Fact #1: I’m a fan of Shopify Inc (NYSE:SHOP).
I’m so confused about this stock right now that the best thing I can do is look to others for guidance.
Understanding Shopify’s peers, their business models, and how they make or intend to make money is critical to me in deciding whether to remain a fan of this fast-growing e-commerce company.
Here in no specific order are the three businesses I believe can help me make up my mind about Shopify stock.
The Israeli-based company started out helping small businesses build websites but moved into the e-commerce arena with its Wix Stores platform that allows users to operate an online store that’s integrated into Wix’s other components, including Wix ShoutOut which enables small businesses to carry out social media and email marketing campaigns.
It might not have the e-commerce capabilities that Shopify does, but it gets the job done at a fraction of the cost. In 2017, Wix.Com Ltd (NASDAQ:WIX) integrated its products and services with Square Inc (NYSE:SQ) allowing its more than 305,000 e-commerce subscribers to accept payments online and off.
Like Shopify, Wix has yet to make a profit, although on a non-GAAP basis, it did generate an operating profit of $3.4 million in Q3 2017.
For the entire fiscal 2017, it expects revenues to grow 46% year-over-year to $424 million with free cash flow of $69 million, 91% higher than a year earlier.
By comparison, Shopify expects revenues to be $658 million for fiscal 2017 with an adjusted operating loss of $1.5 million.
Although Square started out with a card reader processing payments, it’s since moved into many different areas of business including lending money for growth capital.
It too loses money on a GAAP basis but continues to move closer to the promised land. In the meantime, you can expect adjusted revenue growth of 41% in fiscal 2017 to $966 million with 14% adjusted EBITDA growth YOY to $135 million.
Square and Starbucks Corporation (NASDAQ:SBUX) parted ways in Q4 2016, hence the reference to adjusted revenue growth. The partnership wasn’t a profitable one for Square, so investors needn’t be concerned about the lower revenues moving forward.
I must admit that even though the Chinese e-commerce company is partially owned by Alibaba Group Holding Ltd (NYSE:BABA) — 9.5% of the votes and 16.5% of the common stock — it’s easy to forget about this small piece of the house Jack Ma built.
A big difference between Baozun Inc (ADR) (NASDAQ:BZUN) and the other companies in this comparison is the fact that it’s profitable on a GAAP basis, while the others aren’t.
For the trailing 12 months through the end of September, the company’s revenues were $582 million with $22 million in operating profits.
I’d be more inclined to buy Alibaba’s stock, which I’ve recommended on many occasions, because it gives you all of the exciting things Ma’s working on while still owning a piece of a growing e-commerce platform some call the Shopify of China.
Bottom Line on Shopify Stock
Shopify earnings in Q3 2017 were excellent. I understand the concerns Taulli has about Shopify’s inability to mount a proper defense of its business model and legitimacy of its customer base.
Andrew Left is supposedly coming with further evidence that will damage the reputation of Shopify and Shopify stock, although the timing of when this information will be released is unknown.
Having considered Wix.com, Square and Baozun, my advice to anyone leery of the rumors hanging over Shopify’s head would be to buy Square until this battle between Left and Shopify sorts itself out.
If you don’t see any merit in what the short seller’s saying, I would probably buy Shopify stock before Square, but Taulli’s definitely got me second guessing.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.