Hi YXI friends,

Today, we’re turning the spotlight on Shopify. The stock popped after an impressive set of Q3 results, but is now the best time to buy?

In this article, we’re going to break down what Shopify actually does, its latest performance, its valuation, and the potential entry point for a trade setup.

Let’s dive in!

Table of Contents

• 1. Shopify does it all

• 2. Subscription Solutions vs. Merchant Solutions

• 3. Overall picture: Q3 Revenue growth accelerated

• 4. Profit margins are improving too

• 5. Valuation - top line fair, bottom line good

• 6. Comparable valuations vs peers

• 7. Technical analysis

• 8. Rating

DISCLAIMER: This newsletter is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.

1. Shopify does it all

Shopify is a cloud-based e-commerce platform that offers comprehensive merchant solutions to online businesses.

More specifically, Shopify helps merchants set up their websites / mobile store fronts, Point of Sale (POS) systems in physical stores, social media sales channels, B2B sales, as well as API for custom integrations with existing websites.

On the back-end, merchant can use Shopify to manage their product inventory, orders and shipping, customer relationships (CRM), analysts, and secure payments (Shopify Payments).

Shopify is particularly proud of two key features: Data Analytics and Shopify Payments.

Data analytics use AI / ML to help merchants improve their inventory management, personalised offering, customer engagement, sales performance, and marketing effectiveness.

Shopify payments allows merchants to accept all the popular payment gateways (e.g. Apple Pay), credit cards, currency conversions, one-click checkouts, install payment options, and buy-now-pay-later solutions.

Simply put, as an online merchant (pretty much everyone these days), you can use Shopify to do pretty much everything you need to run a business. Need a specific feature? Shopify has over 13,000 apps in the Shopify App Store for integration.

2. Subscription Solutions vs. Merchant Solutions

Shopify breaks down its revenue segments into Subscription Solutions and Merchant Solutions.

Subscription Solutions includes Subscription Fees from different tiers of Shopify plans that merchants pay to use its platform, the enterprise level Shopify Plus, POS Pro, and app subscription revenues from Shopify App Store.

Merchant Solutions cover everything else, that is linked with the growing Gross Merchandise Volume. They include Shopify Payment fees (the biggest contributor), referral fees, loan income, and any other transaction services revenue.

Between the two segments, Merchant Solutions take the largest revenue share. In Q3, Merchant Solutions revenue increased by 26% YoY to $1.5 billion, on the back of a 24% growth in GMV, which now stands at $69.7 billion.

Subscription Solutions grew at a similar pace in Q3, increasing by 25.5% to $610 million. Its Monthly Recurring Revenue (MRR) has climbed by 28% YoY to $175 million.

In terms of the gross margins, Subscription Solutions enjoy a high SaaS gross margin of 82%. This business segment should therefore be highly valued relative to its revenue.

Merchant solutions only enjoy a 40% gross margin.

3. Overall picture: Q3 Revenue growth accelerated

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