Thread by @borrowed_ideas

1/13 Okay then, I just became $SHOP shareholder. Tbh I don't think it's quite dirt cheap. It seems more "fair" to me (~HSD IRR potential) now than I ever did. So why buy something "fair" when perhaps a fire sale is going in some stocks?

2/13 SHOP makes a ton of sense for me in the portfolio context. I already own $FB, $GOOG, and $AMZN.

FB and GOOG are the super-aggregators. SHOP merchants pay tax to FB and GOOG to generate sales.

AMZN is THE marketplace. Love it or hate it, most 3P sellers gotta be there.

3/13 E-commerce is likely to continue to supersede overall retail sales growth for another 10-15 years. So e-commerce remains a very much secular growth theme.

4/13 SHOP, the one that's counter-positioned to AMZN, is the operating system for e-commerce in North America (and increasingly to the world).

Over time, I expect a sizable profit pool in e-commerce to be shared among these four companies: FB, GOOG, AMZN, and SHOP.

5/13 Post- Covid and SFN related frenzy, investors started embedding high expectations in SHOP's stock price. I was skeptical of SHOP's chances to build the kind of SFN that can be a potent competitor to the incumbents.

From SHOP deep dive (Apr 2021): mbi-deepdives.com/shop

6/13 Now that enough doubts have been cast on SFN, along with the whiplash on growth land, SHOP has come back to a more palatable level to my taste.

7/13 With FB, GOOG, AMZN, and SHOP, I now have exposure to end-to-end in North America retail which was more important to *me*; that's why SHOP makes ton of sense from *my* portfolio context than individual stock picking bet.

I know, I know times have changed.

8/13 So after 50% drawdown, people are *much* more interested in the valuation multiples debate today. Religion, politics, and valuation multiples are three topics I advise people to avoid with strangers. In any case, here's my math.

9/13 Multiples are function of growth, ROIC, and reinvestment runway. I'm using 30x FCF for a company that I'm underwriting ~20% topline growth for a decade. If SHOP can post 20% or more topline growth till 2030, I believe it's likely I'll generate at least HSD IRR here.

10/13 SHOP's take rate is currently ~2.7%. I'm giving Tobi and his team this whole decade to figure out how to increase it. If they can do it, that's great. If not, it may not be end of the world.

Every social-facing company wants to get into social commerce.

11/13 There is one common denominator everywhere. They all want to partner with SHOP's juggernaut of merchants. It's likely SHOP will be able to milk its privileged position in the broader retail operating system to eek out a bit more take rate than ~3%. We'll see.

12/13 Of course, 10 years is a LONG time, and a LOT can change. I'm not forecasting anything here; that's why I'm just expanding my exposure to the overall profit pool of a secular theme that I think is highly likely to sustain.

13/13 Given the pace of this downturn, I started with a small position and hope to scale up if SHOP continues to go down. Do your own due diligence, and happy hunting!

All my twitter threads: mbi-deepdives.com/twitter-thread…