Shopify: The Anti-Amazon Protagonist

On February 12, 2021, Shopify was trading at ~$1,500/share, an all-time high for the stock. From February 12, 2016 to the day it reached its record high, Shopify generated 7,429.7% for its shareholders (source: KoyFin). I thought to myself, wait, is that ~75x in 5 years? I was so incredulous that I had to take my calculator out and manually type it to confirm it is indeed ~75x in 5 years.

A publicly listed company based out of Ottawa (from where I am writing this piece myself) probably beat the supermajority of successful venture capital investments during the same time. Ironically, BVP in their original Shopify investment memo mentioned “very few VCs believed that software businesses targeting SMBs were good investments”.

I have read probably ~50 articles/substacks/blogs/podcasts/sell-side research on Shopify in the last one month, but perhaps nobody did as compelling and complete a job of covering Shopify as “The 10th man”. I read his ~11k-worded piece not once, but twice. I then had a two-hour long call with him to go through his model and his current thoughts on Shopify. As a testament to my name “MBI”, I have quite liberally borrowed ideas from him and many others, and then made an earnest attempt to see the long-term future of Shopify.

Here is the outline for this month’s deep dive.

Section 1 Shopify business model: I will get you up to speed on Shopify’s business model and how it makes money.

Section 2 Exploring the future of retail: I did a mini-deep dive here to gauge long-term e-commerce penetration, the “Battle Royale” between marketplace and DTC, and whether Shopify should build a marketplace.

Section 3 Shopify’s path (and resistance) to dominate the global retail operating system: I discuss three key topics here: a) How Shopify is way ahead of the curve in the status quo SMB e-commerce platform business, b) Competition for ancillary products/services, and c) the Facebook threat.

Section 4 Valuation model and assumptions: In some ways, valuing Shopify is bit of a St. Petersburg paradox. I used expectations investing approach to sketch what we need to believe to generate a decent return. While the detailed model can seem too complex, I also discussed a back-of-the-envelope type calculation to do a quick valuation of Shopify. The complex model lets you visualize the drivers, but the quick and dirty method may be more useful to value an ultra-high growth company such as Shopify.

Section 5 Final words: Concluding remarks on Shopify and a brief discussion on my portfolio.

There is quite an extensive recommended reading list following this month’s deep dive. I wanted to make sure if you want to do your own work instead of relying on my inferences, you will have more than enough on your plate to dig deep into Shopify.

This post is for paying subscribers only

Already have an account? Sign in.

Subscribe to MBI Deep Dives

Don’t miss out on the latest issues. Sign up now to get access to the library of members-only issues.