dimanche 19 avril 2020

The recent performance of Shopify

Shopify is similar to Amazon, a few years ago: revenues grow at an incredible rate while the company is little or no profitable. 

The secret is probably in the margins: If the company succeed at increasing it's very low margins to a certain level, the company will become profitable.

Before going further, let's take a look at the price of the stock over the last 5 years (in canadian dollars):

May 2015: 33,52$
May 2016: 38,47$
May 2017: 124,72$
May 2018: 192$
May 2019: 372$
Late april 2020: 831$

From 2015 to 2019, revenues went from 205 to 1578 million US dollars.
From 2015 to 2019, EPS went from -0,30 US dollar to -1,10US dollars.

Around march 20th, when the panic on the market was at his highest level, I thought about Shopify and I told to myself that tech companies would surely do better than brick and mortar companies over the near future. But, I decided to buy some other tech companies than Shopify. For instance, tech companies that had positive earnings. 

Over the last month, while the market went down like crazy, Shopify dropped too. But the rebound has been spectacular: from 500$ a month ago to 831$ today.

I believe that Shopify will probably reach the 1000$ level this year. But I won't probably invest money in that company. Why? Because, at current price, if we suppose that earnings will be 10$ per share in 3 years (let's remind that earnings have been negative over the last 5 years, so I guess I'm very optimist here), the stock would be currently selling for 80 times 2023 earnings.

Too expensive for me. But I guess the stock will continue to do well in the near future anyway. Because my fucking opinion doesn't matter.

1 commentaire:

  1. I do not understand Shopify as an investment. Selling a dollar for 90 cents does not sound as a very sound business model - especially for a possible recession and after being a "startup" already for 16 consecutive years of continuous losses. 16 years is about a fifth of a typical lifetime of an average human. These market darlings seem to truly live in a different world than plebs like you and me.

    If we are incredibly generous and ignore most expenses and just look at bare-bones operating cash flow for TTM, we get 71M USD or 100M CAD. At a market cap of 103,338M CAD, that means a multiple of 1033x. That is not just generous but perhaps a little crazy. There have been also a number of predatory marketing / stuffing the number of users / other scandals in the past which also put many question marks about the integrity of the management and reported numbers, especially since these all happened during the time of plenty during an economic boom and not during the upcoming economic crisis, when many mom-and-pop online "stores" of hand-crafted soap, essential oils, "contemporary adornments", "gender-fluid multi-use cosmetic line", and other useless trinkets will probably be culled just like the promising "careers" of many instagram "models" and social media "influencers" living off of their parents, ex-husbands alimony, or sugar daddy "special favour" money.

    Penetrator also forgot to mention shareholder dilution:
    2015 = 62M shares
    2020 = 113M shares
    In other words, shareholders from 5 years ago own less than 55% of the business they used to own. The very generous share-based compensation is conveniently ignored in the reported financial results.

    Will Shopify become the largest TSX company later this year? Will its CEO get a number of front-page magazine mugshots and newspaper interviews, or perhaps he might get some CEO of the year awards, or some honorary university titles or libraries named after them? For a few years, I have been also seeing well respected mutual funds buying up Shopify to try not to lag the benchmark too much despite of Shopify's crazy valuation. All of these might remind some of us of a recurring sequence of events which happened to Valeant, Nortel, or other hot stocks that got too close to the sun before the market sobered-up to their adjusted metrics.