Shopify Is A Massive Churn Factory And Is Going To Be Hit By Facebook Hard. Price Target $60

Jun. 27, 2018 9:19 AM ETShopify Inc. (SHOP), SHOP:CAMETA, SQ, WIX215 Comments
Jan Barta profile picture
Jan Barta


  • Shopify customer churn is monstrous, and we will show it, and hence, SHOP has no way to deserve an EV/REV multiple like other SaaS companies.
  • Shopify is buying its massive revenue growth through acquiring very large quantities of low quality customers.
  • Shopify will not be able to improve its operating leverage by cutting its massive sales and marketing spend. Otherwise, growth would grind to a halt.
  • Facebook is going after low-quality stores advertising in its news feed, and we believe this will have a significant impact on Shopify's GMV and revenue.

[Update - July 1, 2018]: On Friday June 29, we discovered a mistake in the second of the two churn models we used in this report. Because of our conscience we believe it is correct to issue a revision that can be found here. Based on correcting the mistake, we now believe that 77% of customers churn off before reaching their first anniversary as opposed to 85% in the original report. Also, our estimate of customer lifetime of newly acquired customers goes from 14 months to 15.58 months. We also raise our price target from $60 to $65.


Shopify (NYSE:SHOP) is a high-flying SaaS e-commerce company focusing on the SMB segment which floated in May 2015 at $17 and currently trades at $153 as of June 25. It hence boasts a $16.27 billion market cap and an Enterprise Value of $14.77 billion (it has $1.5 billion in cash), according to Yahoo Finance. Shopify has become a Wall Street darling due to its hypergrowth, showing 65% revenue growth as recently as its last quarterly earnings on May 1, 2018. The company is guiding to revenues of $1 billion this year and is trading at a sky-high EV/2018 rev multiple of 14.77x, according to Bloomberg. The majority of Shopify’s revenue is not subscription license revenue but merchant solutions revenue with a much lower gross margin. It isn’t profitable and spends 61% of its gross margin just on sales and marketing. Wall Street expects Shopify to eventually become highly profitable by cutting S&M spend and spreading its R&D and General & Administrative costs across a much larger revenue base with revenue nicely stable and predictable due to its SaaS subscription nature. Shopify management have been very skillful in supporting this picture.

In this report, we will attempt to prove that Wall Street has

This article was written by

Jan Barta profile picture
I am a private investor and entrepreneur based in the Czech Republic. I love to find new angles to look at and analyze stocks. I am often very contrarian. I am also partner in Pale Fire Capital, which has a separate Seeking Alpha Account.

Disclosure: I am/we are short "SHOP". 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.

Additional disclosure: By using (and viewing or downloading any material we publish) you agree to our terms of service. In no event will you hold or its principals liable from any direct or indirect trading losses caused by information released on this website or in our reports. Our reports are not investment advice or a recommendation or solicitation to buy or sell any securities. makes no representations, and specifically disclaims all warranties, express, implied, or statutory, regarding the accuracy, timeliness, or completeness of any material contained on this site or our reports. You should always seek the advice of a security professional regarding your stock transactions. We are not registered as an investment advisor in any jurisdiction.

You agree to always do your own research and due diligence before making decisions based on our reports. cannot guarantee that it is providing all the information that may be available.

Our research and reports only express our own opinion. We have made this opinion based on generally available information, analysis of large amounts of data, field research and various deductions we make during our analysis. We believe that all information presented on this website or in our reports are accurate and reliable. The information is, however, without any warranty (expressed or implied).

Always assume we stand to profit from moves in securities we either recommend to buy or sell on this website.

Recommended For You

Comments (215)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.