Show Transcript
It’s been a meteoric rise for Ottawa-based technology company Shopify, which recently became Canada’s most valuable publicly traded company. Anthony Okolie talks with Vitali Mossounov, Global Technology Analyst, TD Asset Management, about the bear and bull case for Shopify.
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[MUSIC PLAYING]
ANTHONY OKOLIE: The tech sector has been on a roll, especially Shopify, which recently became Canada's most valuable publicly traded company. Vitali, you're here to give us the bull and bear case for Shopify. Let's start with the bull case.
- Hey, Tony. Thanks for having me back on. Well, yeah, let's start with the bull case. And I'll do it with three reasons why Shopify is such a promising company. Number one definitely has to be impeccable execution. This is just a company that delivers.
Since going public five years ago, Shopify has grown its revenues by an average of 70% per year. And the company has quintupled in size. So I don't think we can think of too many companies that have quintupled in size in five years. Shopify is a good example.
And their mission is simple on the surface. That's to make commerce better for everyone. And that's what they've been doing. And so if we look at the core of their business, their product, what have they launched, how have they executed initiatives like Shopify Shipping to give their merchants access to some of the savings from the national postal carriers that Shopify can negotiate by virtue of its size, Shopify Capital to be able to essentially lend money to their merchants so they can invest it in their business and grow, and many other cases and many other instances. So definitely execution is reason number one.
- And talk to us about the growth potential of the e-commerce market and what that presents for Shopify.
- Right, and I don't think I need to go into too much detail. I know you've had Anita Bruisma on a few times on your show kind of enlightening everyone on the potential of e-commerce. But, look, it's a massive market. It's three and 1/2 trillion dollars. And a lot of us think Shopify is a pretty big company. And last year, there were about 60 billion of merchant dollars transacted on the platform-- so, really, a drop in the ocean. The potential is massive.
Of course, e-commerce, even pre-COVID, was growing 20% per year-- now, much faster. And it's probably, what-- 14%, 15% of worldwide retail? So enormous potential, and Shopify is at the heart of it.
- And where does Shopify sit, in terms of the industry?
- Well, it's an interesting question. And it's a good segue to reason number three to be bullish on the stock. And that's really that it looks like the clear winner in what is usually a winner-takes-all internet technology landscape.
If you think about the last 10 years-- the last decade-- companies like Apple, Google, and Facebook, they've essentially eliminated the competition. And they have emerged victorious and have gotten all the economics that that has associated with it. And so Shopify, in this instance, is basically in that same position. You see it by virtue of their 25,000 partner ecosystem, for whom they've made, I think it was about $2 billion-- just shy of that-- in the last year.
You really see it with Mark Zuckerberg, the CEO of Facebook, getting on with Toby Lütke, the CEO of Shopify, and talking about how the two companies can partner together, right. Mark Zuckerberg doesn't do that for a company he doesn't see as a threat. So partnerships, a big ecosystem-- and really, Shopify is the winner in terms of providing the infrastructure for e-commerce.
- OK, so we've heard the bull case. Now let's hear the bear case for Shopify.
- Well, the bear case probably won't surprise you. But e-commerce, given the size of that three and 1/2 trillion dollar market, everyone's investing in it. Everybody wants a slice of the pie. And, of course, no one wants it probably more than Amazon. It does already control 40% of US e-commerce.
And I bet that their investments in the Amazon platform in the year dwarf Shopify's entire revenue base, right. And probably everyone shopping on Shopify and even every merchant selling on Shopify also has a relationship with Amazon. And so Amazon and the like-- very formidable, very intense competition is reason number one to pause.
- And talk to us a little bit about valuations as well because certainly, we've seen the price of Shopify go quite high this year.
- Yeah, valuation is important. Of course, investing is not just about finding great companies but paying the right price for those companies. And Shopify has-- you've seen the share price. You've seen what it's doing. And its valuation that causes many people to pause and scratch their head, frankly.
For reference, it trades about 48 times forward sales. And they're not profitable right now. And so we have to compare them based on sales.
Microsoft, for reference-- a big blue chip company, trades at 10 times forward sales and a Visa at 17 times forward sales. So there's a very big premium baked in there. And, of course, with the reason behind a rally and the reason behind the really big premium, to a large extent, is COVID. So those viewers that are out there considering the company as an investment, they really have to consider what is their world view, with respect to the resumption.
If there is a vaccine tomorrow, hypothetically, and everybody can get vaccinated in the course of a week, hypothetically-- hopefully, but hypothetically-- then there will be significant headwinds to Shopify because we can resume the old, physical, heavy world. But in the case where we sort of stay at home and then continue to be cautious, then there are a lot of tailwinds at Shopify's back.
- If an investor doesn't want to buy shares of Shopify, how else can they gain exposure to the e-commerce trends?
- Sure, yeah. Shopify is obviously an expensive stock. And it has been volatile. And so investors do wish to participate in the broader technology theme or even specifically the-- you can call it-- the e-commerce niche. And certainly, they can look for a product like TD Global technology leaders index ETF. It's essentially an aggregation of pure technology company across all developed stock markets in the world.
And I think, of course, Shopify is in there. Amazon is in there and many other e-commerce and technology plays broadly.
- Vitali, thank you very much for your insights.
- Thanks, Tony. Nice to see you again.
[MUSIC PLAYING]
ANTHONY OKOLIE: The tech sector has been on a roll, especially Shopify, which recently became Canada's most valuable publicly traded company. Vitali, you're here to give us the bull and bear case for Shopify. Let's start with the bull case.
- Hey, Tony. Thanks for having me back on. Well, yeah, let's start with the bull case. And I'll do it with three reasons why Shopify is such a promising company. Number one definitely has to be impeccable execution. This is just a company that delivers.
Since going public five years ago, Shopify has grown its revenues by an average of 70% per year. And the company has quintupled in size. So I don't think we can think of too many companies that have quintupled in size in five years. Shopify is a good example.
And their mission is simple on the surface. That's to make commerce better for everyone. And that's what they've been doing. And so if we look at the core of their business, their product, what have they launched, how have they executed initiatives like Shopify Shipping to give their merchants access to some of the savings from the national postal carriers that Shopify can negotiate by virtue of its size, Shopify Capital to be able to essentially lend money to their merchants so they can invest it in their business and grow, and many other cases and many other instances. So definitely execution is reason number one.
- And talk to us about the growth potential of the e-commerce market and what that presents for Shopify.
- Right, and I don't think I need to go into too much detail. I know you've had Anita Bruisma on a few times on your show kind of enlightening everyone on the potential of e-commerce. But, look, it's a massive market. It's three and 1/2 trillion dollars. And a lot of us think Shopify is a pretty big company. And last year, there were about 60 billion of merchant dollars transacted on the platform-- so, really, a drop in the ocean. The potential is massive.
Of course, e-commerce, even pre-COVID, was growing 20% per year-- now, much faster. And it's probably, what-- 14%, 15% of worldwide retail? So enormous potential, and Shopify is at the heart of it.
- And where does Shopify sit, in terms of the industry?
- Well, it's an interesting question. And it's a good segue to reason number three to be bullish on the stock. And that's really that it looks like the clear winner in what is usually a winner-takes-all internet technology landscape.
If you think about the last 10 years-- the last decade-- companies like Apple, Google, and Facebook, they've essentially eliminated the competition. And they have emerged victorious and have gotten all the economics that that has associated with it. And so Shopify, in this instance, is basically in that same position. You see it by virtue of their 25,000 partner ecosystem, for whom they've made, I think it was about $2 billion-- just shy of that-- in the last year.
You really see it with Mark Zuckerberg, the CEO of Facebook, getting on with Toby Lütke, the CEO of Shopify, and talking about how the two companies can partner together, right. Mark Zuckerberg doesn't do that for a company he doesn't see as a threat. So partnerships, a big ecosystem-- and really, Shopify is the winner in terms of providing the infrastructure for e-commerce.
- OK, so we've heard the bull case. Now let's hear the bear case for Shopify.
- Well, the bear case probably won't surprise you. But e-commerce, given the size of that three and 1/2 trillion dollar market, everyone's investing in it. Everybody wants a slice of the pie. And, of course, no one wants it probably more than Amazon. It does already control 40% of US e-commerce.
And I bet that their investments in the Amazon platform in the year dwarf Shopify's entire revenue base, right. And probably everyone shopping on Shopify and even every merchant selling on Shopify also has a relationship with Amazon. And so Amazon and the like-- very formidable, very intense competition is reason number one to pause.
- And talk to us a little bit about valuations as well because certainly, we've seen the price of Shopify go quite high this year.
- Yeah, valuation is important. Of course, investing is not just about finding great companies but paying the right price for those companies. And Shopify has-- you've seen the share price. You've seen what it's doing. And its valuation that causes many people to pause and scratch their head, frankly.
For reference, it trades about 48 times forward sales. And they're not profitable right now. And so we have to compare them based on sales.
Microsoft, for reference-- a big blue chip company, trades at 10 times forward sales and a Visa at 17 times forward sales. So there's a very big premium baked in there. And, of course, with the reason behind a rally and the reason behind the really big premium, to a large extent, is COVID. So those viewers that are out there considering the company as an investment, they really have to consider what is their world view, with respect to the resumption.
If there is a vaccine tomorrow, hypothetically, and everybody can get vaccinated in the course of a week, hypothetically-- hopefully, but hypothetically-- then there will be significant headwinds to Shopify because we can resume the old, physical, heavy world. But in the case where we sort of stay at home and then continue to be cautious, then there are a lot of tailwinds at Shopify's back.
- If an investor doesn't want to buy shares of Shopify, how else can they gain exposure to the e-commerce trends?
- Sure, yeah. Shopify is obviously an expensive stock. And it has been volatile. And so investors do wish to participate in the broader technology theme or even specifically the-- you can call it-- the e-commerce niche. And certainly, they can look for a product like TD Global technology leaders index ETF. It's essentially an aggregation of pure technology company across all developed stock markets in the world.
And I think, of course, Shopify is in there. Amazon is in there and many other e-commerce and technology plays broadly.
- Vitali, thank you very much for your insights.
- Thanks, Tony. Nice to see you again.
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