Shopify Inc. (NYSE: SHOP) is having a terrible year in the markets. For example, Shopify’s shares fell from $1,309.94 on 1 March 2021 to $673.44 on 1 March 2022.
Predictably, many people will wonder if Shopify (SHOP) is a value investment because of its share value collapse. People will consider Shopify a value because it is a growing ecommerce platform.
For example, the number of Shopify premium subscribers grew from 155 million in the fourth quarter of 2020 to 180 million in the fourth quarter of 2021, Statista estimates. Similarly, the number of Shopify monthly active users (MAU) grew from 345 million in the fourth quarter of 2020 to 406 million in the fourth quarter of 2021, Statista estimates.
Thus, I calculate Shopify added 25 million subscribers and 61 million monthly active users in 2021. Similarly, the number of Amazon Prime subscribers worldwide grew from 150 million in 2019 to 200 million in 2020, Statista estimates. Big Commerce estimates Amazon (AMZN) had 197 million active users in 2021.
How Much Money is Shopify Making?
Thus, Shopify (SHOP) offers impressive growth. For example, Stockrow estimates Shopify’s revenues grew by 41.10% in the quarter ending on 31 December 2021. In contrast, Amazon’s revenues grew by 9.44% in the quarter ending on 31 December 2021.
Consequently, Shopify’s quarterly revenues grew from $978 million on 31 December 2020 to $1.38 billion on 31 December 2021. Hence, Shopify’s platform growth is not translating into revenues.
However, Shopify makes little money from that growth. For example, Shopify reported a quarterly operating income of $14.40 million on 31 December 2021. Shopify’s quarterly income fell from $112.54 million on 31 December 2020.
In contrast, Shopify reported a quarterly gross profit of $693 million on 31 December 2021. The quarterly gross profit grew from $504 million on 31 December 2020.
How Much Cash is Shopify Generating?
However, Shopify’s platform generates some cash. For example, Shopify (NYSE: SHOP) reported a quarterly operating cash flow of $258.80 million on 31 December 2021.
The quarterly operating cash flow rose from $255.41 million on 31 December 2020 and $37.64 million on 30 September 2021. In contrast, Shopify’s quarterly ending cash flow rose from -$386.25 million on 31 December 2020 to $313.38 million on 31 December 2021. However, Shopify can generate enormous amounts of cash. For example, it reported quarterly ending cash flow of $2.786 billion on 31 March 2021.
Unfortunately, Shopify borrows much of that cash. For example, Shopify reported a quarterly financing cash flow of $1.584 billion on 31 March 2021. The quarterly ending cash flow fell to $34.35 million on 31 December 2021.
Consequently, Shopify’s total debt grew from $912.84 million on 31 December 2021 to $1.174 billion on 31 December 2021.
However, Shopify is accumulating enormous amounts of cash. For example, Shopify’s cash and short-term investments of grew from $6.388 billion on 31 December 2020 to $7.768 billion on 31 December 2021.
What Value Does Shopify have?
I consider Shopify (SHOP) an incredibly overvalued stock because it had $13.34 billion in total assets on 31 December 2021.
Yet Shopify’s assets are growing fast. For example, the total assets grew from $7.763 billion on 31 December 2020. I estimate Shopify’s total assets grew by $5.57 billion in 2021.
So yes, Shopify is a fast-growing and cash-rich company with a collapsing stock price. However, I consider Shopify ridiculously overvalued.
I consider Shopify (NYSE: SHOP) a stock that investors and speculators need to avoid because of the ludicrous share price. My advice watch Shopify but do not consider buying it until SHOP falls below $200.
Originally published at https://marketmadhouse.com on March 1, 2022.
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