I may not be the right person to ask about Shopify (NYSE:SHOP). I’ve thought this was a bubble stock for a while now. A year ago, I compared the company to Bitcoin. I warned it was ready to fall in January. I said it was ready for a big fall in April. In May, I said the bubble could burst at any moment.
Shopify isn’t worth anywhere near $275 per share, I wrote in May. I was right. It opened for trade Sept. 16 at $328.51.
This month the stock has fallen after Shopify priced a secondary offering worth $600 million at $317.50. InvestorPlace’s James Brumley called this a buying opportunity for long-term investors. InvestorPlace’s Luke Lango agreed.
Those who bought the secondary offering are already in the money, one week later.
The Boom in SHOP Stock Continues
I wasn’t alone in seeing something wrong with the Shopify story.
Citron Research, which often fuels short selling, called Shopify a get-rich-quick scheme two years ago. This April, Citron’s head researcher Andrew Left promised to donate $200,000 to the Robin Hood Foundation if Shopify is still over $200 in a year. Robin Hood, an organization which fights homelessness in New York City, will appreciate the support.
What Left saw, and what I agreed on, is that people were making a lot more money selling Shopify stores, and Shopify add-ons, than they were selling products and services using the Shopify platform.
Colin Sebastian at R.W. Baird recently insisted that problem is gone while raising his price target on the stock to $410. His checks suggested Shopify could have over 1 million merchant customers by year-end, making it the second-largest e-commerce platform behind only Amazon (NASDAQ:AMZN).
What’s the Problem?
Shopify is still not a huge company.
Its market cap of over $36 billion is supported by trailing-year sales of just $1.3 billion. Shopify has yet to report any net income. For the last several quarters, losses have been increasing. They came in at over $28 million in the June quarter. The balance sheet shows almost $2 billion in cash, with no long-term debt, and operating cash flow for that June quarter was $59 million.
Parabolic growth without profit and low sales was a sell signal to some. Shopify stock peaked at $407 in August and has mainly headed lower since. There are potholes ahead, like the potential U.S. withdrawal from the Universal Postal Union, which would make order fulfillment more expensive.
But what do I know?
The Bottom Line on Shopify Stock
Shopify’s value keeps growing as analysts buy the argument that it’s the Amazon of small business.
But there’s already an Amazon of small business. It’s called Amazon Merchant Services, which sells more merchandise than Amazon itself and has almost half the e-commerce market. Walmart (NYSE:WMT) also operates a third-party marketplace, eBay is still in the league and Shopify’s share of U.S. retail e-commerce sales remains under 5%.
I could still be wrong. Shopify is getting some quality merchants like shoe retailers Clarks and Allbirds. Shopify also claims Heineken (OTCMKTS:HEINY) and Sony (NYSE:SNE) as customers, but those deals are not exclusive.
If you ignored me at $100, at $200 and at $300, enjoy a laugh on me now. Just remember you don’t have a profit on any stock until you sell and the cash is in your hand.
Dana Blankenhorn is a financial and technology journalist. He is the author of the environmental story, Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.