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Once a Growth Investor Darling

June 19, 2024
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Wiko Steyn
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Wiko Steyn

Unicorn Portfolio Update 10: #14 of 20 stocks added.

 

Shopify

E-commerce went from boom to bust in the last two years. Shopify has fallen more than 75% in the last year. Now might be a good time to revisit this old favourite. 

One trend we have picked up from doing these deep dives on companies is that many great businesses originate from the struggles of their founders. Tobi Lutke, the founder of Shopify, was working as a disgruntled software engineer when he decided to change course. Tobi and his co-founders decided to open an online snowboarding shop, which soon faced many hurdles that were common for small online businesses. These challenges eventually led to the creation of Shopify which now enables millions of online businesses to successfully operate in these once treacherous waters. 

Shopify rose to become one of the most influential companies in retail as their platform helps merchants with the operation and logistics of their business, by providing the necessary tools to create multiple sales channels, digital storefronts, marketing, native mobile apps, payment processing, inventory management, analytics and many more. Essentially they gave the little guy a chance to compete in an e-commerce world ruled by Amazon.


Opportunity

Although e-commerce has lost some of its appeal in these economically difficult times, we are in the early innings and Shopify still has a significant growth runway. Shopify is proving to be a highly ambitious company evident by its track record of developing numerous tools to make commerce better and expanding their platform to the likes of Walmart, Facebook, TikTok and Spotify.

Shopifys mission statement:

To make commerce better for everyone, so businesses can focus on what they do best: building and selling their products

Enabling other businesses to perform at their peak seems like a worthy mission to us.

 

Moat

Shopify has built a strong brand and has almost become unanimous with any entrepreneur opening an online shop. There are also significant switching costs associated with changing to another solution. They do have some counter positioning and their total moat seems to be deepening.
 

Management

We already touched on the founder Tobi Lutke earlier in this article and we are happy to announce that he is still running the show as CEO. The company has executed beyond expectation with Tobi at the helm and he has garnered a lot of praise from his clients and employees. Insiders still own more than 6% so there is still plenty of skin in the game. 

 

Financials

  • Shopify is still growing rapidly at roughly 30%
  • Profit margins are relatively low but the company is profitable and should see improving margins in the future
  • The company is free cash flow positive
  • Shopify has a fortress of a balance sheet with $7.25B in cash and only $1.2B in debt

 

Risk

  • The big threat from Amazon taking away market share
  • Future earnings pulled forward by the pandemic
  • Stock-based compensation creating significant dilution
  • Still can't be considered cheap

 

Conclusion

Shopify has transformed into a comprehensive, data-stacked digital business enhancer that not only caters for small entrepreneurs but also some of the largest companies in the world. Excellent management, execution, and vision have propelled Shopify to where the company stands today and should push them to new heights in the future. 

 

Portfolio Updates Summary

We are opening a 50% position in Shopify and we also added to our Digital Ocean shares, bringing it to a full allocation. The biotech industry has been on fire this last month and we do feel like our gene editing stocks might be getting ahead of themselves, growing almost 100%. We are selling 50% of our investments in Beam Therapeutics and Intellia Therapeutics, we are planning to reallocate this cash when the sector cools down again.

  • Buy $250 SHOP at $31.43
  • Buy $250 DOCN at $34.81
  • Sell 5.984 shares of BEAM at 68.80
  • Sell 6.231 shares of NTLA at 69.95

 

Disclosure

This is not financial advice and is only based on the author's opinion. This is not buy or sell recommendations of any stock.  The $10K is not real money and only a demonstration of a typical portfolio. The Unicorn Portfolio is a high-risk portfolio and should always remain a small allocation of your overall assets. This is an actively managed portfolio where we will buy and sell positions as we deem fit without any regard for taxation. Remember, all selling of stocks triggers a tax event in most countries and it is the investors personal responsibility to always remain tax compliant.

 


 


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