One hallmark of a frothy market is how companies keep rising — even after being called out — because new money keeps coming into their market.
Shopify Inc. (US) (NYSE:SHOP) is Exhibit A here. The company has gotten another packet of buy orders, rising 10% since the start of the year, just on analyst optimism.
Some of that optimism has come from InvestorPlace writers. Will Healy had called $100 per share the bottom of its trading range, and that it turned out to be. Vince Martin predicted new highs, and those highs have come. Lawrence Meyers compared it to eBay Inc. (NASDAQ:EBAY), in that it doesn’t take ownership of the goods it sells.
All this is true. But the company has yet to make money, and is expected to have lost another 12 cents per share when it reports again February 14.
What’s Not to Love?
Losses aren’t all that concern me.
We’re now nearly three months from a Citron report that called Shopify a “get-rich-quick” scheme, a marketing pyramid like Herbalife Ltd. (NYSE:HLF), which settled charges with the Federal Trade Commission in 2016 yet continues even today to defy short-sellers, with a current price of nearly $70 per share.
The Citron charges reveal that Shopify has something in common with Bitcoin. It is a global bubble, seemingly immune to any national government move against it. Shopify, like Bitcoin, is selling dreams to a global audience that desperately wants to believe.
The dot-com bubble of the 1990s was mainly an American phenomenon. Small American investors got burned, and many have never come back to the market. Shopify is a global phenomenon, and the world is filled with opportunity-seekers.
I met some of these people in the heat of the dot-com days. They don’t have products, they don’t have follow through, but they’re hungry for the success they perceive others have. They want to get rich quick on their gifts of the gab, and believe someone else can show them how so all their dreams come true.
These are the people Shopify is attracting, all over the world. They’re claiming they have 500,000 customers. Do you think these are 500,000 successful merchants?
I don’t.
How Long Can Shopify Stock Keep Going On?
Asking how long this can go is like asking how long bitcoin can go, or asking, in 1999, how long Pets.Com could go. Bubbles have their own psychology. They tend to rise until some event demonstrates their limits, as with the AOL-Time Warner merger, now 18 years in the past.
What’s a bitcoin worth? What’s a Shopify referral worth? And what’s Herbalife worth? The top price for any of these things remains unknowable. As long as this remains true, speculators will bet it’s higher than it is now.
Our Joseph Hargett put a poignant headline on all this last month: Shopify is worth all the danger now. Hargett, who was bullish on the stock in October, was by December recommending only options strategies for Shopify bulls, fearful that the FTC would act on the Citron charges.
It’s that little frisson of fear that marks a bubble near its peak. It’s different from the fear you see at the start of a bull run, a fear that the economic motor can’t be restarted. And it’s a fear that someone is getting away with something, and that the someone might as well be you. Why should someone else be the Wolf of Wall Street? Why not you?
My late father was like that, and there was a reason he never grabbed that brass ring.
He was, deep in his heart, an honest man.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
