Everyone can be a seller these days, with Shopify, Magento, Etsy or even via good ol' Amazon and eBay!
But should you be a buyer of $SHOP?
Key Stats for Shopify Inc
| Ticker | SHOP |
|---|---|
| Sector | Ecommerce Software |
| Latest price | $94.93 |
| Value | $7,321m |
| Daily vol | $216m |
| Date | 16 May 2017 |
| Links | Yahoo Finance, SEC Edgar, shopify.com |
1. What's SHOP?
Shopify is a Canada-based company engaged in the offering cloud-based, multi-channel commerce platform. The Company’s platform is designed for small and medium-sized businesses. Using a single interface, the Company’s merchants can design, set up and manage their business across multiple sales channels, including Web and mobile storefronts, social media storefronts and physical retail locations.
And it's a global business, serving the little guy, i.e. average monthly bill is $50!
As of December 31, 2016, we had more than 377,500 merchants from approximately 175 countries using our platform, geographically dispersed as follows: United States of America, 58%; United Kingdom, 10%; Canada, 7%; Australia, 7%; and 18% in the rest of the world.
Bizarrely, or maybe arrogantly from a competitive standpoint they say:
We believe no competitor offers an integrated, multi-channel, cloud-based commerce platform with comparable functionality to ours. However, some merchants may elect to piece together technology from other companies that overlaps with certain functions and features that we provide, including: e-commerce software vendors; content management systems; payment processors; POS software providers; domain registrars; and marketplaces.
It's just horse. There may be no direct competitors but if you google Shopify you get suggestions you Magento, BigCommerce, Volusion, etc, etc, etc.
Furthermore, there are two revenue lines, subscriptions, and merchant solutions.
| 2016 | Sales | Gross Profit | Margin | Growth |
|---|---|---|---|---|
| Subscriptions | $189m | $149m | 79% | 68% |
| Merchant Solutions | $201m | $60m | 30% | 115% |
And no doubt Stripe, Paypal, even Amazon etc would argue that they are way larger than SHOP in the merchant solutions segment.
Attractive numbers?
It's hard not to like the top line growth at SHOP, but that's not yet turned into cash-flow.
| Metric | 2016A | 2015A | 2014A | 2013A | 2012A |
|---|---|---|---|---|---|
| Revenue | $389m | $205m | $105m | $50m | $24m |
| Operating Profit | -$37m | -$18m | -$22m | -$4m | -$2m |
| EPS | -$0.42 | -$0.30 | -$0.57 | -$0.13 | -$0.03 |
However, brokers are starting to get warm on the figures, With sales more than doubling over the next 2 years, and the business moving into profit in 2018.
| Metric | 2016A | 2017E | 2018E |
|---|---|---|---|
| Revenue | $389m | $629m | $881m |
| EPS | -$0.42 | -$0.14 | $0.14 |
It's been a cycle of upgrades to sales and forecasts for the last 12 months.
Note: these losses are after stock-incentive programs for employees and management. Now... some folks like to reverse these to look at cashflow. I don't. It may be a non-cash expense... but it causes dilution to me as a shareholder, so it's noxious to me. bah hum bug.
Shareholder friendly?
Well, there is a net cash position of $390m, so the current losses are manageable, easily!
Though as you'd expect there is no sign of dividends anytime soon.
Though with Class A and Class B share classes, it's not a friendly structure. Though in tech land, we see this silliness again and again. (okay Google? Snap Facebook.)
2. How's it compare?
Sadly, it's rather a minnow from a sales perspective. And with little in the way of cash-flow, despite it's lovely business model of subscriptions, it's hard to judge the business, operationally.
| Companies | Latest Sales | Operating Profit | Return on Equity |
|---|---|---|---|
| Shopify Inc | $389m | N/A | N/A |
| Amazon.com, Inc. | $142,573M | 9% | 14% |
| eBay Inc | $9,059M | 32% | 88% |
| Mercadolibre Inc | $961M | 27% | 37% |
| Godaddy Inc | $1,904M | 11% | -1% |
| Etsy Inc | $380M | 9% | -10% |
Though with a software model, without fulfillment, perhaps EBAY and MELI are the right peers to use, in the long-term?
And valuation?
With losses for this year and next, and no dividends in sight, this is a Price to sales story? Sadly not...21x historic sales is way above everyone, even Mercadolibre.
| Peers | Valuation | Forecast PE | Long-term Growth | Dividend Yield | P to Sales |
|---|---|---|---|---|---|
| SHOP.K | $7,321M | N/A | 12% | 0% | 21x |
| AMZN.O | $457,886M | 144x | 23% | 0% | 3x |
| EBAY.O | $36,994M | 17x | 7% | 0% | 4x |
| MELI.O | $13,081M | 62x | 32% | 0% | 13x |
| GDDY.K | $6,638M | 207x | N/A | 0% | 4x |
| ETSY.O | $1,319M | -1690x | 10% | 0% | 3x |
Then there is the unhelpful precedent of Ebay Enterprise Services the old GCI Commerce / Magento. Bought for over $2bn and sold for $925m. When it have over $1bn of sales.
3. What do people think?
Wall Street has a target price of $90 even though the stock is at $94. And they still say Buy. :( So looks like there is some revisions with to target or recommendation to come!
The company's beaten estimates eight quarters in a row... so it's hard not to be impressed.
4. A buyer of the seller?
Not me. Sorry. 21x earnings for a business that losing money and faces hideous competitive pressures from some deep pocketed folks like Amazon.
Yes, the risk may never come to pass... but even so, I just can't see the cash-flows matching the market expectations. Imagine they hit $2bn of sales in 2020, a net margin of 20%, that's $400m of earnings. A generous 40x net income and its a $16bn business. So you'd double your money to 3 years.
Possible, yes. Probable, no.
Hope am proved wrong. And good luck to anyone who's gone Shopifying.
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Disclosure: I have no position in any of the stocks mentioned. However I may initiate a position within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Reddit, moderators, and the author do not advise making investment decisions based on discussion in these posts. Analysis is not subject to validation and users take action at their own risk.
Author notes: u/shane_stockflare works at a financial website, Stockflare, and is a Chartered Financial Analyst.
Submitted May 16, 2017 at 10:40AM by shane_stockflare http://ift.tt/2pR8jzQ
