$SHOP: The Backbone of Modern Commerce

Shopify Inc. ($SHOP) is a leading global commerce company that provides a turnkey SaaS platform to start and manage a business.

SHOP is the dominant force in a rapidly growing market.

It has a long runway for value creation.

A thread👇
1/ The Basics

Multi-Channel Front End: Merchants can display, manage, and sell products over 12+ sale channels

Single Integrated Back End: To manage customers and buyers across all sales channels

Data rich reporting / insights

Brand Ownership, Mobile, Scalable Infrastructure
2/ Market Size and Opportunity

SHOP est. SMB TAM: $78B

2020 Retail Spend (eMarketer): Est. $3.9T Ecommerce, $23T Total Retail -> $6.3T / $30T (2024) - 13% CAGR

IDC – Market for Digital Commerce Apps: $4.7B (2019) -> $7.8B (2024) – 11% CAGR

B2C: 67% of global Ecommerce spend
3/ Market Leader

Top 10K Websites: 5.5% use SHOP

Fastest growing online store builder

Second to only $AMZN in U.S. Retail Ecommerce

Most searched Ecommerce solution: 2.6B Google searches (5.7x the nearest competitor)

31% market share of websites using ecommerce tech in U.S.
4/ Industry Trends (Benefit SHOP)

1. Accelerating Ecommerce growth (above)

2. Customers utilize multiple sales channels; merchants need multi-channel approach

3. Direct-to-Consumer (“DTC”), digital native brands (“DNB”) – DNBs grew sales at 29.5% in 2019 vs. 17.6% for non-DNBs
5/ Competitive Advantages

1. High switching costs ->

- Land & Expand (upsell / cross-sell) ->

- Increases stickiness, ARPU, & LTV

2. Fulfillment Network

3. Easiest platform to use

4. Largest app store

Flywheel: More merchants -> more app-developers -> more platform usage
6/ Q2 2020 Financials

Total Revenue: $714.3MM (+97% YoY)

- Subscription: $196.4MM (+28%)
- Merchant: $517.9MM (+148%)

MRR: $57MM vs. $47.1MM (+21%) - 46% CAGR past 5 years

Adj. Gross Profit: $381.4MM vs. $207.3MM (+84%)

Adj. EBIT: $113.7MM (16% margin) vs. $6.4MM (2% Margin)
7/ Operating Leverage & Metrics

GMV : $30.1B vs. $13.8B (+119% YoY)
- Retail merchants grew online store GMV by 73% over Q1

GPV: $13.4B vs. $5.8B (+131%)
- % of GMV: 45% vs. 42%

Scale - OpEx Margin: 37% vs. 56% (+1900 Bps) ->

Massive Operating CF growth: $165.2MM vs. $23.1MM
8/ Shopify Fulfillment Network

June 2019: Announced $1B 5-year plan to build & operate

- Network across U.S. to ensure faster & cost-effective delivery

- Utilize ML to improve supply chain economics and logistics

Acquired 6RS ($450MM) for warehouse automation - expands TAM
9/ The Ecosystem

Network effects of platform drive further growth

App Developers: 4,600 apps in App Store

Designers / Partners: 30,300 have referred merchants over past year

Partner Ecosystem -> Merchant Growth -> Devs create more apps -> Platform improves -> Partners refer
10/ Management

CEO & Chairman Tobi Lutke (co-founder) is one of the best leaders out there.

Comp structure ensures shareholder alignment

Governance: Dual-class share structure, but Tobi only has ~34% of voting power (checks and balances)

Developed premier company culture
11/ Risks

High Churn: Not a real risk – churn is from $0 sales customers. SHOP is very sticky once 1st sale is made

Int'l Growth: Established players lead in non-1st world markets (WooCommerce, Magento, OpenCart)

Further Ecommerce Disruption: VR/AR? SHOP is planning for it.
12/ Conclusion

SHOP is the best turnkey commerce platform in the world

Growth fueled by network effects

EV / NTM Sales: 36.2x is top 5 in SaaS space

Multiple shouldn't expand - fundamentals will drive stock appreciation given superior business model.

I do not hold a position

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Or from my newsletter: seifelcapital.substack.com/p/crowdstrike-…

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