Shopify, the only rival admitted by the founder of Amazon, how does it make money?

Shopify

I have spent a lot of time talking about this company in the 3-6 section and the 4-3 section of my book “The Rules of Super Growth Stocks Investing”. Talked about how it rise, and how to get the favor from Wall Street investors. What has been mentioned in the book will not be repeated here. Interested readers can refer to my description in the book.

Many people have always hoped that I could talk about this company. At this moment of year end, I plan to spend some time and write a few articles one after another (because it has too many topics worth discussing). The most important new e-commerce company in the US stock market in the past few years is also a very important part of my portfolio.

For these major e-commerce businesses, I suggest you refer to my blog post below:

For all the current major global e-commerce companies that are listed on the US stock market and are worth introducing to investors, I will successively publish special articles to introduce them.

Amazon’s only rival to fear

In 2020, Amazon (ticker: AMZN) founder Jeff Bezos publicly pointed out that Shopify is Amazon’s only competitor while attending the US Congress to testify.

Not only Amazon, but even China’s Alibaba (ticker: BABA), have set up a special team to study why Shopify is so successful, because Shopify has already entered the mainland Chinese and is aggressively attracting Chinese merchants, threatening Alibaba’s businese. Because Shopify is a direct competitor of Alibaba’s AliExpress division.

At present, whether east or west, all new e-commerce companies, various SaaS companies, and even a new generation of non-e-commerce startup companies (there are too many, I will not list them one by one), Many use Shopify as a successful role model, hoping to replicate Shopify’s successful experience. Even Any companies can enjoy higher capital market valuations than their peers as long as anything related to Shopify.

The most typical examples are Youzan and Weimob, which are listed on Hong Kong stocks, and Baozun (ticker: BZUN), which is listed on U.S. stock market, these three e-commerce or SaaS companies under the banner of the Chinese version of Shopify have been highly sought after by investors, resulting in unattainable share prices; now it has proved that they are just gimmicks and cannot pass the market inspection.

Shopify is a verb now

It is also worth mentioning that the word Shopify has gradually become a verb in the business world, like Xerox for photocopiers, Google for Internet search, or Photoshop for image editing. For example, there are online lending companies claiming to be Shopify in the online lending world, and car dealers claiming to be Shopify in the car dealer industry. There are just too many examples of this. Judging from this incident (Shopify becomes a verb), one can imagine how successful this company is.

Company bio and founder

Surprisingly, from the beginning, Shopify was a small cloud computing company that simply provided network space for small and medium-sized enterprises, just like the well-known WordPress (not listed) or Wix.com (ticker: WIX).

The founder, Tobias Lütke, is a German-Canadian. The reason why he started this internet company was that writing programming was just too boring. As a ski enthusiast, he felt that selling snowboards was profitable, so he thought it was better to start a snowboarding company. Make a little money in online shops.

From 2009 to 2013, Shopify completed the transformation from a website building tool company to a platform provider. In June 2009, Shopify released the API platform and APP store, allowing developers to create various applications for Shopify’s online store, and then publish them on the Shopify APP Store.

Since 2014, Shopify has begun to attach importance to large customer service, and launched the e-commerce service Shopify Plus for merchants with a large inventory of products, forming a product chain that completely covers large, medium and small customers. This is the most important change and the most successful thing that Shopify has done so far– a successful big change in strategy.

Shopify in worldwide e-ccommerce ranking

According to the report of the United Nations Conference on Trade and Development on the development of global e-commerce at the beginning of May 2020, the e-commerce companies are ranked according to the total commodity transactions of global merchants:

20202019Company2020 GMV (US billion)GMV annual growth rate
11Alibaba1,14520.1%
22Amazon.com57538%
33JD.com37925.4%
44Pinduoduo24265.9%
59Shopify12095.6%
67EBay10017%

Shopify’s amazing journey of capital markets

For example, the stock price chart from Google Finance above. Since its listing in May 2015, only more than six and a half years, the stock price has risen by 4,984%, which is a 50-fold increased, and the annualized rate of return is 206%. This figure is very amazing. It’s nearly double the 119% annualized return of Sea Ltd. (ticker: SE) I introduced few days ago, Please see my blog post “Sea, the parent company of Shopee, the most valuable company in Southeast Asia“. Shopify is the largest increase of all large stocks in the U.S. stock market during the same period.

Shopify’s valuation

Even in the face of all growth stocks entering the bear market in the third quarter of 2021, the share prices of many growth stocks have almost fallen by half from their highest point. Shopify still fell a little bit less, but the valuation is still very high. Please note that its price-to-earnings ratio is lower than that of Amazon, and its share price to revenue ratio is relatively high (up to 12/24/2021):

Valuation metricMercadolibre ShopifySea LtdAmazon.comAlibaba
Stock price1,262.731,439.33222.053,421.37118.66
Market value ($ billion)63.72180.74123.15 1.74 trillion322.54
P/S10.0943.0514.963.762.48
EPS1.5926.82-3.5951.147.1
P/E793.4553.66N/A66.916.73
Stock price drop from all- time high-47%-18.36%-40.42%-9.32%-60.37%

Shopify’s main business and performance

2020 revenue and growth rateQ3, 2021 revenue and growth rate Main business
Subscription Solutions908.757 million (+41.5%)336.2 million (+37%) Application, theme, domain service, Shopify Plus
Merchant Solutions2.020734 billion (+115.9%)787.5 million (+50.83%)Merchant loan, shipping service, payment
總營收2.929491 billion (+85.63%)1.12 billion (+45.9%)Merchant-oriented e-commerce service

Importance of Shopify to Canada

Shopify is currently listed on the Toronto, Canada and the New York Stock Exchange in the United States at the same time. The trading code is same as SHOP. It is the largest listed company in Canada by market value. It is also the third time, Canada has world-class technology company after Nortel (Nortel, already delisted) and BlackBerry (ticker: BB), once again Canadian technology companies have entered the eyes of the world, which makes Canadians think proud of Canada-born technology giant.

In recent years, it has become a company all Canada local govenment have been invitng for its investment, and it is also a major Canadian company used by Canadian politicians to show off to foreign leaders when they go abroad.

Shopify

Balance sheet and fundraising

Before Shopify went public, there were no exceptions. In the early days, it had sought a lot of capital from Silicon Valley venture capital, but after its listing, it has almost always relied on issuing new shares to raise funds for operations. It has almost never borrowed large sums of money from traditional banks. The reason is simple. Shopify’s stock has been rising all the way and it is very valuable. Investors are rushing to buy it. It doesn’t need to look at the bank’s face.

This is also the main reason why the company’s long-term debt has been almost zero for a long time (which means that it has strong financial status). At present, its long-term debt/shareholder equity ratio is only a negligible 0.08. Large companies in the technology sector should only have Alphabet (ticker:s: GOOGL and GOOG) 0.06 and Meta Platforms (ticker: META) ‘s could competw with it.

Disclaimer

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