➡️ This is a step-by-step stock review to determine if Shopify (SHOP) stock is a good buy. In this article, we’ll help you understand the company, where the company is going, the competition, and the leadership. This way you can make a more confident investment decision.
Shopify is an e-commerce company founded in 2006 and headquartered in Ottawa, Ontario. There are nearly 4 million websites powered by Shopify in over 175 countries.
Table of Contents
- Step 1: Tykr Rating
- Step 2: Shopify Company History
- Step 3: Shopify Business Model
- Step 4: Shopify News
- Step 5: Shopify Competition
- Step 6: Shopify 4Ms
- Step 7: Is Shopify stock a good buy?
Step 1: Tykr Rating
➡️ Goal: When you look at a stock, the first step is to look at the financials. Fortunately, Tykr does this for us automatically. The higher the score, the stronger the financials and the safer the investment. The higher the MOS, the higher the potential returns you can make.
- Summary: On Sale
- Score: 10/20
- MOS: 80%
- Share Price: $303
- Sticker Price: $1,525
The Summary, Score, and MOS of this stock may have changed since the posting of this review. Please login to Tykr to see up-to-date information.
Step 2: Shopify Company History
➡️ Goal: It’s important to know the company’s history. This helps us understand the various revenue streams, if they acquired other companies, how they grew through difficult times, and how they separated themselves from the competition.
- In 2006, Tobias Lütke and Scott Lake created their own e-commerce company called Snowdevil, to sell snowboarding equipment. They were dissatisfied with the existing e-commerce products on the market which motivated Lütke to build his own platform. He used Ruby on Rails to build an MVP within two months which they called Shopify.
- In 2009, Shopify launched an API platform in an App Store. The API allows developers to create applications for Shopify online stores and then sell them on the Shopify App Store.
- In 2010, Shopify launched a free mobile app on the Apple App Store. The app lets Shopify store owners view and manage their stores on a mobile device.
- In 2010, Shopify started a Build-a-Business competition in which allows participants to create a business using its e-commerce platform. The winners of the competition received cash prizes and mentorship from entrepreneurs such as Ricard Branson, Eric Ries, and others.
- In 2010, Shopify was named Ottawa’s Fastest Growing Company by the Ottawa Business Journal. They received $7M in a Series A fundraising round.
- In 2011, Shopify received $15M in a Series B fundraising round.
- In 2012, Shopify acquired Select Start Studios, a mobile software development company.
- In 2013, Shopify acquired Jet Cooper, a design studio.
- In 2013, Shopify announced the launch of Shopify Payments, which was rebranded to Shop Pay in 2020. Shop Pay allows merchants to accept credit cards without a third-party payment gateway.
- In 2013, Shopify received $100M in a Series C fundraising round.
- In 2014, Shopify had approximately 120,000 online retailers and was listed as #3 in Deloitte’s Fast 50 in Canada, as well as #7 in Deloitte’s Fast 500 of North America.
- In 2014, Shopify generated $105M in revenue.
- In 2014, Shopify launched Shopify Plus for large e-commerce businesses with access to additional features and support.
- In 2015, Shopify went public on the New York Stock Exchange and Toronto Stock Exchange.
- In 2015, Amazon announced it would be closing its Amazon Webstore service for merchants, and had selected Shopify as the preferred migration provider. This caused Shopify’s stock to jump more than 20%.
- In 2016, Shopify introduced Shopify Capital, a cash advanced product. Shopify Capital was initially piloted to merchants within the US and allows merchants to receive an advance on future earnings. Since the launch of Shopify Capital, they have provided $2B in funding to merchants with a max advance of $2M.
- In 2017, Shopify announced an integration with Amazon that would allow merchants to sell on Amazon from their Shopify stores. Shopify’s stock rose 10% based on this news.
- In 2017 Shopify introduced a Bluetooth-enabled debt and credit card reader for brick-and-mortar retailers. Shopify has since introduced a point-of-sale system with a dock and retail stand that competes with Square’s products.
- In 2017, the #deleteshopify hashtag campaign was started because Breitbart News, a far-right news platform, started using Shopify’s platform. CEO, Tobias Lütke, responded to the criticism by saying “refusing to do business with the site would constitute a violation of free speech.”
- In 2018, Shopify opened its first physical office in Los Angeles.
- In 2019, Shopify introduced Shopify Studios, a full-service television and film content production house.
- In 2019, Shopify announced an integration with Snapchat to allow Shopify merchants to buy and manage Snapchat Story ads directly on the Shopify platform.
- In 2019, Shopify acquired Handshake, a B2B e-commerce platform for wholesale goods.
- In 2019, Shopify announced it would launch its own Fulfillment Network. The service promises to handle shipping logistics for merchants and competes with an established leader, Amazon FBA.
- In 2019, Shopify released Shopify Chat, a new native chat function that allows merchants to have real-time conversations with customers.
- In 2019, Shopify acquired 6 River Systems, a Massachusetts-based company that makes warehouse robots. The acquisition was finalized in October resulting in cash-and-share deal worth $450M.
- In 2020, the share price increased due to more people opening e-commerce businesses during Covid-19.
- In 2020, Shopify shifted its entire workforce to remote.
- In 2020, Shopify announced a partnership with Alipay to support cross-border payments.
- In 2021, Shopify announced its acquisition of Primer, an AR app on the App Store that allows users to preview home improvement items digitally.
- In 2021, Shopify announced the removal of the 20% revenue share for app developers.
- In 2021, publishers Pearson Education, Macmillan Learning, Cengage Learning, Elsevier, and McGraw Hill sued Shopify claiming there were listings of pirated copies of their books listed on merchants’ Shopify websites.
- In 2022, Shopify introduced Linkpop, a product to create branded, social marketplace through which merchants can advertise and market their products via links to social channels.
- In 2022, Shopify announced its acquisition of Dovetale, an influencer marketing startup based in New York.
- In 2022, Shopify announced a partnership with jd.com to let US merchants expand operations in China.
Step 3: Shopify Business Model
How does Shopify make money?
➡️ Goal: It’s important to know how a company makes money. A mature business model has multiple streams of revenue which allow the company to weather downturns in the economy.
Shopify makes money in two ways.
Subscriptions – 28% of revenue is generated from subscription services where businesses can subscribe to plans that start at $29/month and go higher than $2,000 per month depending on how many products are sold and features are used.
Merchant Solutions – 72% of revenue is generated from Shop Pay, currency conversion, shipping, point-of-sale hardware and software, Shopify Capital, apps, and customizable features.
Companies and celebrities that use Shopify to sell physical products include Netflix, Penguin Books, Staples, Gym Shark, Omaze, LA Lakers, Decathlon, Fitbit, David and Victoria Beckham, and Kylie and Kriss Jenner.
Step 4: Shopify News
➡️ Goal: It’s important to highlight important company-specific news as well as industry-specific news over the last month and year. We don’t need daily news on a company to make buy or sell decisions because we’re investors, not traders. Overall, we want sufficient news to understand where a company and industry are heading over the next year or few years.
This article from investorplace.com states that Shopify is buying Deliverr, a San Francisco, California-based e-commerce fulfillment startup for $2.1B in cash and stock. Deliverr leases warehouses and uses them to pack orders. It used predictive analysis software to anticipate demand. This service will help achieve next-day delivery which competes with Amazon’s delivery service.
This article from seekingalpha.com states that Shopify is a broken stock, not a broken company. The share price is down 80% from its all-time high and there has never been a better buying opportunity on this stock than now. The year-over-year revenues and net income continue to show that e-commerce isn’t going away.
This article from fool.com states that Amazon is introducing a “Buy with Prime” service that allows customers to buy products with Amazon Prime on other websites. In other words, consumers can buy products on platforms other than Amazon and Amazon then processes the transaction and delivers the product. Merchants can offer Buy with Prime if they are an Amazon FBA seller. Some analysts are concerned this will take revenue away from Shopify but Shopify CEO Tobias Lütke says he is thrilled to add “Buy with Prime” to the Shopify network. Why work against the competition when you can work with them. In this case, Shopify expects more merchants and shoppers to use Shopify websites to buy products.
This article from marketwatch.com states that Shopify will complete a 10-1 stock split on June 29. In other words, the share price will be divided by 10. To provide a real-world example, if the share price is $300 before the stock split, the share price will now be $30 after the stock split. Stock splits don’t make investors wealthier but they do motivate more retail investors to buy the stock which naturally increases the share price. This worked out very well for Apple, which completed 5 stock splits over the last three decades and Microsoft, which completed 9 stock splits over the last three decades.
This article from cnbc.com states that e-commerce sales have declined 1.8% from a year ago while in-store sales have increased by 10%. The reason is due to the decline of covid-19 cases which has caused more people to leave their homes and shop in-store. This has caused a share price decline with stocks including Shopify, Etsy, Wayfair, and Poshmark. Although some investors fear brick-and-mortar is making a comeback, e-commerce is still the future.
This article from investorplace.com lists 7 stocks that look like big bargains right now including Shopify, Roku, Alibaba, Upstart, Twilio, Disney, and Adobe.
For the latest news on this stock, please login to Tykr.
Step 5: Shopify Competition
➡️ Goal: It’s important to understand who the competitors are and how their financials rank against this company. Try to find 5 other competitors to rank against based on Score. The best way to find competitors is to Google “XYZ competition” and replace XYZ with the company name. You can also go to Tykr and click on the “Similar Stocks” tab on each stock to see similar companies in the same industry.
Amazon (AMZN)
- Summary: On Sale
- Score: 11/20
- MOS: 69%
- Share Price: $102
- Sticker Price: $332
- Revenue: $469B
Wix (WIX)
- Summary: Overpriced
- Score: 4/20
- MOS: 1%
- Share Price: $55
- Sticker Price: $56
- Revenue: $1.2B
BigCommerce (BIGC)
- Summary: Overpriced
- Score: 4/20
- MOS: 1%
- Share Price: $15
- Sticker Price: $15
- Revenue: $219M
Salesforce (CRM)
- Summary: Overpriced
- Score: 5/20
- MOS: 1%
- Share Price: $164
- Sticker Price: $166
- Revenue: $26B
Salesforce (CRM)
- Summary: Overpriced
- Score: 5/20
- MOS: 1%
- Share Price: $164
- Sticker Price: $166
- Revenue: $26B
Adobe (ADBE)
- Summary: On Sale
- Score: 16/20
- MOS: 68%
- Share Price: $370
- Sticker Price: $1,164
- Revenue: $15B
Step 6: Shopify 4Ms
➡️ Goal: All of our homework on this company leads up to the 4M checklist. A lot of investors only look at the numbers. Yes, it’s important to look at the first M (MOS) which is the math part of investing but it’s also important to look past the numbers and also look at the business, the competition, and the management. If all 4Ms pass, we should have high confidence in buying this stock.
Now let’s take a look at the 4 M’s. A wise investor should always look past the numbers and look at the business.
❌ MOS: The score of 50/100 is good but it could be better. When you look at the year-over-year financials, they look great but when you look at the quarter-over-quarter financials, the revenue is flat, the net income has declined, and the EPS has declined. We would like to see the quarter-over-quarter numbers increase a little more.
✅ Meaning: Although cnbc.com stated that more people are shopping at brick-and-mortar stores, this doesn’t mean e-commerce will go away. In fact, I strongly believe the brick and mortar stores will continue to see a decline because shopping from your mobile device in the comfort of your own home is the future. Yes, I understand people are excited to get back in public since Covid-19 cases have waned but e-commerce will continue to grow over the coming decades. If I were an investor in Shopify, I would not be concerned. I would also like to point out that I agree with Tobias Lütke’s comments on Buy with Prime. We understand Amazon is a competitor but if you can work with your competitors, all parties can win. In this case, adding the Buy with Prime button to the Shopify platform will benefit both Amazon and Shopify. Amazon will generate revenue from the transaction fees and Shopify will increase transaction volumes.
✅ Moat: If you’re an SMB (Small and mid-sized business) or even a large brand, the best-in-class e-commerce platform is Shopify. Wix is a great product if you want to create static page websites but they don’t compete at the e-commerce level with Shopify. Squarespace, a private company, is another website platform but they also do not compete at the e-commerce level. I’ve worked on projects with Adobe AEM (Adobe Experience Manager) which is an enterprise software platform but the cost is high. AEM can range from hundreds of thousands of dollars on up to millions of dollars per year for e-commerce companies. This is a highly robust platform with extensive capabilities that most SMBs won’t require. In this case, I don’t consider Adobe a direct competitor.
❌ Management: CEO Tobias Lütke recently made this comment on Twitter “Is there a place where financial analysts’ track records are kept? People seem to pay attention to them but are they being held accountable?” His comments are triggered by the combination of the low share price and analysts’ negative expectations. In this situation, Lütke needs to take notes from more seasoned CEOs such as Satya Nadella (Microsoft CEO) and Lisa Su (AMD CEO). These CEOs don’t care what analysts think. They are highly focused on delivering value to the customer and that’s exactly where Lütke should place his focus. Although this is a sign he’s frustrated, it’s hard to ignore what Lütke and the leadership team have built since 2006. Shopify is, without a doubt, an impressive platform with multiple highly scalable revenue streams. At this point, he should turn his attention to the customer and away from the analysts.
If you’re interested, you may complete your own 4M checklist on this stock or other stocks by logging into Tykr.
Step 7: Is Shopify stock a good buy?
The Meaning and Moat look great. The MOS is okay but the one “M” in question is the Management. Lütke needs to pay less attention to what others think and focus more on his customers. They’ve built great products and features and they’ve made the right acquisitions over the last few years decisions like this will continue to fuel growth. With the stock currently down 80% from its all-time high and the upcoming 10-1 stock split on June 29, this may be a great opportunity to buy. In fact, you might not find a better opportunity to buy this stock. If you’re still unsure if you want to buy this stock, what you could do is wait until the next earnings report around July 26th to see if Shopify matches or exceeds EPS expectations. If they do, that’s a great sign to buy!
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The Summary, Score, and MOS of this stock may have changed since the posting of this review. Please login to Tykr to see up-to-date information.
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