Shopify (SHOP)

Shopify (SHOP)

Is SHOP stock a good buy?

In this article, we review Shopify stock to determine if it’s a good buy, sell, or hold.

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

Tykr Rating

  • Summary: On Sale
  • Score: 10/20
  • MOS: 80%
  • Share Price: $303
  • Sticker Price: $1,525

Past Tykr Rating from 10/15/2020

  • Summary: On Sale
  • Score: 13/20
  • MOS: 63%
  • Share Price: $1,106
  • Sticker Price: $2,997

Shopify Company History

  • 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 to 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 advanced 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.

Shopify Business Model

How does Shopify make money?

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.

Shopify News

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. 

Shopify Competition

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

Shopify 4Ms

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 10/20 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 increasing a little more. However, the MOS of 80% shows this stock has a lot of upside potential.

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. 

Shopify Financials

Now let’s take a look at the financials. A wise investor should be able to read the income statement, cash flow statement, and balance sheet and within 60 seconds have a pretty good idea of how the business is performing.

  • Revenue (Found on the Income Statement)
  • 2018: $1B
  • 2019: $1.5B
  • 2020: $2.9B
  • 2021: $4.6B
  • Revenues have consistently increased which is a great sign.

Net Income (Found on the Income Statement)

  • 2018: -$64M
  • 2019: -$124M
  • 2020: $319M
  • 2021: $2.9B
  • The net income growth rate is quite impressive. 

EPS (Found on the Income Statement)

  • 2018: -.61
  • 2019: -1.10
  • 2020: 2.67
  • 2021: 24.38
  • The EPS growth from 2020 from 2021 is incredible. This is a great sign!

Free Cash Flow (Found on the Cash Flow Statement)

  • 2018: -$32M
  • 2019: $8M
  • 2020: $382M
  • 2021: $453M
  • Free Cash Flow has consistently increased which is a great sign.

Total Assets (Found on the Balance Sheet)

  • 2018: $2.2B
  • 2019: $3.4B
  • 2020: $7.7B
  • 2021: $13.3B
  • Total Assets have consistently increased which is a great sign.

Total Liabilities (Found on the Balance Sheet)

  • 2018: $164M
  • 2019: $473M
  • 2020: $1.3B
  • 2021: $2.2B
  • Total Liabilities have increased. This is most likely due to the acquisitions they’ve made over the last few years which include an increase in payroll.

Total Debt (Found on the Balance Sheet)

  • 2018: $24M
  • 2019: $151M
  • 2020: $912M
  • 2021: $1.1B
  • Total debt is also increasing, most likely due to the acquisitions. 

Total Equity (Found on the Balance Sheet)

  • 2018: $2B
  • 2019: $3B
  • 2020: $6.4B
  • 2021: $11.1B
  • Total Equity has consistently increased which is a great sign.

Is Shopify stock a good buy?

The MOS, Meaning, and Moat all look great. 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 and 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!

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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