Shopify

[Wildreamz]

As mentioned, operating margins is not yet optimized. Where do you think operating margins will be in 5, 10, 15 years? For reference, mature software companies like Microsoft have operating margins in the 30% to 40+%.

[CY09]

If it is a pure play logisitcs + e commerce in North America, Amazon's E-commerce is the closest. Amazon's operating margin for this is 3-5%.

[Wildreamz]

If it is a pure play logisitcs + e commerce in North America, Amazon's E-commerce is the closest. Amazon's operating margin for this is 3-5%.

Shopify isn't doing Logistics the same way Amazon does, it's way more asset-lite. Also, it's not an online retailer like Amazon (it sells 0 low-margin first party product), it's a mainly a software SaaS. It has a completely different business model as Amazon (an online marketplace and retailer).

[CY09]

Then perhaps paypal which processes payments. Its non GAAP ops margin is about 20-25%. If we include normal line items like staff shares based compensation, my guess is that ops margin according to GAAP will be 15-20%

[Wildreamz]

Comparing it to payment processors seems interesting, because Shopify Payments is venturing into something similar. But then we can also compare it to Visa, with operating margins of 60+%. lol.

If we use an operating margins of 20% and PS ratio of 9.3 (based on yesterday's closing price). We get an operating margin yield of 2.15% or PE ratio of 46.5x on a trailing basis.

Either way, this is just an interesting intellectual exercise, Shopify is still a very dynamic business; whose model changes drastically every few years. These estimation will probably be proven mostly wrong very quickly.

In general, I think current single digit PS multiple is not demanding, assuming a reasonably optimistic growth profile and profitability at maturity.

(vested)

[Choon]

Some time ago, I first read about Shopify been the Amazon killer. An interesting introduction into Shopify by a Shopify employee, for all the "old fashioned" people like me.. 

Alex Danco - Shopify: The E-commerce On-Ramp

- Operating system for online merchants and enabling entrepreneurship.

- Help to interface the merchant with payments, logistics, selling channels or even connecting merchants between each other). Allow 3rd parties to sell apps to their customers (very similar to Apple/Android app stores)

- Amazon is a low trust commerce system. Shopify wants to do high trust commerce systems.

https://www.joincolossus.com/episodes/85...tab=blocks

Shopify helps retailers to create their own e-commerce platforms without the initial investment requirement as it offers wide range of e-commerce platform templates which can be customised to satisfy different branding requirements. Users need to pay only monthly subscription fee to Shopify and use their e-commerce platform to attract new consumers and sell their products. The company offers subscription packages ranging from $29 to $2,000+.

https://seekingalpha.com/article/4472477...ext-decade

- Amazon is a low trust commerce system. Shopify wants to do high trust commerce systems.


Can I think of Tencent's Mini Programs to be like the high trust commerce systems that Shopify is setting out to achieve?

[CY09]

Shopify's main aim is to usurp paypal in payments processing.

It plans to work side by side with Visa/Master/Amex while having its own payment system. In a way, it is similar to what Sea Group is doing in South East Asia.

Here is one description:

https://bsscommerce.com/shopify/paypal-v...omparison/

Currently the TPV of Paypal is $1.25 Trillion, while Shopify's is at about $100 billion. Paypal has reached close to full growth and is only able to command 15-20% margin. Given that worldwide, the market is fragmented, it is possible for a one/two company to rule all, but this is going to be difficult as China's Tencent/Alipay wont want to cede ground, South East Asia's Grab/Sea, South Korea KakaoTalk. Only Europe, Japan and North America is homogenized by Paypal

Apple and Google is joining the battle as well

To me, if Shopify does plan to fight these rivals, it's first incumbent to kill is Paypal. If it succeeds it can command a 90+ billion, 2 times from its current valuation; however this is itself is a tough act because up and coming giants in Alphabet and Apple are making it a 4 corner fight. Among the 4, Shopify is the least equipped. I think its better for them to remain as an e commerce alternative to Amazon. They can try to disrupt but its going cost shareholders a lot of money in its marketing expenses

[Wildreamz]

I have to say, that's not Shopify main aim, which is actually to make commerce easier and better (https://www.shopify.com.sg/about).

Just that in order to achieve this goal, online payments is an adjacent segment that they realize they have to solve for their merchants. 

Their fundamental software business is profitable and has large TAM in and of itself; they do not need to usurp anyone in the pure play payment space, to succeed.

[ksir]

Hi Wildreamz,

Have been keeping my eyes on Shopify for a while.
Tbh, was attracted to them by his founder analogy of Starcraft game:
"when you're playing Zerg, there's something called 'Creep', which is this, I guess you call it like a substance or something. Like it's a sludge that like sort of creeps across the map. And as you cover more and more territory with Creep, you gain an advantage inside that. You gain all these advantages and everything you're doing once you're inside it. And so as Creep'slowly covers the map, the Zerg player will progressively win."

I understand the powerful "progressively win" idea and the creepy Creeps (being a player myself).
But, must be my lack of biz sense, I can't seem to link back that with their value proposition or use case.
I tried imaging below use cases, pretending I were the business owner:
a) Starting a new physical store: Shopify has tremendous value for me, as it let me easily build up my sales platform (POS, payment etc) and they likely also throw me an online store.
b) Starting a new online store: Shopify is an option to me as well but I am also likely to just pick an eCommerce platform such as Shopee, Lazada, Amazon etc (considering where the traffics are).
c) Existing store owner: likely already have existing sales & payment systems, not very sure what is the value to attract them to switch over to Shopify.

In all use cases, I reckon the owner likely has no choice but to open an online store in 1 or many eCommerce platform, considering the traffics.
Hence, I can't really be sure what is the values of Shopify or why the business owner should open an online store using Shopify, because maintaining the store would need some resources as well.

Pretty sure my views still rather shallow and no deep dive done yet, hence would love to hear your thoughts. Thanks.

[karlmarx]

Shopify will have a market because retailers big and small will need an online presence with e-commerce capability. And having your own website is the online equivalent of having your own physical flagship store.

But as noted above, businesses will prefer to market themselves where online traffic is high, and this is likely to be on the established e-commerce platforms. E-commerce platforms may also be preferred because of their integrated fulfilment and payment options. Alongside them are direct competitors such as Wix and GoDaddy. So Shopify customers do have quite a number of options.