"No guidance for what healthcare should cost with or without insurance" -Co-CEO Doug Hirsch
Leads to higher costs so that in USA:
-2/3 avoid care entirely
-20-30% of scripts are left at counter
-25% have no doc
Resulting unfortunate consequences:
For us: American dies every 4 mins from not taking prescribed medicine as directed
For Health system: 30% of ER visits could have been treated in other care settings. ER visits are expensive for all parties.
For pharmacies: Loss of sales
The opportunity: "Inefficient, massive market that Americans have no ability to navigate... what’s true for prescriptions is true across healthcare." -Hirsch
Enter w/solutions driving "script adherence, faster treatment, & better outcomes" thanks to broader access
The size of the opportunity: $800B
-$524B TAM prescription opp
-$250B TAM telehealth opp (thanks @heydoctorco)
-$30B TAM pharmaceutical manufacturer opp
: "Category-defining products delighting users for years" to capture market via:
1) reducing script cost by 70%+ 2) enabling users to see doc to fill script remotely w/in hour 3) serving 150 conditions 4) growing telehealth offerings 5) script delivery
Saved Americans $20B to date on healthcare & made scripts newly affordable for 18M Americans! 👏👏
Description of Manufacturer Solutions business:
Pharmaceutical manufacturers provide discounts via co-pay cards & assistance programs.
partners with them to integrate and market these solutions on the platform.
Description of GoodRx Gold Subscriptions:
Savings program for $5.99/person or $9.99/family for more savings.
90% savings off standard list prices
Mail order feature at no incremental charge.
Subs contribute 2x more to the top line for
Subs up 15x from 2018 to 2020
Not just consumers benefitting:
1) Pharmacies gain traffic from consumers now able to afford medicine
2) Healthcare professionals are judged by patient outcomes which is directly improving with access and affordability
3) And yeah we save a ton 🙂👍
More subtle edges:
-Leader in scale & brand awareness for aggregating script pricing
-Scale coincided w/more savings for customers (4M+ monthly users)
-Combination of pharmacy savings & @heydoctorco telehealth service driving care access
-4.8/5 app score thanks to a great UI
Impressive growth:
-CAGR of 57% since 2016
-2019 revs up 55% to $388M
-Revs up 48% 1st half of 2020 to $256M
-Most downloaded health app on app store & Play app store for 3 yrs
Mouth-watering operating leverage:
-2018 op margin: 31%
-2019 op margin: 36%
-2020 1st half op margin: 38% 👀
-2019 op CF: 83M up 84% YoY
-Generated 83M in op CF already this yr
-100M in FCF 1st half of 2020 up 257% YoY💪
-2019 NI up 50% to $66M
-NI up 77% 1st half of 2020
Threats:
owns @PillPack. This is direct competition for the pharmacy biz.
is a telehealth giant. @Amwell another going public. There are many more.
& could theoretically do this themselves but it has been 10 years so...
Leadership:
Founder led! Woohoo!
Doug Hirsch co-founder & co-CEO. Previously with @Yahoo &
Neither has larger than a 15% share of pharmacies in USA.
would have to aggregate 16% of pharmacies to build a competitive moat neither party could match alone.
has 68% of pharmacies on its services today. 🙂
Decided I will be adding to this on day 1 if the valuation comes in below $15B. Most recent raise was @ 2.6B but ya never know... lot of excitement for this one. 🙂
And completely forgot:
@jablamsky note on gets the credit/procuring cause for this thread/opinion. Thank you!
Last thing I promise (told you I was a stock market nerd🙂🤷♂️)
Took me less than a minute to create an account after I downloaded the @GoodRx app to start comparing prices on random scripts.
I can see why the app scores are so high.
Eventually long
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Everything you need to know about $SHOP's Investment Case, Prospects & Risks:
1. Introduction
The year was 2006. A passionate coder by the name of Tobias Lütke wanted to find a new snowboard online. While sifting through options, frustration set in as a seamless ability to locate compelling products simply did not exist. Determined to fix this, Lütke embarked on a journey to build his own online snowboard shop.
Some 17 years and $60+ billion in market cap later, that idea would blossom into the foundation of an online store builder for any merchant wanting to run a business. What started as a singular dedication to remove snowboard purchase friction has transformed into a core mission to tear down the barriers to entrepreneurship for businesses of all sizes.
Lütke set out to trail-blaze a means to “arm the rebels” with all needed commerce tools -- all under one roof, all with one interface and all hassle-free. This work gave way to the birth of what he hopes will be a “1,000-year company” and what he calls “the best idea he’ll ever have.” It gave way to Shopify.
Here, I will explore all there is to know about Shopify’s business model and investment case -- the good and the bad. After finishing this article, you will be an expert on the company and will be able to answer virtually any question thrown your way. More importantly, you’ll be able to assess new developments from an informed position. We’ve read every report, every earnings call, every transcript, every leadership interview and every single piece of relevant information that I could find. We’ve condensed it down into an intricately synopsized view of Shopify’s business, prospects and risks. This is a real deep dive. I hope you appreciate it as much as I enjoyed creating it and I encourage you to share it far and wide. Let’s begin.
2. Basics
2a) Product Philosophy & General Differentiation
Shopify makes it easy for merchants -- large and small -- to thrive online with near-endless scalability. It provides the support, integrations, and ease of use to ensure businesses have access to any & all needed functions across their daily operations. These tools are readily available and deployable on the Shopify Admin for an overarching view of a business across all channels of selling. The Admin is the back-end that unites all disparate areas of business into a perfectly harmonized birds eye view of everything that matters to a merchant. This allows for more effective and contextualized decision making and enables those decisions to be pushed to all selling surfaces where a merchant presides. Importantly, decisions are easily synced with the front-end (what the consumer sees) in a way that always reflects their own brand.
Shopify’s general product categories are meant to remove pain points associated with enterprise maintenance and growth. The more headaches it solves, the more valuable it becomes. It obsesses over being a merchant’s “more important piece of software” by facilitating powerful ease of use. Specifically, its general product categories are split into two well-defined buckets: Subscription Solutions and Merchant Solutions.
It does serve many large enterprises, but the suite and mission were originally incubated for smaller merchants to offer them the same enterprise-level utility previously reserved for the behemoths.
Shopify’s unique value proposition comes from a few places. First, it boasts the scale-based benefits of selling through an aggregated marketplace while granting complete authority over brand and data. Merchants enjoy a win-win not typically available: More demand and total control over customer relationships. No longer must a business choose between one or the other. Merchants get it all while enjoying several unique perks that Shopify’s economies of scale (10%+ share of U.S. e-commerce volume) allow. Why does this matter? Marketplaces routinely withhold consumer data and compete with successful products via white-labeled knockoffs. Shopify doesn’t and, in turn, avoids a real conflict of interest while building trust.
Ensured scalability guarantees that merchants can handle holiday spikes and flash sales with confidence that soaring volume will not crash the site or foster latency. Competing web builders deal with frequent crashes which is actually a material source of lead generation for Shopify.
Singular interoperability is another real selling point. Because all Shopify products tie perfectly back to a centralized Admin, the tools are cohesively amassing data to make all products work better together than they do in isolation. More relevant data means less guessing and more effective strategizing. For a specific example, demand data can be used to more accurately guide inventory reordering and marketing investments. It calls this product silo unification its “Commerce Operating System.”
Furthermore, Shopify features a light-weight suite of Application Program Interfaces (APIs) providing seamless integrations between all Shopify apps as well as 3rd party apps (more later).
Shopify intentionally designed its business to ensure it only does better when its merchants sell more. This selling translates into more gross merchandise value (GMV) on which Shopify commands a take rate. So? It is solely focused on helping merchants thrive. That’s why it never knocks off a product like Amazon or Costco and never opaquely siphons off needed customer insights for itself. There’s no reason for Shopify to do so which is the beauty of this model.
2b) Developer Partner Philosophy
The breadth and extensibility of the firm’s product suite relies on a vibrant community of developers motivated to build in Shopify’s Developer Environment. These partners round out Shopify’s offering with niche tools to ensure merchants can have whatever they want, however they want, and in a simplistic manner.
“Partners make Shopify better by extending our API functionality so merchants can customize stores to meet unique needs.” -- President Harley Finkelstein
In terms of what Shopify offers itself vs. what it uses developer partners for, there’s an easy rule of thumb. If the use case is needed by most merchants, Shopify will build it. Less commonly used software is usually delegated to partners. This delegation not only extends the tooling that Shopify can provide, but it also serves as a strong source of referral-based lead generation to reel in new merchants.
To help partners sell more through Shopify, the company debuted “Built for Shopify” in 2022. This program comes with a slew of new tools and authorizations to craft developer apps in ways that “look and perform like they’re natively part of the overall platform.”
It’s clear that Shopify fixates on being a rewarding place for these developers to work. Specifically, its partners make $7 in revenue per every $1 that Shopify collects. As of 2022, Shopify developers earned 1.5x more than Apple developers and 4x more than Google developers for the same amount of work.
Unsatisfied with this tangible edge, Shopify doubled down. In August 2021, it removed all revenue share for developer application and theme sales for their first $1 million in revenue. This figure resets annually and means most ecosystem partners pay nothing in app store fees. Quite the refreshing dichotomy vs. Apple and Google. As part of this news, Shopify lowered its take rate on revenue beyond the first million from 20% to 15%. The glass half full view of the change is that Shopify is deepening the value that it offers talented, scarce software engineers to augment the quality of its platform. It’s better incentivizing them to build integrations and use cases for its ecosystem vs. others. The glass half empty view is that this is a necessary move to better compete with other app stores to win developer time and attention. There’s likely truth to both arguments.
While Shopify readily caters to and supports its vibrant partner network, it can be a vicious competitor when need be. It has shown a willingness to cut ties with underperforming partners and to vertically integrate services that it thinks it can do better. For example, in the last few years, it ended its relationship with Kabbage to internalize more of its loan suite and moved on from Mailchimp as it realized it could deliver better marketing tools to merchants on its own.
Shopify’s first revenue bucket -- called Subscription Solutions -- centers on website building. The core of the infrastructure was created through a popular open-source platform called Ruby on Rails. There are 4 established tiers ranging from $39 per month all the way up to $2,000 per month. “Basic” is the cheapest plan, followed by “Shopify”, “Advanced” and “Plus.” Very recently, it added a “Lite” plan as a bare-bones package for start-ups and a large enterprise tier called Commerce Components by Shopify (CCS) -- discussed later.
More expensive plans provide capacity for additional staff accounts, more trackable inventory locations, and heavier discounts on other products. For example, there’s a 2.9% + $.30 processing fee for basic plans with that take falling to 2.6% for the Shopify plan, 2.4% for the advanced plan and even more for Plus. Basic merchants also get up to 77% shipping label discounts while more premium tiers can tap into upwards of 88% discounts.
3b. Subscription APIs to Build Merchant Stores
This bucket creates value by allowing merchants to enjoy beautiful, unique online stores to easily sell direct to consumer (DTC). Facilitating this powerful granularity is a suite of Shopify APIs. These APIs are how developers customize merchant shops, how tedious integration work is sidestepped/automated, how apps are built and how data is queried (or pulled) to populate sites with information. Simply put, APIs are an imperative vehicle used to actually build on Shopify. Merchants see only the finished product, not the product creation process.
All of Shopify’s competition relies on APIs to power functionality. It’s the sheer diversity of Shopify’s that creates a subtle point of differentiation. In total, the firm has a few dozen of them for inventory, webhooks and every other product that we’ll cover in this piece. Most notably, there are two core examples to call out for subscription solutions:
First is the Storefront API. This product allows developers to access and personalize store layouts for merchants. It facilitates custom checkout flows and more.
Importantly, Storefront API leans on Graph Query Language (“GraphQL”) to provide a real-time data connection channel. This means stores are constantly fed needed information to fill out descriptions and glean operational insights. Facebook created GraphQL for mobile applications so that developers could precisely select ONLY the data they required. That rigor inherently diminishes cost and complexity and Shopify is taking advantage. Apps cannot be effectively leveraged without scalable data querying. With no data, gorgeous Storefront API designs would be “just another pretty face” devoid of all needed details. Customization is peanut butter and data is jelly. Shopify’s integrations and APIs are the freshly baked bread bringing these two ingredients to life.
Shopify’s GraphQL-powered APIs like this one are often used alongside a JavaScript library called “React.” There are alternative libraries, but this is the most common here. In essence, React provides pre-built, recyclable features to expedite store design. It allows developers to customize without starting from scratch every single time.
The second subscription-focused API to highlight is the Admin API. Where the Storefront API powers front-end customization, the Admin API powers the back-end. It also plugs into React’s library, but doesn’t utilize it all that frequently as React is typically for front-end tailoring.
Like the Storefront API, the Admin API leans somewhat on GraphQL web building architecture. Differently from Storefront API, the Admin API heavily utilizes an alternative building approach called “RESTful API.” RESTful stands for Representational State Transfer. It allows for a different style of data querying via developers pre-setting parameters and protocols to populate an app which often works better in back-end environments.
Finally, unlike the Storefront API, the Admin API allows developers full ability to tweak and manipulate data. This means they must secure needed permissions from merchant clients before building on their behalf. The Storefront API doesn’t permit this as populated data can be read but not altered.
3c. Online Store Building
Shopify developers predominately author store themes through two template languages: Liquid and Hydrogen. Template languages are used to build store designs; APIs equip these designs with custom use cases and data. Both are vital.
There are a few template language hurdles: Merchants generally aren’t tech-savvy coders with bountiful software engineering experience or large rosters of internal builders. Secondly, developers are selling directly to these non-tech-savvy merchants through Shopify’s app store. This means easier app onboarding leads to more sales and more developer focus on building for Shopify.
To address this reality, Shopify debuted Online Store 2.0 in 2022. There are two main purposes behind this update. First was to trim latency-fostering redundant infrastructure and second was to remove the rest of the instances when merchants were required to code. Put differently, it was to make everything easier. So how does it work?
With Online Store 2.0, layouts are split into small app blocks which can now be dragged and dropped as if they were puzzle pieces. Vendors like SquareSpace and Wix have long offered this style of design which Shopify now does too. Under the old building model, this level of malleability was only available on welcome pages. Now it’s available throughout stores. This is one of the many ways Shopify is lowering the barrier to entrepreneurship by making store building as easy as playing with Legos. Less stressed merchants, and more successful Shopify developers. That’s online store 2.0.
App Blocks Defined: Use cases that are portrayed within applications to augment customization and utility. They’re a force multiplier for developer efficiency by allowing them to build tools on top of pre-built code. App blocks are how merchants add custom perks like flash sales or rank shipping options by carbon footprint.
Merchants now create store layouts with a tool called Metafields. Metafields serve as no-code layers of more sophisticated customization. They allow for tweaking things like product and order flows at the company-specific attribute level. They enhance the amount and depth of data storage that can be enjoyed through the Admin. Effectively, Metafields make querying and customization easier, more relevant and less intimidating for merchants. Shopify stakeholders use them to enhance the customer shopping experience or to better grasp back-office operations. Previously, and still occasionally with Shopify’s competitors, data and apps had to be manually hardcoded into themes with clunky integrations. That headache is now completely gone.
Online Store 2.0 includes a brand-new reference theme (bare bones theme applicable to most businesses) called Dawn. The theme loads 35% faster than its predecessor called Debut. Just a 10% improvement here fosters 7% higher merchant conversion (per Crazy Egg), so this advantage means 24.5% higher conversion.
3d. Liquid vs. Hydrogen Template Languages
I briefly discussed how Shopify offers two template languages -- Liquid and Hydrogen -- to support developers. But what’s the difference and why are both needed?
Liquid is a Ruby on Rails-powered Shopify development format. It’s purpose-built to facilitate commerce design by intelligently surfacing assumptions and recommendations to expedite work. It also boasts a roster of templates to be utilized for faster app construction. It is the language and style of building that Shopify’s partners have used since the company’s inception. But now there’s a new option.
Hydrogen is Shopify’s newer developer kit used to power what’s called Headless Commerce. It’s built through Shopify’s acquired open-source web-development language called Remix rather than Ruby. It provides the same no-code customization as Liquid, but with a few key differences.
Headless Commerce (utilized through Hydrogen) Defined: Headless Commerce means the separation of the front-end (what consumers interact with) and the back-end (tools merchants use to manage operations).
Headless Commerce is how Shopify allows merchants with unique requirements to further customize without needing to build from scratch. Simply put, it means deeper customization without forcing Shopify to conduct pricy custom builds (which it won’t do). Now Shopify can emulate the added granularity some merchants want. It gives clients with more in-house developer resources the freedom to create what they want and how they want it. Notably, Hydrogen is one of the ways Shopify is securing larger merchants which routinely have more customization wants.
Headless Commerce development separation means expedited user experience (UX) customization. Why? Because the more configurable front-end does not need to wait for changes to be reflected in the back-end. Rather than waiting, Shopify uses the Storefront API as a bridge to communicate changes between ends to ensure they’re eventually accurately reflected. This allows interface and back-end developer teams to work in parallel without stepping on each other's toes.
The detachment allows for faster page loading since the front-end is not tied to the slower back-end’s bulkier processing requirements. This frees real-time front-end rendering as store edits take place -- something Shopify calls “progressive hydration.” Under this format, whenever a customer shopping on a Hydrogen-powered site activates a front-end touchpoint, the Storefront API sends that info to The Admin. This occurs without the customer seeing anything but a pretty user interface (UI).
The added layer of separation is used by merchants to power incremental store granularity. For some examples: Ilia uses Headless commerce through Hydrogen to perfectly match shopper skin tone with makeup shade. Using this style of build helped it lower site bounce rates by 10%. Bols used it to reduce disparate app integrations and workarounds that were slowing page load times. With it, those load times fell by 50%.
Allbirds launched with Headless on their mobile app in under 30 days. They were so pleased that they’re now embarking on a multi-year journey to move their entire software ecosystem to it. Patta & Tommy (Hilfiger) used it to add animation and HD video to their site with ultra-fast load times despite soaring bandwidth. It used Hydrogen to sidestep a tradeoff between more beautiful stores and lower latency to boost shopper conversion. In the right scenario, a Headless Hydrogen build can be an invaluable part of a merchant’s operations.
All Hydrogen stores run through Shopify’s back-end server called Oxygen.
So why don’t all merchants use Hydrogen? First and foremost, it’s more expensive. Most merchants do not have the customization needs or resources to justify going with Hydrogen. For them, Liquid works. Liquid is quicker to set up and, on Shopify, boasts more than enough adaptability for most merchants. Finally, Headless builds receive less support as they include external code not natively supported by Shopify’s architecture. Consequently, merchants are more on their own when building with Hydrogen.
3e. Powering Lower Total Cost of Ownership
Web-building is highly competitive. Shopify wins by creating more value while cutting total cost of ownership (TCO) and powering delightfully convenient shopper experiences. This source of differentiation is quite abstract, but fortunately there are many customer case studies to quantify this edge vs. competition:
3f. Catering to Larger Merchants
Shopify’s mission to “arm the rebels” explicitly implies its bread & butter niche of smaller merchants. Interestingly, it has positioned itself, especially over the last few years, to be a more legitimate and valuable large merchant vendor as well. Now, it’s arming the rebels AND the generals. By serving larger merchants, Shopify enjoys brisker revenue ramps, better retention and more up-selling of ancillary products.
Shopify Plus:
Shopify Plus is the enterprise level subscription package directed at larger merchants. There are nearly 30,000 Plus stores in circulation per Builtwith. This package debuted in 2017, but really took off when Shopify accelerated investment dollars there in 2019 and went global in 2020.
The original utility creator for Shopify Plus had been allowing all selling channels and geographies to be run through one singular Admin rather than individually. Today, this perk is available for all Shopify subscription levels which follows a typical company pattern. It elects to siphon off material pieces of its suite for only Plus merchants to motivate upgrades. Over time, when these exclusive tools become more table stakes throughout commerce, it opens the products to lower subscription tiers. Considering the roster of brands and celebrities like Tom Brady (Go Blue), this approach is working:
“The cool kids all built successful direct to consumer (DTC) businesses on Shopify. Large retailers are now trying to look like the cool kids.” -- Chief Commercial Officer Loren Padelford
Plus merchants enjoy even cheaper access to card interchange fees and discounts across other products. Customers also enjoy higher transaction limits and more seamless onboarding. For example, Kraft Heinz stood-up a brand-new online DTC store through Plus in just 7 days for its first foray into digital selling. With other vendors, estimated time to build was several months. Beyond the speed to market, discounts, and other perks, there are a few incremental services to highlight that deepen and cultivate Plus’s unique proposition.
Shopify Scripts is one of the main value creators exclusive to Plus merchants. Scripts elevates user experience (UX) customization on a deeper level via things like fulfillment ranking by fragility or setting discounts based on shopper frequency and bounce rate probability. Other useful examples include promotion offering on an individual shopper basis or separating customer segments by a certain variable to target advertisements. It’s not no-code but is relatively low code.
Shopify Flow, which was exclusive to Plus merchants until late last year, is a tool to seamlessly automate Scripts creation. Put simply, while Scripts is a tool to “build incremental back-end custom logic,” Flow is a close complement that frequently pulls from this logic to automate the workflows that it innately creates. All customizations are easily deployed (in a no-code manner) to stores via Metafields.
Beyond these tools, Shopify Markets Pro (its cross-border automation tool explained in detail later) and Business to Business (B2B) selling as a full service channel are key selling points.
Ask 5 different bright people, & you'll get 5 different answers.
It comes down to your personal approach, risk tolerance & style.
There is no 1 fits all approach...
But here's a thread on the approach that fits me:
1a. When to Sell?
We constantly discuss fundamental research as the basis for justifying an investment. But when is it time to sell?
While the answer to this question is highly subjective, we do have our opinions which we will briefly share in our typical long-term investing point of view.
1b. When I Exit a Position
The decision to continue holding a company and allocating time, energy and money to the business must be emotionless and rational. Investments do not deserve our loyalty and certainly don’t deserve our unconditional love. They don’t care about you or me. Falling in love with a stock is a great way to let bias interfere with a calculated sell or hold decision.
So what’s involved in cool, calm and collected decision making? It all starts with identifying a stock with a solid bull case and learning it. Knowing the prospects, performance, and execution is the only way to judge a stock. It’s how I can know when an investment case is deteriorating or if things like sentiment are simply turning irrationally negative.
So? It’s the only way I know if overly negative price action is to be approached with greed or caution. If we are relying on an incomplete argument to support a buy or hold decision, we leave ourselves extremely vulnerable to approaching alpha-fostering price action with anxiety rather than opportunism. In sum, determining when to sell is as simple as identifying if there is a broken stock, or a broken company.
a. Fulfillment
- 50%+ of Prime Member orders fulfilled same or next day in 60 largest U.S. markets
- 2Xing footprint of small warehouses following service & cost benefits realized.
- 60% of sales from 3P sellers for new record (higher… https://t.co/09casgTEVAtwitter.com/i/web/status/1…
2. $MSFT
a. Cloud
- Workload optimization ongoing but did not worsen Q/Q.
- Won KPMG cloud contract.
b. AI
- Azure AI 100 new customers/day
- 27k customers using GitHub CoPilot +100% Q/Q
- CoPilot to be infused across all products.
a. Ad demand
- demand improving on YouTube & Search.
- New Gen AI model for conversational campaign creation.
- debuted 30 second non-skippable YouTube Ads.
b. Cloud
- 70% of Gen AI unicorns are GCP customers.
- Gen AI cloud customers up 15x Q/Q (small base).