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Shopify's Road To $200

Jun. 13, 2020 2:03 AM ETShopify Inc. (SHOP), SHOP:CA454 Comments
Oracle Of Alpha profile picture
Oracle Of Alpha


  • While Shopify is a well-run company with a strong balance sheet and respectable growth, its valuation makes the hyper bubbles of the Dot Com era look cheap.
  • Lost $125 million on $1.578 billion revenue in FY19. With a market cap of $89.25 billion, this represents a mind-blowing 56.5 years of trailing revenue.
  • Growth has been slowing by nearly 20% with losses increasing over 60% per year since IPO. It has also pulled guidance and diverted resources away from growth.
  • Seeing more subscription downgrades, less app spending, decreased margins, and other signs of further decelerating growth in Q120. This is largely a reason for the pulled guidance.
  • Price target of $117.57 with an upside of $185.96.

What is Shopify

Shopify (NYSE:SHOP) is often compared to the e-commerce giant Amazon (AMZN), typically as justification for its inflated and completely unsustainable valuation. It's not a very good comparison though, and Shopify isn't even in the retail business. Furthermore, Shopify sells store management software which is deployed on countless separate domains, all with their own unique design. There's no central outlet like Amazon - you have to know where each store is.

What it does is offer a hosted solution for e-commerce, meaning it provides the software to run a branded store as well as managing the server it's hosted on. The software itself includes a suite of services to both manage and run an online business, from branding and design to shopping cart and payment processor, along with an app store to enhance functionality or find new themes.


Shopify has two separate revenue streams. The first of these is known as subscription solutions and is what makes up its core offerings. Primarily consisting of monthly fees collected for providing an online storefront in the Shopify ecosystem, but also includes other digital sales such as themes, apps, and domain names.

The company's second revenue stream is known as merchant solutions and provides supplementary services on top of its core offerings. This includes things such as shipping services, transaction fees, and point-of-sale hardware sales. Unlike subscription solutions, margins here are much lower as well as more reliant on the success of businesses in its ecosystem.

20Q1 Source Subscription Solutions Merchant Solutions
Revenue $187.609 million $282.451 million
Cost of Revenue $37.712 million $175.339 million
Gross Profit $149.897 million $107.112 million
Margins 80% 38%
Growth YoY 33% 57%

You may notice that merchant solutions is growing 72% faster than subscription solutions while also having 47.5% the margins. In fact it

This article was written by

Oracle Of Alpha profile picture
Fundamental investor focused on finding extreme disconnects between market price and fair value, reading lots of SEC filings along the way. Outside of investing I'm a software developer and reverse engineer, working most often with C/C++ and x86 machine code.

Analyst’s 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (454)

As long as Amazon keeps rising, so will Shopify but not at the same pace.
Tall Seller profile picture
Did you mean road to $2000? 🤣
GameBuzz profile picture
The road to $200 just detoured to $1,500.

I hope the Oracle covered his short position when it dipped under $900 a couple times last year, and went long. But judging from the fact he apparently hasn’t posted any other articles (other than two more bearish ones on SHOP by the end of July 2020), I’m not so sure.
Tall Seller profile picture

Thanks why I don’t listen to the self serving fake news narratives from the shorts. There is 2% short interest in the Shopify for a reason AND institutional investors have a 82% ownership in Shopify for a reason.

Shopify is just getting started.

12 Jul. 2021
@Tall Seller When shorts start creating false narratives involving Shopify and other companies it just shows there desperation in there position they hold.
Ramy Taraboulsi, CFA profile picture
It went up by $200 just this week. Very funny how SHOP is acting similar to the likes of AMC and GME...
OlderThanDirtDave profile picture
@Ramy Taraboulsi, CFA Except that Shopify is an excellent growing business model with very positive forward looking growth. A young person I know taking business in college said the group he was part of were looking at starting businesses and all of them loved the service that Shopify offered and several considering starting business partnering with Shopify to handle that end of things.

AMC and GME are up on failures of the stopping of activities behind the veil which generally destroy perfectly viable business to satisfy a few predatory short sharks leading to a potentially massive short squeeze.

Nice to see some things are getting addressed!

DTCC watching to make sure once a share has been shorted it can not be shorted a second time.

Mr. Excitement profile picture
@Ramy Taraboulsi, CFA Are you still long SHOP?
Ramy Taraboulsi, CFA profile picture
@Mr. Excitement I have my option strategies that fluctuate between long and short, and just capitalizing on the relatively high volatility. It is currently short, and I expect it to shift to long in a couple of weeks if the price does not go up dramatically...
this is missing a 1 in the title
GameBuzz profile picture
@hoiduda LOL! That road is going the wrong way…
Mr. Excitement profile picture
@GameBuzz The O of A is still hoping;)
hawk007 profile picture
@hoiduda OR A 2......
SHOP fell to the low 300's the last time the market corrected, so that seems like it's next destination ...especially for a profitless company. I mean there's no upside limit OR downside folks. Invest wisely based on facts/reality/"profits".
Hope to catch SHOP at that price. Thanks for the article.
Tall Seller profile picture
💥How many B-B-B-B-$BILLIONS/year in revenue does conglomerate General Electric have????💥

Let’s just call it $100BILLION!

This ENTERPRISE merchant uses Shopify for B2B, D2C e-commerce, and D2C channel integrations, including this Shopify B2B and D2C channel integration site:

👉🏻 https://www.cbyge.com

The BIGGEST companies in the world, who realize Shopify can help them SUCCEED MOST, choose Shopify FIRST.

🎉GE is a Shopify
Hudson Investments profile picture
Shopify looks strikingly overvalued with negative earnings and no P/E ratio which looks to me like the mega failures of blackberry and nortel.
Tall Seller profile picture

Shopify is in early stages of their MASSIVE growth story and only an idiot CEO would take profit now instead of capturing as much growth and market share as possible.

They are SMART to invest their profits into their GROWTH.
Hudson Investments profile picture
@Tall Seller massive? MRR decelerating
Tall Seller profile picture

Tall Seller profile picture

Visa’s 8-K filing with the SEC just said e-commerce SURGED 40% in less than 2 months, SEEN HERE:
👉🏻 d18rn0p25nwr6d.cloudfront.net/...

That kind of e-commerce growth will make Shopify’s price today seem CHEAP when they announce its ACCELERATION in growth at their upcoming Q2 earnings call.

💥BUY AND HOLD before Shopify’s Q2 earnings call!💥
New Data Shows Shopify Was a Godsend for Mom and Pop During Coronavirus

It's clearly overvalued but it seems valuation isn't the focus in this market. It is about sentiment and momentum. Maybe when the release results and it becomes obvious that they have been giving away the farm in this economy. For it to crash, it would have to run out of liquidity which doesn't seem likely over the short term.
Author is short and has a classic strategy….fight the tape! It's overvalued...just like market on March 23 was in a *tail spin*. SHORT IT!!
Oracle Of Alpha profile picture
More like how the market the market was in a *tail spin* in '00 and still wasn't green by '10. An entire decade of gains completely lost, in part because people felt that valuation no longer matters and it's all about the page clicks now. Ever heard of Tulip Mania? In the Dutch golden age of the 17th century, tulips of all things became a massive bubble. So much so that by 1637, shortly before the bubble popped, a single tulip bulb cost more than 10x the annual salary of a skilled worker. Can you imagine that? It would be like selling you a daisy today for $600k, which sounds completely ridiculous.

Bubbles are an effect of human psychology and Shopify is undoubtedly in one, I have another article coming soon which should hopefully give people some perspective on just how massive a bubble this is. This isn't in the category of something like Tesla, this is truly Dot Com levels of mania, it's so hyper overvalued that the 2% they gained today amounts to an increase in market capitalization greater than their entire FY19 revenue. The last week has seen a 25% increase in value, more than $20 billion, while they lost $130 million last year from $1.58 billion in sales. Amazon has never even reached 5x sales, Shopify is over 60x.
Yes fight the tape. That's what you're doing here. You're not simply *OUT* ..you're SHORT. Short on a tape that says otherwise. Not a good trade decision. You can wax eloquent on *value* arguments, but you've exposed yourself to a LOSING TRADE with no limits on loss.
GameBuzz profile picture
The Nasdaq isn't "the market." It didn't take a decade to recover from '00 for the S&P or the Dow. And most didn't buy at the top. If you were DCA you did just fine.
The dotcom companies didn't have EARNINGS. They were trading on page views. That is not the case with cloud companies. They are investing in their growth, as they should, and they have real revenue growth. Most will end up like the software and communications companies (mergers and takeovers), not liquidating like the dotcoms.
Shop doesn't make money...do not buy stock..it's a LOSER!

hawk007 profile picture
hawk007 profile picture
it's made me rich, how is it a loser.....oh, I know, YOU ARE THE LOSER!!!!
hawk007 profile picture
the only loser is....
hawk007 profile picture
Hope you closed out your short position without losing your shirt
Tall Seller profile picture
I think RBC Capital Markwts $1000 price target is a MUCH more trustworthy source than a bunch of self serving Debbie Downer doom and gloomers options traders, even if RBC’s $1000 is extremely low for Shopify’s inevitable upcoming surging share price due to their ACCELERATING growth since COVID.

I am so excited about Shopify’s upcoming Q2 earnings callS we it’s a forgone conclusion that they will announce them their ACCELERATING growth.
I saw they were giving away three months to new subscribers. When you give away product you can grow customers. The question will be how many remain after the giveaways. I suspect many will fail to convert to paying subs....
GameBuzz profile picture
The road to 200 detours to 900 first. Then 1000.
Tall Seller profile picture

Shopify increased their FREE trial from 14 days to 90
days for a SHORT period of time, in the initial part of the COVID scare.
It has a p/e of 1496. Did I read that right?
Tall Seller profile picture
A company that invests their MASSIVE 30-90% profit margins into DECADES of growth mega-multi-$TRILLION per year B2B and D2C global e-commerce market, PE has ZERO meant.

👉🏻 unctad.org/...
Tall Seller profile picture
AWESOME Shopify merchants.....

• www.tortugabackpacks.com/
• www.trueleafmarket.com/
• www.kickassbeefjerky.com/
• www.skullriderinc.com/
• www.drakegeneralstore.ca/
• www.kettleandfire.com/
• www.saxxunderwear.com/
• www.rebeccaminkoff.com/
• www.radpowerbikes.com/...
• www.chillysbottles.com/
• www.deathwishcoffee.com/...
• www.shopjustwater.com/...
• www.inamoratawoman.com/...
• store.washingtonpost.com/
• www.cheaphumidors.com/
• greatscotscotland.com/

Want to see some more REAL businesses that have had ACCELERATING growth since COVID?
From Credit Suisse Report a month ago:

Shopify held its virtual Reunite Conference today where the company launched new products and previewed upcoming innovations all centered around empowering merchants to adapt to evolving consumer purchasing behavior. Highlights include (1) GA of Shopify Fulfillment Network, (2) Launch of Shopify Balance, (3) Facebook Shops, (4) Shopify Payment Installs and (5) Flexible delivery/pickup options. Merchants remain at the heart Shopify’s focus and we believes these offerings advance Shopify’s competitive positioning against e-commerce peers. Fulfillment Network: SFN has graduated from early access to actively onboarding merchants. We see general availability as likely driving revenue and gross profit upside earlier than previously anticipated though note SFN will continue to be dilutive near-term to margins/FCF given the investments. Shopify Balance: The company briefly previewed Shopify Balance, a financial product that provides merchants with a bank-like account and card to help manage their businesses (pay bills, track expenses, request funding). The company will leverage a financial partner for Balance but other details were light. We see this as another example of Shopify leveraging its scale and capital position to help ease merchant pain points while increasing barriers to exit off the platform. Facebook Shops: Shopify announced a partnership with Facebook to help businesses create a Facebook Shop, a new online storefront for Facebook and Instagram. Merchants can quickly connect their Shopify store and merchandise to a Facebook Shop in order to drive additional demand. Checkout can be completed via the Shopify store or Facebook Checkout, suggesting Shopify will continue to retain strong economics though we note the potential risk of disintermediation if Facebook Checkout increases conversion. We see this partnership in line with management’s messaging for creating a strong omni-channel presence for merchants and see Facebook Shops (along with the Google Shopping integration) as potentially driving material traffic to Shopify stores. Shopify Pay Installments: Shop Pay Installments will let merchants offer more payment choices to consumers at checkout, including the option to split purchases into interest-free payments over time. See this accelerating adoption of Shopify Pay (~40m users). "
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