it.

Also my cost basis is around 350-400 EDIT: (after doubling down at 820 mark), but I was comfortable keeping it as I had a size-able cash position of 10%+.

So to strip away the complexity - if I had to buy Shopify at a price where I had to put a third of my capital, can never sell a share, have no overall cash cushion, where the other 2/3 is invested equally in cigar butts and compounders - it would be around $300 to $450 mark, maybe $500 (which are prices that were presented this year).

If I had to sell it and can't buy a share ever again - it would be around the $1800-2700 mark where there's nothing that impaired the growth going forward.

In between these two circumstances, there would be possibilities where I'm comfortable with prices right now. There are businesses within shopify as mentioned before, like the app store, distribution, AR, shopify capital, etc that can be very lucrative.

EDIT: As I'm willing to make a wager that COVID-19 provided some tailwind to their quarterly earnings, and retailers are considering which platform to choose to weather another possible pandemic.
Title: Re: SHOP - Shopify
Post by: Orange on April 24, 2020, 06:27:02 PM
If you are a seller who relies on Amazon or Google, you have a job not a business.

Disclosure: No position. I question the economics of the business but they meet an important need and do it very well.

+1


This shows how little you guys understand about ecommerce. How are you going to run an ecommerce business without relying on a platform like Google or Amazon? You have to have a way of getting customers. That doesn't negate the fact that it's still a business
Title: Re: SHOP - Shopify
Post by: Orange on April 24, 2020, 06:27:14 PM
I don't comment in this forum normally, but as someone who has ran an ecommerce business full time for the last 3 years, reading this thread full of investors who clearly don't have a deep understanding of the ecommerce game, is particularly illuminating.

 It gives me a better perspective of how Mr. Market can get things wrong for long periods of time. Shopify is going to make $100B in revenue in ten years apparently. According to a "valueinvestor." Just... wow.


The most important thing is really- Shopify sells a tool. It's a nice tool, they do a good job of marketing that tool, it's a well known quality tool. But it's just a tool. The engine to any ecommerce business is web traffic, or customers. Cost of customer acquisition makes or breaks you.

Shopify provides no way to gain attention, they have no retail customers. Speaking on behalf of ecommerce store owners, we are slaves to the platforms where the customers hangout. Slave to Facebook, slave to Instagram, slave to Pinterest, slave to Google, super-slave to Amazon. I sell on Amazon, if I wanted to switch to another platform, I would have to entirely rebuild my marketing strategy and core business model. THAT is what high switching costs look like. THOSE businesses are truly valuable, and deserve rich valuations.

Shopify does not have truly high switching costs for us ecommerce sellers. They really do not have as much pricing power as investors think, and a large % of their customer base is relying on supply chains that have been permanently disrupted due to Covid. This is a dangerous time to invest in this company IMO, unless the purpose is pure speculation over the short term.

If you look at Shopify as a company that sells a tool, then your analysis makes sense. However, it's like saying Apple sells phones, and Netflix rents videos.

You are completely dismissing the possibility that Shopify will become an integral tool for all omnichannel providers and possibly the only tool. Shopify's R&D budgets are essentially the size of its next largest competitor's revenues.

Even, Amazon has closed their "webstore" services and recommended people to use Shopify.

I'm not sure what e-commerce business you ran - but am I safe to assume you started with a dropshipping website and turned into an FBA store (I guess because you were mentioning the importance retail customers on these platforms)? If you're basing your investment thesis on this, then it's heavily flawed.

Businesses, especially small businesses will need to have e-commerce in the future, and when they choose which platform to use - I'll argue Shopify is the only option out there for them. In order to gain customer attention, they will use other advertisers to run traffic to their store.

At the end of the day, I may not be right that this could be a $100B revenue-generating company in ten years. However, I'm sure it's wrong to base your investment opinion because Shopify is just a "tool". Unless you believe 100% of e-commerce transactions will only go through Amazon, then I wouldn't agree with you.

+1. Shopify is now the 2nd largest company in Canada by market cap, passing TD Bank today -- behind only the Royal Bank of Canada.

I believe the attached is driving the current momentum. Not sure how long this will last.
Ouch! History is hasn't been kind to Canadian companies that shot to the top of market cap list and weren't a bank.

I know! :P

I've been burned before by investing in Valeant - so maybe you should render all my opinions as a zero for that fact alone haha.

To justify it at today's valuation - in ten years it has to do about $100B in revenues, which I believe it can if it issues stocks at highs and invest in long run-way projects that could be huge winners.

It's a great company, no doubt.

But 10 years is a long time to wait to justify today's valuation. What's your discount rate?


Not exact as I did a simple one in my head but I used a discount rate of 10%.

Ending Remarks:

Please note that I just offered my opinion, not making a recommendation or no way shape or form saying this is a value investment. This stock can well be expensive if they don't hit their targets. Once they don't hit their targets, then this will most likely go down so fast.

No I didn't run a dropshipping business and I'm not doing Amazon FBA lmao. If you seriously think Shopify will ever be the ONLY tool for eComm sellers, you are extremely ignorant of the industry. You come off as pretty ignorant and very emotional. It's a bad combo for an investor, to be sure.

To repeat myself, the value lies in having a place where customers hang out. That's why Google Amazon and FB are valuable, they are where the customers hang out. That's extremely hard to replicate. Nobody hangs out on Shopify.com. All they really have that's valuable is a code base. Anybody can hire developers and create their own custom ecommerce solutions. Nobody can hire a developer to create a flow of customers. That's why they don't have pricing power.
Title: Re: SHOP - Shopify
Post by: valueinvestor on April 24, 2020, 07:57:21 PM


No I didn't run a dropshipping business and I'm not doing Amazon FBA lmao. If you seriously think Shopify will ever be the ONLY tool for eComm sellers, you are extremely ignorant of the industry. You come off as pretty ignorant and very emotional. It's a bad combo for an investor, to be sure.

To repeat myself, the value lies in having a place where customers hang out. That's why Google Amazon and FB are valuable, they are where the customers hang out. That's extremely hard to replicate. Nobody hangs out on Shopify.com. All they really have that's valuable is a code base. Anybody can hire developers and create their own custom ecommerce solutions. Nobody can hire a developer to create a flow of customers. That's why they don't have pricing power.

Interesting! :D

You're not doing dropshipping or FBA, so you essentially list your inventory on Amazon and handle all the logistics of getting and sending the product, as well as possible returns.

I hope you can lend me your expertise in the field because you're right I'm the last person who knows anything about coding.

1. What made you only decide to run your business on Amazon exclusively? I'm under the impression you're not listing anywhere else and have no plans to go into brick-or-mortar or e-commerce.

2. Why do you not use Amazon's Fulfilment Services?

3. What reasons does one want to start from scratch, when one can get the code for a nominal monthly fee? I know there are reasons but what to see your take on it.

4. Do you have plans to go beyond Amazon and possibly with your own e-commerce site? How would you go about choosing the right platform for you?

5. How do you the marketing for your Amazon storefront?

6. Do you think others who started from scratch with a Shopify store will branch out to do their own e-commerce in-house? Why would they not want to scale with Shopify? Especially when everything would be inter-connected?

7. Do you think most of the transactions will go through Shopify or would other retailers of the next decade will have a mix of Amazon, Facebook, Shopify, etc.?

8. What would impair the story that Shopify will effectively be the digital landlord for e-commerce websites, as Google is for search? Personally I think it's Siri, Alexa, Google, and any Voice Assistant (especially if paired with AI), as it is easier to order a Coke from Alexa, then going through an App.

9. How would you value Shopify?

I think these questions above with the right answer would help me see your side. I would love to hear an opposing view and know I'm wrong sooner, so I can sell sooner. Look forward to your insights.
Title: Re: SHOP - Shopify
Post by: KCLarkin on April 25, 2020, 06:49:23 AM
This shows how little you guys understand about ecommerce. How are you going to run an ecommerce business without relying on a platform like Google or Amazon? You have to have a way of getting customers. That doesn't negate the fact that it's still a business

Hmm... I think we are saying the same thing but just coming to different conclusions. Let's ignore Google, since Shopify doesn't compete with them.

If you are an Amazon seller, Amazon has all the power. They can increase their take rate, advertise competing products against yours, introduce an Amazon Basics knock-off, or give your listing to the lowest bidder. In other words, Amazon has the power to destroy you.

If you build an ecommerce site on Shopify, you can build your own brand and own your customers. If Shopify tries to kill you, you can easily move to a new platform. Shopify doesn't have the power to destroy you.

So, there are two different conclusions:
- Buy Amazon. They are the empire.
- Buy Shopify. They are the arms dealer to Rebels

Forced to choose, I'd buy Amazon. But the Shopify story has merit.
Title: Re: SHOP - Shopify
Post by: jfan on April 26, 2020, 05:33:59 AM
@valueinvestor, no doubt SHOP has a great business. I was curious, what price would you consider buying or selling today? $1,000? $5,000? $10,000?

Technically I would've sold years ago, but couldn't find a suitable candidate to replace the irrationally-priced speculative stock like Shopify - closest was Kinaxis (not sure if that's the case) so stuck with it.

Also my cost basis is around 350-400 EDIT: (after doubling down at 820 mark), but I was comfortable keeping it as I had a size-able cash position of 10%+.

So to strip away the complexity - if I had to buy Shopify at a price where I had to put a third of my capital, can never sell a share, have no overall cash cushion, where the other 2/3 is invested equally in cigar butts and compounders - it would be around $300 to $450 mark, maybe $500 (which are prices that were presented this year).

If I had to sell it and can't buy a share ever again - it would be around the $1800-2700 mark where there's nothing that impaired the growth going forward.

In between these two circumstances, there would be possibilities where I'm comfortable with prices right now. There are businesses within shopify as mentioned before, like the app store, distribution, AR, shopify capital, etc that can be very lucrative.

EDIT: As I'm willing to make a wager that COVID-19 provided some tailwind to their quarterly earnings, and retailers are considering which platform to choose to weather another possible pandemic.

Why did you choose Shopify instead of Kinaxis?
Title: Re: SHOP - Shopify
Post by: valueinvestor on April 26, 2020, 05:36:56 AM
Why did you choose Shopify instead of Kinaxis?

I don't understand Kinaxis' competitive advantages, as opposed to other solutions in the space. To keep it short.
Title: Re: SHOP - Shopify
Post by: SHDL on April 26, 2020, 08:25:15 AM
So, there are two different conclusions:
- Buy Amazon. They are the empire.
- Buy Shopify. They are the arms dealer to Rebels

My sense is that this narrative could well be a key part of what’s driving SHOP’s lofty valuation. The reasoning is that if you have a big long AMZN position and you’re looking to hedge the various business risks that come with Amazon being the big bad Empire, one way to do it is to buy some SHOP in case the Rebels win the war. This hedging behavior creates an extra demand for SHOP shares and results in a higher valuation than we might see in a hypothetical world without AMZN.

(No position in either at the moment.)
Title: Re: SHOP - Shopify
Post by: valueinvestor on April 26, 2020, 04:29:17 PM


No I didn't run a dropshipping business and I'm not doing Amazon FBA lmao. If you seriously think Shopify will ever be the ONLY tool for eComm sellers, you are extremely ignorant of the industry. You come off as pretty ignorant and very emotional. It's a bad combo for an investor, to be sure.

To repeat myself, the value lies in having a place where customers hang out. That's why Google Amazon and FB are valuable, they are where the customers hang out. That's extremely hard to replicate. Nobody hangs out on Shopify.com. All they really have that's valuable is a code base. Anybody can hire developers and create their own custom ecommerce solutions. Nobody can hire a developer to create a flow of customers. That's why they don't have pricing power.

Interesting! :D

You're not doing dropshipping or FBA, so you essentially list your inventory on Amazon and handle all the logistics of getting and sending the product, as well as possible returns.

I hope you can lend me your expertise in the field because you're right I'm the last person who knows anything about coding.

1. What made you only decide to run your business on Amazon exclusively? I'm under the impression you're not listing anywhere else and have no plans to go into brick-or-mortar or e-commerce.

2. Why do you not use Amazon's Fulfilment Services?

3. What reasons does one want to start from scratch, when one can get the code for a nominal monthly fee? I know there are reasons but what to see your take on it.

4. Do you have plans to go beyond Amazon and possibly with your own e-commerce site? How would you go about choosing the right platform for you?

5. How do you the marketing for your Amazon storefront?

6. Do you think others who started from scratch with a Shopify store will branch out to do their own e-commerce in-house? Why would they not want to scale with Shopify? Especially when everything would be inter-connected?

7. Do you think most of the transactions will go through Shopify or would other retailers of the next decade will have a mix of Amazon, Facebook, Shopify, etc.?

8. What would impair the story that Shopify will effectively be the digital landlord for e-commerce websites, as Google is for search? Personally I think it's Siri, Alexa, Google, and any Voice Assistant (especially if paired with AI), as it is easier to order a Coke from Alexa, then going through an App.

9. How would you value Shopify?

I think these questions above with the right answer would help me see your side. I would love to hear an opposing view and know I'm wrong sooner, so I can sell sooner. Look forward to your insights.

By the way, if anyone has an Amazon business like Orange - would love to hear your insights to the questions above.

Hopefully, Orange gets back to us. :)
Title: Re: SHOP - Shopify
Post by: Orange on May 04, 2020, 12:56:43 PM


Hmm... I think we are saying the same thing but just coming to different conclusions. Let's ignore Google, since Shopify doesn't compete with them.

If you are an Amazon seller, Amazon has all the power. They can increase their take rate, advertise competing products against yours, introduce an Amazon Basics knock-off, or give your listing to the lowest bidder. In other words, Amazon has the power to destroy you.

If you build an ecommerce site on Shopify, you can build your own brand and own your customers. If Shopify tries to kill you, you can easily move to a new platform. Shopify doesn't have the power to destroy you.

So, there are two different conclusions:
- Buy Amazon. They are the empire.
- Buy Shopify. They are the arms dealer to Rebels

Forced to choose, I'd buy Amazon. But the Shopify story has merit.

You are correct Amazon has a lot of power (certainly not all the power) and is aggressive in their Amazon Basics knockoff business. Aggressive to the point of being shady. High volume products that are trying to be the low cost provider, who have no special advantage in sourcing/manufacturing, are doomed on Amazon.

But what you are really talking about is true with all retailers who have loyal customer bases. Buffett talks about this at length in interviews. Costco’s generic Kirkland brand: Started in 1992. It does $39 billion a year. Versus Kraft, a collection of old iconic CPC brands with decades of marketing and share of mind, does $20 some odd billion. Retailers have unbelievable power.



Here’s what you don’t understand. Shopify’s value proposition is that they are an all in one tool for your ecommerce shop. Removing the hassle and barrier to starting a store. Their value prop is not about escaping the power trap of the major corporations that control the customers. Because whoever your traffic source is, that’s who has the power to destroy you. Shopify won’t save you from that. I know guys running Shopify stores that have been destroyed by rising Adwords cost, rising FB ad costs. FB likes to ban accounts in many health categories such as supplements for no reason. Someone will always have power over you in ecommerce when it comes to finding new customers.

Shopify’s value prop is easy to replicate, removing the hassle and barrier to starting a store is just a matter of building a code base. To be fair they do a great job at marketing their tool.



Also, Shopify isn’t the only place you can build a brand haha. You can most definitely build a brand on Amazon, and own the customer. That’s why people do “package inserts” and offer a “lead magnet” for people to get on an email list.

How exactly do you think ecommerce brands “own their own customers” ? The way you own the customer is to either have some direct way of communicating with them, or having share of mind. Both of those things can be accomplished on any platform where people aggregate. Social media, search engines, email lists, ecommerce platforms. Offline or Online, etc…




Of course Shopify as a business has merit. It's a nice business. The question of merit for the stock rests on valuation too though. Are they a good enough business to warrant a high valuation? Are they going to grow to $100 billion in revenue someday? (I’m laughing as I write that)
Title: Re: SHOP - Shopify
Post by: Orange on May 04, 2020, 01:34:41 PM

Interesting! :D

You're not doing dropshipping or FBA, so you essentially list your inventory on Amazon and handle all the logistics of getting and sending the product, as well as possible returns.

I hope you can lend me your expertise in the field because you're right I'm the last person who knows anything about coding.

1. What made you only decide to run your business on Amazon exclusively? I'm under the impression you're not listing anywhere else and have no plans to go into brick-or-mortar or e-commerce.

2. Why do you not use Amazon's Fulfilment Services?

3. What reasons does one want to start from scratch, when one can get the code for a nominal monthly fee? I know there are reasons but what to see your take on it.

4. Do you have plans to go beyond Amazon and possibly with your own e-commerce site? How would you go about choosing the right platform for you?

5. How do you the marketing for your Amazon storefront?

6. Do you think others who started from scratch with a Shopify store will branch out to do their own e-commerce in-house? Why would they not want to scale with Shopify? Especially when everything would be inter-connected?

7. Do you think most of the transactions will go through Shopify or would other retailers of the next decade will have a mix of Amazon, Facebook, Shopify, etc.?

8. What would impair the story that Shopify will effectively be the digital landlord for e-commerce websites, as Google is for search? Personally I think it's Siri, Alexa, Google, and any Voice Assistant (especially if paired with AI), as it is easier to order a Coke from Alexa, then going through an App.

9. How would you value Shopify?

I think these questions above with the right answer would help me see your side. I would love to hear an opposing view and know I'm wrong sooner, so I can sell sooner. Look forward to your insights.

I sell merchant fulfilled and have a business partner that handles logistics, for a cut. My products are small and there are few returns.

1.   I decided on Amazon because they have the best customer base. Amazon customers are ready to buy, they convert like crazy. It’s a huge lucrative traffic source. They are the biggest search engine for products. But I do have plans to go brick-or-mortar someday. Coronavirus has put those plans on hold
2.   Merchant fulfill greatly simplifies inventory for me. I sell a large number of SKU's with intermittent demand. Amazon's long term storage fees make inventory management too difficult for my particular business model.
3.   There is really no great reason to start a business from scratch with your own code base unless you are a developer yourself. Existing sellers may want customized solutions though, and more flexibility. Magento offers more flexibility for example.
4.   I plan to go brick and mortar. I have no plans of starting my own ecommerce site because it takes so much work to optimize both the site and the traffic source. If I were to run traffic outside of Amazon, there is great benefit in driving the customers to your Amazon listings, because this will cause you to rise in the search rankings on Amazon, which helps you get even more sales on Amazon, creating a flywheel effect.
5.   SEO (search engine optimization) and PPC (Pay Per Click) Advertising.
6.   Once you start to really scale, there are a lot of really minor tweaks and AB testing that you can do that might really help your bottom line. Ecommerce margins are tight. Decreasing a cost by even just 0.5% could actually have a serious impact on your bottom line. Also, Shopify transaction fee isn’t the cheapest. If you are doing $10 million a year in sales, these things start to really matter. Search “Shopify vs Custom Ecommerce Reddit” on google to read what people in the ecomm game are saying
7.   I don’t quite understand the question. I’m also not qualified to predict where global ecommerce transactions will be in 10 years, that is a very difficult thing to predict.
8.   You do not need Shopify to get customers, or even start your store. If Shopify raised their prices, or tried to flex their power in any way, new and existing ecomm sellers could simply use a different tool. There is a whole community of people who build software tools, who would gladly provide a Shopify type service to compete with them if their prices became unreasonable. I maintain that SHOP does not have much pricing power.
9.   I wouldn’t. I personally don’t want to own stock in a b2b software company that doesn’t have serious competitive advantages.
Title: Re: SHOP - Shopify
Post by: KCLarkin on May 04, 2020, 03:00:54 PM
It's a nice tool, they do a good job of marketing that tool, it's a well known quality tool. But it's just a tool. The engine to any ecommerce business is web traffic, or customers. Cost of customer acquisition makes or breaks you.

Not a valid thesis. Github is just a tool. AWS is just a tool. Adobe is just a tool. And Shopify belongs in that category of exceptional tools. I'm not saying the current valuation is justified -- but that is true for most growth stocks today.
Title: Re: SHOP - Shopify
Post by: deadspace on May 04, 2020, 11:14:13 PM
Orange,
 I think googles move just solved the customer acquisition problem

And that’s why it’s hard to bet against Shopify this company has optionality in spades

https://stratechery.com/2020/the-anti-amazon-alliance/
Title: Re: SHOP - Shopify
Post by: Orange on May 06, 2020, 08:29:03 AM
It's a nice tool, they do a good job of marketing that tool, it's a well known quality tool. But it's just a tool. The engine to any ecommerce business is web traffic, or customers. Cost of customer acquisition makes or breaks you.

Not a valid thesis. Github is just a tool. AWS is just a tool. Adobe is just a tool. And Shopify belongs in that category of exceptional tools. I'm not saying the current valuation is justified -- but that is true for most growth stocks today.

Github is a community, not just a tool, they also only do $300 million in revenue. AWS is a tool, but they own major data centers, it's not a code base. Radically different customer base as well.

Adobe is perhaps the most similar, but they are b2c as well as b2b, their software is used by technicians not by people looking to save hassle and time. Plus their brands are so strong, they have become common words in the English language (eg Photoshop). And despite all this, being an industry standard for 20 years, they still only do $13 billion a year. Yet Shopify is going to do $100 billion someday. Yea ok.


These comparisons suck my man, it's lazy thinking on your end.

And honestly, when you dismiss my long and thought out reply with nothing more than a couple sentences and a bad analogy, it's just a waste of time. Makes you seem like a lazy a-hole who only wants others to confirm his opinions. I won't be revisiting this thread.



Title: Re: SHOP - Shopify
Post by: Orange on May 06, 2020, 08:31:18 AM
Orange,
 I think googles move just solved the customer acquisition problem

And that’s why it’s hard to bet against Shopify this company has optionality in spades

https://stratechery.com/2020/the-anti-amazon-alliance/

"solved the customer acquisition problem" & "has optionality in spades" you guys are something else.
Title: Re: SHOP - Shopify
Post by: KCLarkin on May 06, 2020, 10:55:38 AM
Shopify’s value prop is easy to replicate, removing the hassle and barrier to starting a store is just a matter of building a code base. To be fair they do a great job at marketing their tool.

Shopify has 5000 employees. Why do you assume that "just building a code base" is easy? And how does a "code base" remove the hassle and barrier to starting a store? At a minimum, you need exceptional UX design on top of that code base. When Shopify needed more design talent, they bought the best independent UX agency in Toronto. These guys are exceptional -- I worked with them briefly.

And is Shopify's competitive advantage their code base or their ability to attract and retain top engineers and designers?

These are the questions you skip over when you dismiss them as "just a tool" or "just a code base".

So no, I don't need you to confirm my opinion. But I'm not sure why you are projecting your lazy thinking onto me.


Title: Re: SHOP - Shopify
Post by: fareastwarriors on May 06, 2020, 10:58:30 AM
“For the quarter, Shopify (ticker: SHOP) reported revenue of $470 million, up 47% from a year ago and well ahead of the Wall Street analyst consensus of $443.1 million. It reported a surprise non-GAAP profit of 19 cents a share; consensus had been for a loss of 18 cents a share. Gross merchandise value was $17.4 billion, up 46%.”

“The Ottawa-based company said new stores created on the Shopify platform grew 62% in the six weeks between March 13 and April 24 from the prior six weeks, “driven by the shift of commerce to online and by the extension of the free trial period on standard plans from 14 days to 90 days.”“



https://news.shopify.com/shopify-announces-first-quarter-2020-financial-results

 (https://news.shopify.com/shopify-announces-first-quarter-2020-financial-results)



Big surge in new stores due to Shelter in place order. Retailers who aren’t online yet realize they need to be to survive.
Title: Re: SHOP - Shopify
Post by: Xerxes on May 06, 2020, 11:07:17 AM
50+ sales multiple is highly concerning !
I will ask Prem to add Shopify on his list on the next 2020 letter to shareholders.

Title: Re: SHOP - Shopify
Post by: valueinvestor on May 06, 2020, 03:27:28 PM
Hi Orange,

Thanks for getting back to us, and providing your insight - it's super appreciated!

As for your answers, I agree with all of it with certain caveats. Amazon is going to be a beast of a online retailer, there's no doubt about it and it's why I have an equal allocation to Amazon and Shopify (or try to because the price action of Shopify is all over the place).

However, I think if I get to the core of your argument, you believe that those who control traffic source will control e-commerce. It's almost synonymous to me to saying who controls TV, Mail, Radio, News, Publications will control businesses, and for the most part, you're right. However many small businesses operate within their local markets without ever advertising on those channels and still thrive.

Secondly, paid traffic is not the only traffic source, consider Kylie Cosmetics (a Shopify store) that used organic traffic from her social media accounts to exit at a $1B valuation with Coty.

Reason why I'm still invested is because other e-commerce providers such as Magento, WooCommerce, BigCommerce, etc do not provide the same value that Shopify provides for SMBs. As you know many who have failed Shopify accounts because of rising ad costs or Shopify users who convert to other platforms because fees are high, I know many who convert back from other providers to Shopify.

Any chance you can provide more details on the fees, on a first hand look, and discussing those with Shopify stores doing more than $10M per year, the fees are actually reduced. Especially, if you're a Shopify Plus customer, so not too sure what you mean by huge e-commerce fees, unless you mean relative to other providers. This makes sense, because again Shopify provides (or will provide) a lot of value with their app store, AR capabilities, Shopify Capital, Shopify Exchange, 6 River Systems (Shopify Fulfiment Network - which I think is HUGE!), etc.

My bet is simply SMBs will make up a large part of the e-commerce world and therefore Shopify is the only provider that can take on that need in the most valuable and irreplaceable way possible. I'm not investing in it's code, but value of service and the cost to build a Shopify competitor.

Am I claiming I made an investment in Shopify because of my analysis of the numbers? No. However one can argue, most great analyst are not great investors.

What I'm saying it's eerily similar to the time where many said not to invest in Amazon because of the sales multiple, but I saw that Amazon had almost the same number of fulfillment centers as Wal Mart, in less than half the time - while Wal Mart did nothing. Funny enough I doubled down when Jeff Bezos mentioned AWS years before competition, and when they released AWS - many including Oracle (much to my surprise) still lagged in terms of growth in the sector.

So thank you for your insight - it's super appreciated - and if you anything new to get me to liquidate my position, it would be hugely welcomed! I thoroughly enjoyed your posts :D

50+ sales multiple is highly concerning !
I will ask Prem to add Shopify on his list on the next 2020 letter to shareholders.

Just to cherry-pick your post - not that my answer below reflect your views in anyway.

Yes, but how about 100X to InfinityX sales?

There are many instances where companies with zero revenues with amazing IP were home runs, such as WhatsApp, Instagram, Youtube, Android ($50 million dollar acquisition), etc.

Update:

However the only hole I see with Shopify is again with voice, I believe that voice will be a more dominant part of our daily lives. Hence, if Shopify does not integrate that capability, I can see a future where Shopify would be worth 99% lower from today's prices.
Title: Re: SHOP - Shopify
Post by: Kaegi2011 on May 07, 2020, 08:30:37 AM
What I'm saying it's eerily similar to the time where many said not to invest in Amazon because of the sales multiple, but I saw that Amazon had almost the same number of fulfillment centers as Wal Mart, in less than half the time - while Wal Mart did nothing. Funny enough I doubled down when Jeff Bezos mentioned AWS years before competition, and when they released AWS - many including Oracle (much to my surprise) still lagged in terms of growth in the sector.

There are many instances where companies with zero revenues with amazing IP were home runs, such as WhatsApp, Instagram, Youtube, Android ($50 million dollar acquisition), etc.

Valueinvestor - no position in the name, so appreciate your perspective. 

On the above two quoted pieces:
1) Given the dominance of AWS to Amazon's financials, how much do you think Amazon would be worth ex. AWS?  I ask because unless one could see a similar opportunity that's completely outside of core SHOP's vertical (and incredibly lucrative), I'm not sure Amazon would be a good comp if you believe an enormous portion of Amazon is AWS. 

2) Totally agree that a company doesn't need to generate a ton of revenue for it to be valuable to *someone* - in this instance, how do you think about take out valuation and who might potential suitors be?  In this instance, I think the business is similar to eBay a couple of decades ago (where I used to sell stuff I got for dirt cheap to make a spread and pay for my car in high school), except it's way more sophisticated.  So maybe here, one could point to Paypal as an example where a portion of their business today could be worth way more than the initial business.  But either way, I'm wondering how to value it for a potential acquiror. 

Title: Re: SHOP - Shopify
Post by: valueinvestor on May 07, 2020, 09:06:39 AM
1. None. Maybe AR and Shopify Fulfilment, which I believe is outside their vertical as they’re an e-commerce company. AWS wasn’t the reason why I initially invested in Amazon and you’re right it’s not a right comp to make a point. However I don’t think I made a point saying the set up with AWS is the same as now with Shopify, as they are still growing their core business.

2. Absolutely nothing at this point. I don’t see any hidden assets, as it were but that point was merely to cherry pick Xerxes posts. If it helps, I think the take out valuation is $1B in a worst case scenario to $10B, but possibly more with other acquirers like Google who are also trying to get into the space with their acquisition of SquareSpace.

Overall, I do see a potential for a hidden asset to be produced within this hub of innovation, I just don’t know what - I’ve invested in this despite my DCF saying no because it’s provides a valuable service that will grow with time and pandemics. :)
Title: Re: SHOP - Shopify
Post by: Xerxes on May 07, 2020, 11:16:14 AM
valueinvestor,,

I missed Shopify after years of not following it. Right in my backyard. i.e. I am Canadian.
I missed Amazon after years of following it .. but finally did bought it 2017 with an average cost $900 USD. Still hoping to add to it and still ashamed of not getting into it when Bezos got a re-rating due to AWS back in 2013-14.

I am hoping lightspeed (which I own) will benefit from that secular shift. I think risk-reward is better on a no-name like lightspeed than a fully valued peach like Shopify for new entrants. The ones that I really like to get into meaningfully are Mercadolibre, Paypal.   
Title: Re: SHOP - Shopify
Post by: Jurgis on May 07, 2020, 12:30:08 PM
I am hoping lightspeed (which I own) will benefit from that secular shift. I think risk-reward is better on a no-name like lightspeed than a fully valued peach like Shopify for new entrants. The ones that I really like to get into meaningfully are Mercadolibre, Paypal.

Do you want to open a thread for LightSpeed?
Title: Re: SHOP - Shopify
Post by: arcube on May 07, 2020, 12:33:06 PM
I am hoping lightspeed (which I own) will benefit from that secular shift. I think risk-reward is better on a no-name like lightspeed than a fully valued peach like Shopify for new entrants. The ones that I really like to get into meaningfully are Mercadolibre, Paypal.

Do you want to open a thread for LightSpeed?

Great idea.
Title: Re: SHOP - Shopify
Post by: valueinvestor on May 07, 2020, 01:23:11 PM
valueinvestor,,

I missed Shopify after years of not following it. Right in my backyard. i.e. I am Canadian.
I missed Amazon after years of following it .. but finally did bought it 2017 with an average cost $900 USD. Still hoping to add to it and still ashamed of not getting into it when Bezos got a re-rating due to AWS back in 2013-14.

I am hoping lightspeed (which I own) will benefit from that secular shift. I think risk-reward is better on a no-name like lightspeed than a fully valued peach like Shopify for new entrants. The ones that I really like to get into meaningfully are Mercadolibre, Paypal.

You maybe right. History is not kind to Canadian companies that climb to Canada's most valuable company that's not a bank. At the moment, my trigger finger is itching to sell. What's keeping me is probably my bias when I traded around AMZN, when I missed a large portion of my returns by not sitting and doing nothing. Also to repeat myself, I do not think Shopify is not the NEXT Amazon.

Now that's out there - I also believe there are reasons why Shopify is the exception to the "curse." If this was in Silicon Valley, then no one would really worry about the frothy valuation.

However since I do not think this will go bankrupt in twenty-five years, I decided to keep my position, however out of good sense or irrational emotion, I may quickly liquidate my entire position.

Upside and optionality is through the roof, but also the downside is quite steep, imho. Business could be growing but headline risk with this name can be real - short seller report, scandal, etc.
Title: Re: SHOP - Shopify
Post by: roark33 on May 07, 2020, 02:03:21 PM
Shopify with a secondary. 


We are on the outside, they are on the inside....draw your own conclusions...
Title: Re: SHOP - Shopify
Post by: Xerxes on May 07, 2020, 02:55:29 PM
Smart move.

A secondary share sale while it has a valuation higher than RBC, but with a fraction of its sales.
Title: Re: SHOP - Shopify
Post by: CorpRaider on May 07, 2020, 02:56:56 PM
Since you like the stock so much, Toby will sell you some.
Title: Re: SHOP - Shopify
Post by: fareastwarriors on May 07, 2020, 06:34:28 PM
Smart to raise cash here. Lots of capital needed for new fulfillment centers.
Title: Re: SHOP - Shopify
Post by: Gregmal on May 07, 2020, 08:47:47 PM
I cant help but get even more bearish when tell tale signs of euphoria include justifying valuations of companies like SHOP, BYND, and PTON. Oh yea, and we've gotten past the point of even questioning TSLA...
Title: Re: SHOP - Shopify
Post by: valueinvestor on May 07, 2020, 08:53:52 PM
I cant help but get even more bearish when tell tale signs of euphoria include justifying valuations of companies like SHOP, BYND, and PTON. Oh yea, and we've gotten past the point of even questioning TSLA...

Same. Especially with the economy - it’s wack. Things are getting worst and yet stock market is up.
Title: Re: SHOP - Shopify
Post by: jschembs on May 07, 2020, 08:59:24 PM
I cant help but get even more bearish when tell tale signs of euphoria include justifying valuations of companies like SHOP, BYND, and PTON. Oh yea, and we've gotten past the point of even questioning TSLA...

Is this sarcasm?
Title: Re: SHOP - Shopify
Post by: Gregmal on May 07, 2020, 09:10:42 PM
I cant help but get even more bearish when tell tale signs of euphoria include justifying valuations of companies like SHOP, BYND, and PTON. Oh yea, and we've gotten past the point of even questioning TSLA...

Is this sarcasm?

No its legit. I get what you're referring to. I do amuse myself when value folks who have been both arrogant/condescending and wrong for a decade continue to be made to look like fools when their favorite "no brainer" shorts continue to skyrocket, even during times when "value" is supposed to be outperforming...but this is real. ANYTHING, internet related or fad related is going bonkers and it just isn't healthy or rational.

While I do think valuations should be higher than most think, I also cant process blue chip RE firms trading at 10-12% cap rates with 0-1% treasuries/private market sales going off at 4-6% cap rates, and single digit PE's on systematically integral companies who are buying back stock and paying dividends while fantasy land business ventures are trading at 50-100x sales and insiders and selling/raising cash like there's no tomorrow. Something has to give and personally, I know what I would own...

This maybe be the incognito blow off top everyone was looking for 3 months ago.
Title: Re: SHOP - Shopify
Post by: deadspace on May 07, 2020, 10:35:39 PM
For all the traditional Ben Graham value folks here who can’t contain their disgust at Shopify honestly I feel for you.  But could it be that you are looking at some of these companies in a one dimensional fashion
And for all the talk of long term investing that is the value investors playbook- the disgust here ignores the long term. 
Why not raise some cash at these valuations.   If it can be used to build out the fulfilment network that will strengthen the Shopify moat. What is wrong with that.   If the valuations are crazy then why not raise cash - that’s value accretive not destructive.   

And what if this moat gets stronger.   What would you pay for the operating system for new business creations.   A business that can extract a small slice of the entrepreneurial value of all the great human ideas that have still not been created into a business?   What’s that worth ?   What’s it worth when there are no competitors and this large market is theirs to take ?

Ben Graham had some cool ideas.  But this almost religious attachment to what value should look like is not helpful to making great investments.    Where has it lead you    - Airlines?

I suspect the Shopify share price will be cut in half shortly

I don’t care.  I still did much better than the airlines .....


Ok.  My rant is done.  Cue the necessary ridicule
Title: Re: SHOP - Shopify
Post by: valueinvestor on May 07, 2020, 11:23:21 PM
For all the traditional Ben Graham value folks here who can’t contain their disgust at Shopify honestly I feel for you.  But could it be that you are looking at some of these companies in a one dimensional fashion
And for all the talk of long term investing that is the value investors playbook- the disgust here ignores the long term. 
Why not raise some cash at these valuations.   If it can be used to build out the fulfilment network that will strengthen the Shopify moat. What is wrong with that.   If the valuations are crazy then why not raise cash - that’s value accretive not destructive.   

And what if this moat gets stronger.   What would you pay for the operating system for new business creations.   A business that can extract a small slice of the entrepreneurial value of all the great human ideas that have still not been created into a business?   What’s that worth ?   What’s it worth when there are no competitors and this large market is theirs to take ?

Ben Graham had some cool ideas.  But this almost religious attachment to what value should look like is not helpful to making great investments.    Where has it lead you    - Airlines?

I suspect the Shopify share price will be cut in half shortly

I don’t care.  I still did much better than the airlines .....


Ok.  My rant is done.  Cue the necessary ridicule

If anyone ridicules you, then they are ridiculing themselves in my mind.
Title: Re: SHOP - Shopify
Post by: thepupil on May 08, 2020, 04:31:15 AM
I’ll ridicule myself a bit.

I think what is wild is the degree of risk aversion in some securities and the complete pass that tech/internet/cloud gets.

Some are debating recession or depression, but don’t tell that to these companies.

Twilio went up 40% yesterday on earnings. It now trades for 1.5x Berry Plastics on an unlevered basis ($23 billion versus $16 billion). Twilio is supposed to do about $2.4 billion of sales in 2022. Berry should do $2.2 billion of EBITDA.

Of course one doesn’t have to pay $16 billion for Berry because the debt market will lend you $11 billion at low rates so you only put up $5 billion and earn a a very high free cash flow yield. The debt market is willing to lend to Berry because it makes money.

I’m not saying Berry is without risks. It has high financial leverage; it’s a roll up; people hate plastics and think they destroy the earth; volume growth is anemic; I am not saying that Berry is a sure thing. But the market is saying “Berry is risky” and has demanded a 14-20% free cash flow yield recently” whereas some things in Silicon Valley require a meager 2-10% forward sales yield.

How long term do we need to be to prefer Twilio to Berry, when will Twilio generate a similar free cash flowto its equity? When will it generate $2-4 billion of free cash flow?

 2030?

 2035?

Is the market being long term by loving these businesses? Or is it just rewarding short term sales and earnings momentum to an outsized degree?

I don’t think you have to have owned airlines (or skyscrapers in NYC) to be a bit...disgusted/befuddled/confused/amused/anxious by it all.
Title: Re: SHOP - Shopify
Post by: thepupil on May 08, 2020, 05:36:37 AM
JPMorgan on TWLO on May 1st:

Overall, we continue to believe the combination of large TAM, reduced customer concentration, and superior technology versus competitors distinguishes Twilio as an attractive asset over the long term. However, our enthusiasm is tempered by its current valuation
(~10.3x EV/CY20E revenue) and the near-term COVID-19-related headwinds Twilio faces with a likelihood of very sharp Q2 contraction across Q3 messaging/voice/email from customers such as Uber, Lyft, Airbnb, OpenTable, Booking.com, and a broad base of retailers and restaurants among others, potentially offset by increased usage for communication platforms such as WhatsApp (our recent downgrade note here highlights our thought process).

It’s May 8th, the stock is up 70% from when that was written.

EDIT: just so it's clear, I have not been long crap and short growth and that is not the source of my...not sure what to call...bitterness would potentially be too strong a word. I'm not pulling an Einhorn and going long Brighthouse and Aercap and shorting TSLA and TWLO and SHOP. I don't love to incinerate capital. I am long some crap, but don't really short.
Title: Re: SHOP - Shopify
Post by: Jurgis on May 08, 2020, 07:09:07 AM
FYI, Motley Fool Rule Breakers hype pretty much all of the suspects mentioned upthread. Not sure how much influence they have, although I've seen couple companies jump 10%+ when they are recommended by MF RB. And clearly they hype the stock performance numbers (XXX baggers) all the time.

I was thinking about (somewhat blindly) buying MF RB recos, but it's tough for someone who tries to look at valuations. I have tiny positions in some MF RB recos.
Title: Re: SHOP - Shopify
Post by: Xerxes on May 08, 2020, 10:19:24 AM
For all the traditional Ben Graham value folks here who can’t contain their disgust at Shopify honestly I feel for you.  But could it be that you are looking at some of these companies in a one dimensional fashion
And for all the talk of long term investing that is the value investors playbook- the disgust here ignores the long term. 
Why not raise some cash at these valuations.   If it can be used to build out the fulfilment network that will strengthen the Shopify moat. What is wrong with that.   If the valuations are crazy then why not raise cash - that’s value accretive not destructive.   

And what if this moat gets stronger.   What would you pay for the operating system for new business creations.   A business that can extract a small slice of the entrepreneurial value of all the great human ideas that have still not been created into a business?   What’s that worth ?   What’s it worth when there are no competitors and this large market is theirs to take ?

Ben Graham had some cool ideas.  But this almost religious attachment to what value should look like is not helpful to making great investments.    Where has it lead you    - Airlines?

I suspect the Shopify share price will be cut in half shortly

I don’t care.  I still did much better than the airlines .....


Ok.  My rant is done.  Cue the necessary ridicule


Deadspace,

I may be wrong, but notwithstanding the name of this forum, I don't think you will find many folks who only have FFH or only have BRK in their portfolio. Most folks who hold FFH / BRK do also have a healthy dose of technology companies in their portfolio. Not all by most. That to me means that there are no hard core follower(s) Benjamin Graham.

Yes, we got some die hard Buffetism and Mungerism going on here … but Grahaminism I doubt it.
Nor have I seen Watsasim, though I feel sometimes there is a bit of Flettism.

just my impression.
Folks may post a disproportionate amount of posts on FFH and BRK, just because they are interesting to follow to learn what to do and what not to do. But not because they got 
99% of their wealth tied up entirely in FFH or BRK. Though on the latter I think I have heard some people who do. So may be wrong.
Title: Re: SHOP - Shopify
Post by: valueinvestor on May 08, 2020, 11:32:09 AM
I’ll ridicule myself a bit.

I think what is wild is the degree of risk aversion in some securities and the complete pass that tech/internet/cloud gets.

Some are debating recession or depression, but don’t tell that to these companies.

Twilio went up 40% yesterday on earnings. It now trades for 1.5x Berry Plastics on an unlevered basis ($23 billion versus $16 billion). Twilio is supposed to do about $2.4 billion of sales in 2022. Berry should do $2.2 billion of EBITDA.

Of course one doesn’t have to pay $16 billion for Berry because the debt market will lend you $11 billion at low rates so you only put up $5 billion and earn a a very high free cash flow yield. The debt market is willing to lend to Berry because it makes money.

I’m not saying Berry is without risks. It has high financial leverage; it’s a roll up; people hate plastics and think they destroy the earth; volume growth is anemic; I am not saying that Berry is a sure thing. But the market is saying “Berry is risky” and has demanded a 14-20% free cash flow yield recently” whereas some things in Silicon Valley require a meager 2-10% forward sales yield.

How long term do we need to be to prefer Twilio to Berry, when will Twilio generate a similar free cash flowto its equity? When will it generate $2-4 billion of free cash flow?

 2030?

 2035?

Is the market being long term by loving these businesses? Or is it just rewarding short term sales and earnings momentum to an outsized degree?

I don’t think you have to have owned airlines (or skyscrapers in NYC) to be a bit...disgusted/befuddled/confused/amused/anxious by it all.

To be fair - it's not ridicule. A fair take on the Market's valuing system.
Title: Re: SHOP - Shopify
Post by: thowed on May 08, 2020, 12:24:40 PM
I cant help but get even more bearish when tell tale signs of euphoria include justifying valuations of companies like SHOP, BYND, and PTON. Oh yea, and we've gotten past the point of even questioning TSLA...

This is really interesting to hear - it's much more valid to me coming from you than those who have one viewpoint.

There is a lot of profitable, high-quality stuff around which is conventionally expensive at P/Es of 20 or so (though maybe not so expensive on nothing interest rates), but I'd much rather own this than these crazy new-gen hype stocks.

For those who remember 1999, I think one has to consider how many tech stocks made it on 'potential' i.e Amazon and ...., and how many fell by the wayside.  So I'm sure one or two of these will make it, but knowing which one is a dart-throwing exercise.

Title: Re: SHOP - Shopify
Post by: Liberty on May 12, 2020, 07:48:54 AM
Podcast interview with Tobi:

http://investorfieldguide.com/tobi-lutke-building-a-modern-business-invest-like-the-best-ep-173/
Title: Re: SHOP - Shopify
Post by: valueinvestor on May 12, 2020, 08:04:57 AM
Podcast interview with Tobi:

http://investorfieldguide.com/tobi-lutke-building-a-modern-business-invest-like-the-best-ep-173/

Ty liberty!  ;D
Title: Re: SHOP - Shopify
Post by: bizaro86 on May 12, 2020, 08:16:12 AM
single digit PE's on systematically integral companies who are buying back stock and paying dividends

I have a number of RE names that fit your criteria, but am curious what you have that fits the criteria I've quoted. Things like Visa are still very much higher than 10x earnings, but I'm probably missing things...
Title: Re: SHOP - Shopify
Post by: valueinvestor on May 26, 2020, 12:17:07 AM
Few developments that stopped me from trimming position and even adding when it went down 4%.

Facebook shop is run on the Shopify platform. Facebook will not receive any fees transaction fees or management fees, as Facebook will rely on the ad spend for the shop platform.

Cryptopayements - world largest cryptocurrency payment processor renewed their partnership with Shopify.

Facebook cryptocurrency Libra is still back on board with Shopify.

Not to mention there’s other features such as Shopify Pay, Capital, Local Delivery, etc.

Revenue growth will be firing on all cylinders for next year I anticipate, but do your own due diligence. Cost basis is low for me, but getting higher and higher - secondly I’m ironically not happy about the recent rise because most of the time it signals an impending drop. However I’m not one to sell based on patterns.
Title: Re: SHOP - Shopify
Post by: valueinvestor on May 26, 2020, 07:33:46 AM
Down 8%
Title: Re: SHOP - Shopify
Post by: valueinvestor on May 27, 2020, 07:18:09 PM
Down about 20% for the last two days, not sure if it went back up again, but could be a buying opportunity or a possible break of Shopify's multi-year rally.
Title: Re: SHOP - Shopify
Post by: KJP on May 28, 2020, 05:27:23 AM
Few developments that stopped me from trimming position and even adding when it went down 4%.

Facebook shop is run on the Shopify platform. Facebook will not receive any fees transaction fees or management fees, as Facebook will rely on the ad spend for the shop platform.


Here's one person's view that Facebook Shop could be a problem for Shopify:  https://stratechery.com/2020/platforms-in-an-aggregator-world/

Key paragraphs:

Shopify’s original business model is labeled “Subscription Solutions”; merchants pay a subscription fee to use the Shopify platform — the price ranges from $29 to $299 per month — and can use the payment provider of their choice. When Shopify IPO’d Subscription Solutions was 60% of their $67 million in quarterly revenue.

Over the last five years, though, “Merchant Solutions” — which are a percentage of transactions, usually from using Shopify Payments — has been the primary growth driver. Last quarter it was Merchant Solutions that was 60% of Shopify’s $470 million in quarterly revenue.

This shift in Shopify’s business model is almost certainly why the company appears to be uncomfortable with this evolution of their “partnership” with Facebook. Sure, Facebook Shop integration will be a feature of Shopify’s Subscription Solutions, but Shopify will be locked out of sales made via Facebook Checkout, which means no Merchant Solutions revenue, and by extension, no participating in the upside of its merchants’ growth.

Title: Re: SHOP - Shopify
Post by: valueinvestor on May 28, 2020, 06:58:09 AM
Few developments that stopped me from trimming position and even adding when it went down 4%.

Facebook shop is run on the Shopify platform. Facebook will not receive any fees transaction fees or management fees, as Facebook will rely on the ad spend for the shop platform.


Here's one person's view that Facebook Shop could be a problem for Shopify:  https://stratechery.com/2020/platforms-in-an-aggregator-world/

Key paragraphs:

Shopify’s original business model is labeled “Subscription Solutions”; merchants pay a subscription fee to use the Shopify platform — the price ranges from $29 to $299 per month — and can use the payment provider of their choice. When Shopify IPO’d Subscription Solutions was 60% of their $67 million in quarterly revenue.

Over the last five years, though, “Merchant Solutions” — which are a percentage of transactions, usually from using Shopify Payments — has been the primary growth driver. Last quarter it was Merchant Solutions that was 60% of Shopify’s $470 million in quarterly revenue.

This shift in Shopify’s business model is almost certainly why the company appears to be uncomfortable with this evolution of their “partnership” with Facebook. Sure, Facebook Shop integration will be a feature of Shopify’s Subscription Solutions, but Shopify will be locked out of sales made via Facebook Checkout, which means no Merchant Solutions revenue, and by extension, no participating in the upside of its merchants’ growth.

Thanks for this! I was under the impression Facebook would not be entitled to any of the merchant fees, but looks like I'm wrong! Although it does not change the overall thesis, since Facebook Shop is a bonus and not the core.
Title: Re: SHOP - Shopify
Post by: valueinvestor on June 15, 2020, 09:59:31 AM
www.barrons.com/amp/articles/shopify-stock-jumps-on-walmart-deal-51592237606

Shopify Walmart Partnership