Shopify Inc. https://investors.shopify.com/Home/default.aspx was launched in 2006 by a German programmer, Tobias Lutke and his girlfriend. Tobias wrote their own E-commerce for his snowboard shop. Other online merchants wanted to license his software to run their own shops. They quickly realized software had more potential than snowboards.
Shopify vs Amazon
Shopify (SHOP) makes available a cloud solution for independent Moms who are merchants to operate and own E-commerce websites. Shopify’s activity might seem superficially like what Amazon (AMZN) https://ir.aboutamazon.com/ does. But, there is a key difference.
Amazon.com owns the store, and merchants just sell in it. While Shopify gives Mom-merchants the tools to build their own stores. There are millions of small businesses around the world and to compete they are moving online. However, the problem is that most of them don’t have the expertise to build online stores and that is where Shopify becomes the ideal partner.
Amazon charges 8-15% commissions(plus other fees) on each product sold. Shopify charges a small fee for the merchant’s ability to open a store with them and helps them sell everywhere, including on Amazon.
This individual shop advantage is more powerful than a merchant being stuck with Amazon being their only option; the merchant’s sales would collapse if the merchant left Amazon. However, if a Shopify merchant migrates to another solution, the consumer would remain with the merchant.
Shopify Fulfillment Network is now an option that will allow their retailers to have their orders handled by a network of fulfillment centers while still ensuring that customer packages will bear the retailer’s branding, not Shopify’s.
Cold Hard Numbers
In their most recent Annual Report, Shopify announced that it had more than 820,000 customers, with only 55% of them in the United States. There are more than 22 Million small businesses in the U.S. – plenty more to join their party.
Can Shopify’s scale rival Amazon? Superior bargaining power and the economics of Amazon’s business translates directly into cold hard numbers:
Amazon charges merchants 26.7% of Gross Merchandise Value (GMV) = $42.7 Billion
And then, there’s Ebay https://investors.ebayinc.com/overview/default.aspx who charges 11.7% of GMV = $10.86 Billion
Shopify charges 2.68% of GMV = $0.245 Billion
Two advantages that generate a Shopify moat that is very hard for competition to cross, is their massive partner network and their data.
Shopify’s revenue in the 2nd quarter climbed to $362 Million; at the same time they recorded a 2nd quarter loss of $28.7 Million. They’re no Amazon; but then again, Shopify stock has rocketed up 149% so far this year! And there is the antitrust remifications haunting behemoth Amazon, which will inevitably empower individual Shopify businesses.
No one doubts Shopify. What is in doubt is the price to pay today to acquire shares. Pretty pricey at the moment for a loss-making company. And the beat goes on …….
Are you a Bull or Bear ??
August 9, 2019: Shopify share price is $370.10 !
If you’re a Bullish Mom and believe Shopify is priced perfectly and growth will never end and will go up, try the November 15 Expiration Date – CALL $360.00 Bid; and $350.00 Ask strike prices. Premium is $6.80 debit to pay = Long Call Vertical Spread on TD Ameritrade https://www.tdameritrade.com/home.page
On the other hand, Mom, if you think that history has taught us that what goes up, must come down and you’re bearish it will go down, try the Expiration Date November 15 – PUT $360.00 Ask; and $350.00 Bid strike prices. Premium is $5.60 debit to pay = Long Put Vertical Spread on TastyWorks https://www.tastyworks.com/about-us.html
Let’s empower all of us Moms and Dads to Face Down the Wall Street bull!