Shares have been trending lower since the middle of this year, and the perception of secondary offerings has flipped from being seen as growth catalysts to being seen as just more dilution. As time has marched on - and as the company hasn’t produce enough fiscal progress to fully justify repeated fundraisers - investors have turned on Shopify. The story was scintillating and SHOP stock was rallying. There was a time not too long ago when Shopify could do no wrong. Most investors are starting to entertain doubts, however, given the current condition of SHOP stock.
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Perhaps Shopify is at a tipping point where it’s finally reached a scale that expands its profit margins and starts to work towards positive free cash flow and GAAP profits. Maybe that’s all on the verge of changing. Investors Growing Restless, Exacerbating the Risk At this point in its life, one would expect at least a bit more solvency. With roughly a couple of billion dollars raised through secondary offerings just since going public in 2015, the company’s got little in the way of self-sustaining staying power to show for it.
Somehow, though, for Shopify it has become a drug the company can’t live without. Both remain in the red for Shopify.Īgain, selling more and more shares via a secondary offering is not only not terribly unusual, it’s also often necessary for a young company. A far more telling measure of long-term viability is, of course, GAAP (actual) profitability and free cash flow. That’s not a terribly high hurdle anymore though, often achievable with some clever accounting. Yes, the company is profitable on an operational basis.
It’s not clear that such a business model can be profitable, however, even if Shopify continues to grow. Shopify serves a middle market that’s largely been disenfranchised by other options. And, eBay arguably makes it all too easy for thousands of individual yard-sale-scale sellers to compete with businesses that are looking for a full-blown, business-oriented platform. It takes a large degree of scale to thrive on sellers are often competing with the host company itself. It’s an idea whose time has certainly come. Indirectly, though, it does compete with those giants as it small-scale organizations that can’t find the right foothold with other e-commerce platforms to set up their own shops using Shopify’s tools. Shopify, for the unfamiliar, doesn’t directly compete with online-selling powerhouses like (NASDAQ: AMZN) or eBay (NASDAQ: EBAY).
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