shopify - a saul stock which is blisteringly moving higher day by daycap appears to be about 20b (it is hard to tell - this is probably low)they've done a GREAT job with secondaries and should be applauded for itbut cash flow not so much - I had to use Eikon but it shows 2.0m in TTM gross cash flow - TTM gross cash flow has never exceeded 15m at any pointI know the 'reinvest for growth' storyand revenue is up 7x since 2014 (low base - 105m)and each quarter sees sales zooming higherbut it just makes my head hurt trying to understandwhich more and more seems like a waste of timethere is a larger point to be made hereesp if what you care about it stocks going upGAAP accounting is irrelevant now?sales 10x more powerful than net income or even free cash flow?an approach entirely based on exploding sales should be an element of all portfolios?reading financial statements is, on the whole, a complete waste of time (not kidding here)I tend to be pretty simplistic thoughi follow the cash, so reinvestment of cash is something I actually tend to screen outeven if it makes 100% sensebut these examples are so extremeCramer did a bit on the importance of subscription revenue pretty obvious stuff, but having such an amazing impact on valuationsI have a hard time wrapping my head around it
TTM gross cash flow has never exceeded 15m at any point I tried and gave up. Even in a generous scenarios I see the company doing only $25 ~ $50M in cash flow, cap-ex is bit wild card. And the dilution could be anywhere between 5% to 8%.At 100m shares, they are valued at $17.5B for a company expected to $1B in revenue. The cash on the balance sheet is by selling shares, congratulations.I don't see how anyone buying at today's valuation is ever going to make any money. But who knows, this could be another Amazon.
thanksfwiw, i actually looked it up - 102.3m last report but another 9.7+m more in anti-dilutive shares with a strike price long ago exceeded this Q most likely - but i wasn't sure if the count included the latest secondaries; if i were them, I would run a secondary out every six months if this continuesI just wonder if the 'research' I'm doing is irrelevant given results like this...research is such a nebulous term if you aren't roark, for example. I'm a template reader after all.
here is one attempt:Our $160.00 target reflects an EV/Sales multiple on 2019 estimates of ~10.2x or closerto 17.8x on an EV/Gross Profit basis. On EV/Gross Profit, SHOP is trading at 16.0x2019e (peers at 9.4x), but adjusting for growth in gross profit, SHOP looks morefavourably valued at 0.48x versus peers at 0.46x, a metric that likely moves closer toparity with peers given our view that the outlook and estimates look conservative. Wemaintain our Buy recommendation.
I own a chunk, and boy is it now ever expensive. Smack dab in the middle of my 2nd tier of holdings with the JPMs and BABAs of the world due to gains.I think the main question, maybe the only question, is that 'Is Shopify a win-win-win solution going forward?'It seems obvious it's a win for e-tailers and manufacturers [more sales, ease of use, access to customers, new solutions!], the question revolves around does SHOP offer good products at good prices with fast shipping; or is volume dominated by dropshippers and furbie/spinners and the lack of true 'value-add' to the customer eventually kills the valuation.Amazon is the winner it is because of that true Win-Win-Win effect creating the flywheel everyone loves so much who owns the stock. Consumers get that combo of better prices/better service/fast shipping/more selection/instant downloads.Of course, NFLX is a win-win for customers and trades at 234x PE so it's hard to look at these from purely a quant standpoint *if* you want to participate in them. I took my profits a month ago and missed out on another 25% gain, so....I dunno. If/when NFLX stops being a win-win-win scenario as others move their content away and rising comp from DIS/AMZN/other bundles you'd think the valuation will drop significantly so they need to expand as fast as possible.
they've done a GREAT job with secondaries and should be applauded for itYou're right, they've done a good job managing the financial markets. However, that$1 billion or so that's been sitting around for several years now earning about 1% isgetting a little long in the tooth, with no plans in sight for deployment to earnmore attractive returns. On the other hand, SHOP is more and more becoming a lender throughtheir merchant advance program, so they do need reserves.I know the 'reinvest for growth' storyThe company doesn't disclose how much of each dollar of expense is 'investment', and Ihaven't seen anyone attempt an estimate. Nor can I find anyone's guess as to thereturn on that investment. The striking characteristic of this company is it's devotionto meeting customer needs -- which is exemplary...but VERY costly. For example, a customerservice rep hopping in the car to drive across town to show a customer how to do something.There's an assumption out there that *any* firm investing through the income statement justhas to throttle down revenue growth and voila -- profits. First, I think it's misunderstoodwhat it actually means to cut back on growth, and second some of these businesses may havelarger variable costs than others, so I don't think the common wisdom is axiomatic.GAAP accounting is irrelevant now?This problem of valuing asset light firms that invest through the income statement has beenkicking around for a couple of decades now. There are ways to do it -- twenty years agoMcKinsey used Amazon to demonstrate one method -- but it makes my head hurt as well.an approach entirely based on exploding sales should be an element of all portfolios?One could view what's happened with cloud computing in the last ten years as positive blackswan event. It's been admirably exploited (so far) by those who focus on returns but ignoreor minimize alternative histories and the risk of permanent loss.but having such an amazing impact on valuationsThe rich buyouts of some of these firms in the last two years deserve some credit for drivingthese valuations.EV/Sales multiple on 2019 estimates of ~10.2x or closerBessemer estimates 13.7x. See: https://www.bvp.com/strategy/cloud-computing/indexEars <no position>
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