You’re supposed to “buy the dip.” That’s what the smart guys tell you to do with high-priced stocks. “Buy the dip.” Yes, it’s ferociously expensive right now but take 10% off and it’s only insanely overpriced. That’s the situation with Shopify (NYSE:SHOP), the money-losing Canadian merchant portal.
The shares peaked in the summer, at about $385. This was a few months after I warned that the bubble could pop at any moment.
Shopify stock opens for trade Dec. 2 at $336.75.
Animal Spirits
What do you get at that price? You don’t get earnings. You don’t even get free cash flow. Nope, no operating cash flow either — we ran out of that in June. How about revenue? There was $390 million of revenue for the quarter ending in September. What’s the market cap on this again, $39 billion?
Thanks, but no thanks.
Shopify stock has always been a momentum play. You buy it because others are buying it.
This makes it a good proxy for taking the market’s temperature, which still seems feverish. I last warned about this in mid-October , when Shopify was at about $347. The shares did indeed drop after that, to as low as $285 each. If you bought that dip, you won.
What You Get
Shopify is said to be the second-biggest e-commerce stock around, after Amazon (NASDAQ:AMZN) and ahead of eBay (NASDAQ:EBAY). That’s what the bulls would have you believe. But it’s measured by market cap.
Shopify is, in fact, a software company. It sells and hosts a software package people can use to sell products or services.
Lately it has begun offering fulfillment services (robots!) and e-mail marketing services (spam!).
All these things are hooked into the main Shopify program. It starts at $29 per month. That sounds good. Well, if you want to do anything useful it’s $79 per month. Uh, OK. Come to think of it, you probably want Advanced Shopify — that’s $299 per month plus 2.4% of your sales volume and 30 cents for processing each transaction. The fully hosted plan costs $2,000 per month.
Then there’s the Shopify App Store, filled with marketing, fulfillment and back-office tools to take your store where you want it to go. And if you don’t have a store there’s Shopify Marketplace, filled with businesses ready for you to take over. What’s the first one? Oh, a cat litter mat and cat toys. All yours for $1,000. Reduced from $4,120!
Here’s the Deal
I started the century around the kind of people who buy Shopify software, Shopify add-ons and even Shopify businesses.
They’re called opportunity seekers. They know they could become rich if someone would just give them the key or tell them the secret. There is no end of people who are willing to do this, for a price. They’re all over Shopify.
But here’s the thing. There is no key. There is no secret. There’s just hard work, gained by experience, in learning about what people want and becoming passionate about getting it. You won’t get rich selling cat toys.
The Bottom Line on Shopify
If you know how to sell, Amazon offers good fulfillment. If you know what you’re selling, eBay offers a tidy marketplace.
I know a woman who’s into kids’ shoes. She started with a piece of someone else’s shop and now has a nice store behind a pizza place. She also works harder than you or I ever will.
That’s what it takes to make a small business work. It’s not about software.
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 danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in AMZN.
