$SHOP: The Backbone of Modern Commerce
Shopify Inc. ($SHOP) is a leading global commerce company that provides a turnkey SaaS platform to start and manage a business.
SHOP is the dominant force in a rapidly growing market.
It has a long runway for value creation.
A thread
Shopify Inc. ($SHOP) is a leading global commerce company that provides a turnkey SaaS platform to start and manage a business.
SHOP is the dominant force in a rapidly growing market.
It has a long runway for value creation.
A thread

1/ The Basics
Multi-Channel Front End: Merchants can display, manage, and sell products over 12+ sale channels
Single Integrated Back End: To manage customers and buyers across all sales channels
Data rich reporting / insights
Brand Ownership, Mobile, Scalable Infrastructure
Multi-Channel Front End: Merchants can display, manage, and sell products over 12+ sale channels
Single Integrated Back End: To manage customers and buyers across all sales channels
Data rich reporting / insights
Brand Ownership, Mobile, Scalable Infrastructure
2/ Market Size and Opportunity
SHOP est. SMB TAM: $78B
2020 Retail Spend (eMarketer): Est. $3.9T Ecommerce, $23T Total Retail -> $6.3T / $30T (2024) - 13% CAGR
IDC – Market for Digital Commerce Apps: $4.7B (2019) -> $7.8B (2024) – 11% CAGR
B2C: 67% of global Ecommerce spend
SHOP est. SMB TAM: $78B
2020 Retail Spend (eMarketer): Est. $3.9T Ecommerce, $23T Total Retail -> $6.3T / $30T (2024) - 13% CAGR
IDC – Market for Digital Commerce Apps: $4.7B (2019) -> $7.8B (2024) – 11% CAGR
B2C: 67% of global Ecommerce spend
3/ Market Leader
Top 10K Websites: 5.5% use SHOP
Fastest growing online store builder
Second to only $AMZN in U.S. Retail Ecommerce
Most searched Ecommerce solution: 2.6B Google searches (5.7x the nearest competitor)
31% market share of websites using ecommerce tech in U.S.
Top 10K Websites: 5.5% use SHOP
Fastest growing online store builder
Second to only $AMZN in U.S. Retail Ecommerce
Most searched Ecommerce solution: 2.6B Google searches (5.7x the nearest competitor)
31% market share of websites using ecommerce tech in U.S.
4/ Industry Trends (Benefit SHOP)
1. Accelerating Ecommerce growth (above)
2. Customers utilize multiple sales channels; merchants need multi-channel approach
3. Direct-to-Consumer (“DTC”), digital native brands (“DNB”) – DNBs grew sales at 29.5% in 2019 vs. 17.6% for non-DNBs
1. Accelerating Ecommerce growth (above)
2. Customers utilize multiple sales channels; merchants need multi-channel approach
3. Direct-to-Consumer (“DTC”), digital native brands (“DNB”) – DNBs grew sales at 29.5% in 2019 vs. 17.6% for non-DNBs
5/ Competitive Advantages
1. High switching costs ->
- Land & Expand (upsell / cross-sell) ->
- Increases stickiness, ARPU, & LTV
2. Fulfillment Network
3. Easiest platform to use
4. Largest app store
Flywheel: More merchants -> more app-developers -> more platform usage
1. High switching costs ->
- Land & Expand (upsell / cross-sell) ->
- Increases stickiness, ARPU, & LTV
2. Fulfillment Network
3. Easiest platform to use
4. Largest app store
Flywheel: More merchants -> more app-developers -> more platform usage
6/ Q2 2020 Financials
Total Revenue: $714.3MM (+97% YoY)
- Subscription: $196.4MM (+28%)
- Merchant: $517.9MM (+148%)
MRR: $57MM vs. $47.1MM (+21%) - 46% CAGR past 5 years
Adj. Gross Profit: $381.4MM vs. $207.3MM (+84%)
Adj. EBIT: $113.7MM (16% margin) vs. $6.4MM (2% Margin)
Total Revenue: $714.3MM (+97% YoY)
- Subscription: $196.4MM (+28%)
- Merchant: $517.9MM (+148%)
MRR: $57MM vs. $47.1MM (+21%) - 46% CAGR past 5 years
Adj. Gross Profit: $381.4MM vs. $207.3MM (+84%)
Adj. EBIT: $113.7MM (16% margin) vs. $6.4MM (2% Margin)
7/ Operating Leverage & Metrics
GMV : $30.1B vs. $13.8B (+119% YoY)
- Retail merchants grew online store GMV by 73% over Q1
GPV: $13.4B vs. $5.8B (+131%)
- % of GMV: 45% vs. 42%
Scale - OpEx Margin: 37% vs. 56% (+1900 Bps) ->
Massive Operating CF growth: $165.2MM vs. $23.1MM
GMV : $30.1B vs. $13.8B (+119% YoY)
- Retail merchants grew online store GMV by 73% over Q1
GPV: $13.4B vs. $5.8B (+131%)
- % of GMV: 45% vs. 42%
Scale - OpEx Margin: 37% vs. 56% (+1900 Bps) ->
Massive Operating CF growth: $165.2MM vs. $23.1MM
8/ Shopify Fulfillment Network
June 2019: Announced $1B 5-year plan to build & operate
- Network across U.S. to ensure faster & cost-effective delivery
- Utilize ML to improve supply chain economics and logistics
Acquired 6RS ($450MM) for warehouse automation - expands TAM
June 2019: Announced $1B 5-year plan to build & operate
- Network across U.S. to ensure faster & cost-effective delivery
- Utilize ML to improve supply chain economics and logistics
Acquired 6RS ($450MM) for warehouse automation - expands TAM
9/ The Ecosystem
Network effects of platform drive further growth
App Developers: 4,600 apps in App Store
Designers / Partners: 30,300 have referred merchants over past year
Partner Ecosystem -> Merchant Growth -> Devs create more apps -> Platform improves -> Partners refer
Network effects of platform drive further growth
App Developers: 4,600 apps in App Store
Designers / Partners: 30,300 have referred merchants over past year
Partner Ecosystem -> Merchant Growth -> Devs create more apps -> Platform improves -> Partners refer
10/ Management
CEO & Chairman Tobi Lutke (co-founder) is one of the best leaders out there.
Comp structure ensures shareholder alignment
Governance: Dual-class share structure, but Tobi only has ~34% of voting power (checks and balances)
Developed premier company culture
CEO & Chairman Tobi Lutke (co-founder) is one of the best leaders out there.
Comp structure ensures shareholder alignment
Governance: Dual-class share structure, but Tobi only has ~34% of voting power (checks and balances)
Developed premier company culture
11/ Risks
High Churn: Not a real risk – churn is from $0 sales customers. SHOP is very sticky once 1st sale is made
Int'l Growth: Established players lead in non-1st world markets (WooCommerce, Magento, OpenCart)
Further Ecommerce Disruption: VR/AR? SHOP is planning for it.
High Churn: Not a real risk – churn is from $0 sales customers. SHOP is very sticky once 1st sale is made
Int'l Growth: Established players lead in non-1st world markets (WooCommerce, Magento, OpenCart)
Further Ecommerce Disruption: VR/AR? SHOP is planning for it.
12/ Conclusion
SHOP is the best turnkey commerce platform in the world
Growth fueled by network effects
EV / NTM Sales: 36.2x is top 5 in SaaS space
Multiple shouldn't expand - fundamentals will drive stock appreciation given superior business model.
I do not hold a position
SHOP is the best turnkey commerce platform in the world
Growth fueled by network effects
EV / NTM Sales: 36.2x is top 5 in SaaS space
Multiple shouldn't expand - fundamentals will drive stock appreciation given superior business model.
I do not hold a position