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© 2023 by Troy Springer

Shopify Story

June 20, 2019

In October of 2016 I pitched Shopify for a finance project in college. I argued that Shopify was powering the emergence of microbrands being marketed through new channels like Instagram. Looking through my slides from 2016 and where Shopify is today, Id say I was pretty spot on with my analysis. Shopfiy made me a lot of money after buying in the 30s and I sold out of my position at $180 when I believed the valuation started not making a lot of sense.


Today Shopify hit a 52wk high of $328.8, on news Shopify is rolling out their own fulfillment service. While I believe this is great for Shopfiy’s merchants, and may help them compete with Amazon I question whether this development will actually will be a value accretive activity.


per WSJ:


Shopify said Wednesday that its new service uses machine learning to forecast demand, allocate inventory and route orders to the closest fulfillment centers. The company is working with logistics providers and software companies in Nevada, California, Texas, Georgia, New Jersey, Ohio and Pennsylvania.


“Our aim is to make fast and inexpensive shipping the new standard on the internet,” said Shopify Chief Product Officer Craig Miller.


Shopify appears to be taking advantage of the current hype around the company in releasing this news, throwing out the typical buzzwords like “machine learning” and the market is eating it up. However I am going to pump the breaks on this idea. What they are essentially doing is moving away from a highly profitable business in software and moving to money losing business in fuillfitment, just ask Amazon how much money they are making from 2-day shipping. 


Shopify’s smaller size merchants by nature will be more distributed with less volume than your typical Amazon or Walmart supplier. I don’t see how Shopify will be able to play in the 2-day shipping market with much less scale, centralization, and infrastructure than an Amazon or Wal-Mart without enormous investment. Perhaps Shopify will get paid more by their merchants by providing such a service, but id have to expect this will severely impact Shopify’s profitability for the next several years.


Even if Shopify is able to execute on their Amazon-like business model,  you would be hard pressed to do well in Shopify over time at these prices. If we compare the P/S of Amazon over time to Shopify the historical precedent would seem to indicate that buying Shopify at over 30X sales is likely to not pay you back for a long time, and that is assuming Shopify is able to execute as well as on of the most successful companies of all time.


Note: this chart would look a lot better if I could get in a log scale, so keep that in mind.




I think it is safe to assume that multiple expansion in Shopify now at 30X sales is not sustainable. Shopfiy will have to grow sales at an absurd rate to continue to drive returns from here. It is worth noting that when I originally pitched Shopfiy this was a 3.5B company trading at 7.5X sales. This is now a 36.5B company trading at 30X sales.


I currently own put spreads on Shopfiy with a 2021 expiration date.  

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