Shopify Inc’s Problem Is It’s Still Not Making Money

Advertisement

Shopify stock - Shopify Inc’s Problem Is It’s Still Not Making Money

Source: Shopify via Flickr

Shopify Inc (NASDAQ:SHOP), the e-commerce software merchant, has a problem.

No matter how it grows its revenues, its expenses grow just as fast.

Look at its 6-K report, which as a Canadian company it files in place of the 8-Ks filed by U.S. companies. It shows revenues of $222.8 million, nearly double the previous year’s $130 million, and a gross profit of $121 million. But somehow its sales, administrative and research costs ate up all that money, and a little more, creating a loss of $6.4 million.

For the year, the net loss of 42 cents per share was precisely the same as it was in 2016, even while revenues grew 74%.

It’s the top-line growth that is powering the stock, which is up 118% over the last year, 33% just since the start of 2018, and opened for trade February 23 at $136 per share. Shouldn’t the bottom line worry someone?

Look, More Shopify Stock

Shopify stock fell after those numbers were released but quickly rebounded, and are due to open for trade close to the level it was at before the earnings were released.

While you’re considering that, now consider that Shopify today is issuing more stock — more non-voting stock. Some 4.8 million shares are due to be issued, at a price of $137 each, raising $657 million after underwriting costs.

The local press sees this as good news. Insiders like CEO Tobias Lutke are still not selling in these public offerings.

There is more good news. Apple Inc. (NASDAQ:AAPL) CEO Tim Cook was recently at the company’s Toronto offices, touting the future of augmented reality and virtual reality, including a demo where he got to “see and touch” an iPad that was being offered by a Shopify employee acting as a merchant.

“I’m a big fan of Shopify,” said Cook. That’s publicity that is hard to buy. Since his January 23 visit, the stock is up 12%.

Time Running Out for Shopify Stock?

Still, time may be running out for Shopify to impress analysts with a profit. Half are still saying buy the stock  but they’re also expecting the company to be making money by the end of this year, 10 cents per share, and 52 cents per share of profit for next year.

I’ve been down on Shopify for months, ever since Citron Research, which does research for short-sellers, issued a report comparing it with Herbalife Ltd. (NYSE:HLF), a multi-level marketer.

Of course, Herbalife has won that bet. Hedge fund investor Bill Ackman of Pershing Square, who famously sold Herbalife short in May 2012, closed out his position last November at a big loss  and the shares today trade 86% higher than when the short went in.

I’m not a short-seller, but if you’re playing the investment game with me, you can call me Ackman-ed. Since I wrote about the Citron report in October Shopify shares are up 38%. It reminds me of how my fellow tech journalists recently called me out, saying I’m not a financial analyst, and I’m not. I’m a journalist, nothing more. I see stories and report on them.

Bottom Line on Shopify Stock

During my reporting career, I have seen several Canadian companies rise, and then fall, on their own hype. Remember Corel? How about Research in Motion, now called Blackberry Ltd (NYSE:BB)? Valeant Pharmaceuticals International Inc (NYSE:VRX)? Anyone remember the Vancouver stock exchange and all those penny stocks that were subject to pump-and-dump schemes in the last century?

No? Well, I do.

Investorplace’s Bret Kenwell says the recent pullback is the perfect entry point for buying Shopify stock. I’ll leave this story there.

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.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.

 


Article printed from InvestorPlace Media, https://investorplace.com/2018/02/shopify-inc-shop-stock-still-not-making-money/.

©2024 InvestorPlace Media, LLC