Escolar Documentos
Profissional Documentos
Cultura Documentos
Shopify Inc.
Sector Perform
Our view: We like the technology, runway for growth, management vision
and potential for higher customer lifetime value; however, valuation
seems full even if our/Street estimates prove conservative. Our channel
diligence and sensitivity analyses highlighted in the report lead us to
conclude that we could be more positive on a better entry point,
meaningful new monetization opportunities or improved competitive
dynamics.
Current
Price
Price
Target
Upside
Scenario
23.00
27%
31.32
35.00
12%
53.00
69%
Key points:
The operating system for SMB Commerce: Shopify can be used across
multiple channels (online, mobile, social media, brick-and-mortar stores)
and over time we think the platform can become richer through the
addition of new services. These services include Payments (introduced
2013), Shipping (which we expect later this year) and potentially others
in the future. These services could drive higher ARPU, reduce churn and
make the platform synonymous with a commerce operating system for
SMBs.
We believe the key to long-term value is with larger merchants: We
believe the Pareto Rule is highly applicable at Shopify, where high value
merchants matter more than low value merchants on a customer lifetime
value (CLTV) basis (see our dive into unit economics on P23 and associated
sensitivity on P26). Growth of high value merchants in the mix could
provide upside to top line and margins over time.
Key Statistics
Shares O/S (MM):
Dividend:
90.2
0.00
2,825
0.0%
NA
RBC Estimates
FY Dec
Revenue
EPS, Ops Diluted
P/E
2014A
105.0
NM
2015E
159.1
(0.26)
NM
2016E
210.0
(0.22)
NM
2017E
270.7
(0.15)
NM
Revenue
2014
2015
2016
EPS, Ops Diluted
2015
2016
Q1
18.8A
37.3A
47.7E
Q2
23.7A
38.1E
50.8E
Q3
27.3A
39.1E
52.6E
Q4
35.2A
44.6E
58.9E
(0.07)E
(0.08)E
(0.06)E
(0.07)E
(0.06)E
(0.05)E
(0.03)E
Priced as of prior trading day's market close, EST (unless otherwise noted).
For Required Non-U.S. Analyst and Conflicts Disclosures, see page 43.
Shopify Inc.
Target/Upside/Downside Scenarios
Investment summary
21MAY15 - 29JUN15
44
UPSIDE
53.00
TARGET
35.00
CURRENT
31.32
42
40
38
36
34
32
DOWNSIDE 23.00
30
15m
10m
5m
M15
25
SHOP
J15
15
22
29
Jun 2016
MA 40 weeks
Potential Catalysts
Net merchant adds could provide upside optionality: Our
model assumes 51K new merchant adds in FY15 vs. 61K in
FY14 and we note that F1Q15 saw 17K new adds (+38% Y/
Y). While the rate of merchant adds has decelerated, we still
expect it to grow in this relatively early stage of the company's
lifecycle.
ARPU could increase more materially with the addition
of new merchant solutions: ARPU increased by 12% in
FY14, although Average Gross Profit per Merchant was
approximately flat. We believe the addition of higher margin
new merchant services (such as shipping) could drive higher
value across the base.
Operating leverage: Shopify has run at a modest loss over
the last few years and while we model losses through FY17,
we believe upside to revenue could drive a faster path to
operating profits and positive FCF.
Potential Risks
Highly competitive market: We note that there are many
angles of competition including other pure-play commerce
platforms, web site builder/hosting companies and potentially
large internet assets that are in some cases partners to Shopify
today.
High churn rate across SMBs: Although Shopify has driven
higher recurring revenue per merchant to offset churn, we
believe that unit churn is high within the business due to
the SMB nature of the customer base. As the base grows,
merchant growth will be harder to sustain given the churn
effect on the base.
Gross margin pressure: Payments will grow faster than
Subscriptions for the near future, resulting in pressure on
gross margins due to mix.
Ross MacMillan,
Shopify Inc.
Key questions
Our view
1. What is Shopifys total addressable
market (TAM) and whats a reasonable
share that they can take over time?
So long as Shopify can grow with positive unit economics, we do not expect the
company to achieve its long-term model for many years as long as they continue
to pursue growth. The long-term model is based on 6064% GMs and 20%+
operating margins, and we can see a path to margin expansion on two levels as
the company evolves. First, we think gross margins can expand as the company
augments payments with additional Merchant Solutions, and improves the mix
of High vs Low value customers. Second, Sales and Marketing expense should fall
as a percentage of sales as the company scales. We note that today, 70% of
customer acquisition is through organic or referral channels suggesting
significant leverage potential. Finally, we expect the company to achieve
economies of scale on Research and Development over time.
While not core to our investment thesis, we do think the company could prove
attractive to larger players, especially those that have ambitions in extending
their digital marketing platforms into the long-tail of ecommerce.
Ross MacMillan,
Shopify Inc.
Table of contents
Key questions ....................................................................................................................... 3
Our view ..................................................................................................................................... 3
Table of contents.................................................................................................................. 4
Company description............................................................................................................ 5
IPO and Ownership .................................................................................................................... 5
Key investment points .......................................................................................................... 6
Leadership position in large and growing addressable market ................................................. 6
Attractive merchant dynamics with respect to growth and retention ...................................... 8
Attractive value proposition to merchants .............................................................................. 10
Strong partner ecosystem ........................................................................................................ 11
An SMB omnichannel retail operating system ......................................................................... 13
Risks to investment thesis and price target ........................................................................ 15
Significant competition ............................................................................................................ 15
ecommerce pure-plays............................................................................................................. 16
Mid-market competitors .......................................................................................................... 17
Others....................................................................................................................................... 17
High churn rate of a small business customer base ................................................................. 18
Lack of profitability and near-term gross margin pressure ...................................................... 20
Key financial points ............................................................................................................ 21
High and Low Value merchants: Parsing the economics of Shopify ........................................ 23
Valuation ............................................................................................................................ 27
Product overview ............................................................................................................... 31
Segments............................................................................................................................ 33
Cost of Goods ........................................................................................................................... 34
Sales and Marketing ................................................................................................................. 35
Management team ............................................................................................................. 37
Ross MacMillan,
Shopify Inc.
Company description
Shopify provides a leading cloud-based commerce platform designed for small- and mediumsized businesses. Shopifys mission critical software enables merchants to manage products
and inventory, process orders and payments, build customer relationships and leverage
analytics and reporting across all of their sales channels. The company was founded in 2004
and is based in Ottawa, Canada.
Shopify has ~165K merchants in 155 countries around the world. Of these users, over 300 are
Plus! subscribers. Shopify offers both monthly and annual subscriptions, ranging from $14 to
$179 a month for the regular plans.
Exhibit 2: Shopify timeline
2004
Jaded Pixel (later named Shopify)
founded by Tobias Lutke, Daniel
Weinand and Scott Lake
2004
2005
2006
Jun-2006
Shopify is released
Capital
Markets
Activity
Jun-2009
Launched API
Platform and
App Store
2007
2008
Mar-2008
Shopify annual GMV
surpassed US$10M
Jan-2010
1st Build-ABusiness
competition
2009
2010
Aug-2013
Launched Shopify
Payments and POS;
Acquired Jet Cooper
2011
Apr-2010
Shopify Theme Store
unveiled
2012
2013
Feb-2012
Acquired
Select Start
2010
2011
Raised $7M Raised $15M
(Series A)
(Series B)
Mar-2015
>150k businesses
now use Shopify;
Multichannel
Shopify launched
2014
2015
Feb-2014
Shopify Plus
launched
2013
Raised $100M
(Series C)
May-2015
Shopify IPO
Mobile represents about ~60% of Shopifys traffic and ~35% of Shopifys overall GMV. There
are no significant differences between the economics of desktop and mobile and Shopify was
designed with a mobile first mindset.
Ross MacMillan,
Shopify Inc.
Market sizing
Our different approaches to
market sizing suggest ~10M
addressable merchants
worldwide.
We believe in the general business trend that SMBs will dedicate more dollars to software
solutions over the next few years. According to Intuit and Nielsen Consumer Insights,
businesses with fewer than 20 employees spent about $630 on software in 2014, up from
$590 in 2013, and 85% of them are planning to increase their spending on software over the
next five years.
Shopifys IPO filing sizes the current addressable market at 10 million merchants with less
than 500 employees operating in key geographies, with up to 46 million merchants
worldwide. At annual revenue of ~$1,000 per merchant, the implied addressable market is
~$10B. We triangulate around this figure with the following approaches:
Methodology 1: Other SMB facing businesses:
Accounting software user bases: Intuit has ~4.5M QuickBooks customers (offline and
online), Sage has 1.8M customers on support, Xero has 371K customers and MYOB has 100K
customers. Combined these add to ~6.3M customers, which we think underrepresents the
overall market because: (i) these vendors do not capture small business across every
international market (especially those in Asia Pacific and Latin America); (ii) not all SMBs who
use Shopifys solution would be sophisticated enough for third-party accounting software;
and (iii) other accounting software players like Intacct, FreshBooks, NetSuite Financials,
FinancialForce, etc., dont disclose comparable user numbers.
Online backup services: Carbonite, a provider of SaaS backup services to US-based
SMBs, sizes the US addressable SMB market at ~6.2M small businesses (defined as 500
employees or less), and note that the average spend for business continuity services is
US$2,800/year. We scale this by a factor of 150% to account for ex-US customers.
Hosting services: Wix, a free website builder, has 62.5M registered users of which 1.37M
are on premium subscriptions. Wix believes its solutions can target a good portion of
~125M SMBs globally (statistics from the World Bank/IFC), and ~27M+ SMBs in the US.
GoDaddy, the worlds largest domain name registrar, has 13M+ customers and
generated $1.7B in bookings in 2014. We note that GoDaddys ARPU of $115 per
customer is ~11% of what SHOP generates per merchant, highlighting the different
services offered (i.e., predominantly domain names and hosting vs. ecommerce).
Step 1: US Census government data provides a count of 5.7 million enterprises (defined
as a business organization consisting of one or more domestic establishments under
common ownership or control) with fewer than 500 employees. We go through the
different subsectors, ranking them from low to high in their propensity for an
ecommerce solution. For example, we assume that Mining and Agricultural subsectors
Ross MacMillan,
Shopify Inc.
will have a Low propensity for ecommerce solutions and weight them at 5%; while
Wholesale trade and Retail Trade subsectors have a High propensity for ecommerce
solutions, and weight them at 50% and 100%, respectively. This leads us to a weighted
average of 27% across all subsectors.
Exhibit 3: US Census subsets
Subsector
Firms
('000s)
Propensity for
ecommerce
% adj.
Agriculture
21.3
5%
Low
1.1
Mining
22.1
5%
Low
1.1
Utilities
6.0
5%
Low
0.3
Construction
641.0
5%
Low
32.0
Manufacturing
256.4
50%
High
128.2
Wholesale trade
315.0
50%
High
157.5
Retail Trade
650.7
100%
High
650.7
168.1
5%
Low
8.4
71.1
30%
Medium
21.3
234.8
5%
Low
11.7
270.0
5%
Low
13.5
772.7
30%
Medium
231.8
Information
26.8
5%
Low
1.3
327.2
5%
Low
16.4
84.5
5%
Low
4.2
Health care
640.7
5%
Low
32.0
115.0
30%
Low
34.5
495.3
5%
Low
24.8
Others
667.2
30%
Medium
200.2
Total
5,786.0
1,571.1
Weighted Average
27%
Government statistics
approach suggests 13.4M
merchants.
Step 2: Government statistics on SMBs: US-based figures from SBA.gov cite 28M USbased domestic small businesses, of which more than 85% have fewer than five
employees. These businesses tend to be service oriented, with more than 80% in
business for at least three years. Corresponding European Commission studies cite
21.6M SMBs in EU28 in 2013, of which more than 90% have fewer than 10 employees.
This SMB base employed ~88.8 million people and generated ~EUR3.3 trillion in value.
This centers us around an SMB base of 49.6 million. We apply the above factor
adjustment of 27% to this based on our weighting from the census subsectors.
Ross MacMillan,
Shopify Inc.
Number (m)
Methodology 1
Accounting software customers
Online backup services
Methodology 2
SME base in Europe + USA
Company defined addressable market
Annual
Est. Rev.
Implied
Market size ($M) Market share**
Comments
6.8
6.2
120%
150%
$1,000
$1,000
$8,125
$9,300
2.0%
1.7%
49.6
10.0
27%
100%
$1,000
$1,000
$13,392
$10,000
1.2%
1.6%
$10,204
1.6%
Average TAM:
* Merchants we estimate who would be willing to pay for Shopify's solution
** Based off a 2015E $160M Revenue base
Source: European Commission, SBA.Gov, AMI Partners, Company websites
By these methodologies, we estimate that Shopify currently has approximately 1.6% market
share in a very fragmented, $10B market worldwide.
145
160
120
124.6% 120.5%
109.2%
80
51
60
71
115
84
104.9%
128
40
160
150%
140
120
96
90.7% 90.8%
100%
81.8%
100
2015
Merchants
80
72.6% 68.2%
50%
0%
Q1:13 Q2:13 Q3:13 Q4:13 Q1:14 Q2:14 Q3:14 Q4:14 Q1:15
Y/Y Growth
2015
Merchants
60
40
0
Total Merchants (est)
2015
Merchants
Merchants
180
2010
Merchants
20
2010
Merchants
2010
Merchants
0
Bigcommerce
Volusion
Shopify
Ross MacMillan,
Shopify Inc.
Source: Shopify
Ross MacMillan,
Shopify Inc.
Revenues
Employees
Company A
$2.5-$5M
<20
Highlights
Shopify was a great entry-level platform, scaled and "have grown up with Shopify"
Difficult to transition away as ecommerce is >80% of current business
Company B
$2.5-$5M
<20
Seamless" migration from Magento without a moment of downtime during the migration
Website is 100% custom, and built a video streaming platform on top via a Shopify API
Magento couldnt handle the spikes in traffic
Company C
<$1M
<5
Magento back end not user friendly, Shopify easiest to get up in short amount of time
Overseas product not as robust as US, limited in terms of payments and partners
Company D
>$10M
<10
Consulting firm A
na
<10
Ross MacMillan,
10
Shopify Inc.
Shopify has one of the strongest partner ecosystems of any ecommerce pure-play platform,
with over 5.8K annual active partners. Partners assist with both merchant acquisition and
product enhancement.
Merchant Referring Partners work as an effective business development tool, with Shopify
acquiring notable customers such as Zagat, Taco Bell, Wikipedia, Pabst Blue Ribbon and
Patagonia through the channel. Revenue-sharing plans for business leads are typically split
20% to the partner/80% to Shopify.
Source: Shopify
Product Enhancing Partners have built an ecosystem of over 900 apps to aid in shipping,
sales, inventory and marketing. Apps are priced as a one-off license fee, monthly recurring
fee or on a freemium basis. Over 25K merchants have purchased at least one app in their
lifetime and over 78K shops have a Shopify app installed. Shopifys partner site indicates that
Shopify apps generate $345K a month collectively (~$4.1M annually) with the top 5 earning
$215K on average annually.
We went through app reviews and sorted them by the most reviewed to provide a snapshot
of what customers spend on. We found that the primary focus of spend is sales and
marketing related where the return is immediately quantifiable. Typically, customers spend a
median of ~$10 a month on these apps. We note that when an app is sold on the Shopify
store, the economics are typically split 20% to Shopify/80% to the app developer.
Ross MacMillan,
11
Shopify Inc.
One Time
Count
Type
App Name
Low
High
Reviews
Tools
Product options
20
755
Shipping
Aftership
Free
Sales/Marketing
Product Upsell
10
60
533
Sales/Marketing
17
17
424
Sales/Marketing
Product Customizer
420
Sales/Marketing
Sales/Marketing
Tools
Persistent Cart
Free
Sales/Marketing
Customer Pricing
30
30
324
10
Sales/Marketing
Sales Motivator
313
624
100
412
50
360
351
Although the app ecosystem is currently subscale, with Shopifys apps generating just over
$4M per year in revenue, we believe it has potential to be a more significant contributor to
the business over time.
Ross MacMillan,
12
Shopify Inc.
We believe that Shopify could increase revenue and profit per merchant by introducing
value-added services and features that merchants pay for above their basic subscription
plans. The first major service that Shopify launched, Payments, has been available since 2H13
in the US and has been rolled out to other geographies in the merchant ecosystem. This
offering has seen successful adoption by the customer base, with ~70% of merchants using
the solution within the base, although it tends to be more concentrated across mid- and
smaller-sized merchants (~3035% of ecosystem GMV passes through Shopify payments
today).
We believe a number of additional services could be provided by Shopify, many of which
could be monetized given tight integration with the platform, value-added features and
current economics of alternative providers. For example, we expect Shopify to offer shipping
services in 2H15.
Shipping labels and other high margin tack-on shipping services
ShipStation, a cloud solution designed to help ecommerce retailers process, fulfill and
ship their orders from the most popular marketplaces and shopping carts charges rates
ranging from $25$145 a month depending on scale and functionality.
Shopify already has a PoS solution, which it monetizes through subscriptions ranging
from $9 to $159 a month.
13
Shopify Inc.
partnered with Alibaba for such a venture to help American companies buy parts
from Chinese manufacturers. We do not view it as too much of a stretch to see the
value that an SMB data-rich platform could bring to the table for both traditional
and non-traditional lenders.
Frictionless commerce (e.g., Buy with Shopify button)
o We highlight the Pinterest partnership announcement on June 2, 2015, in which
Shopify provides an avenue for small- and medium-sized businesses to sell using
Buyable Pins. SMBs that possess an online store with Shopify can start selling
products on Pinterest by adding the Pinterest sales channel. We also highlight the
Shopify beta test with Facebook announced on June 10, 2015, where consumers
can purchase products they discover in their News Feed or on Pages without leaving
Facebook. These avenues reduce buying friction, and help to build upon the
companys omnichannel strategy, where Shopify customers should eventually be
able to use Shopifys technology and platform to sell across multiple sales channels
(online captive stores, vertical specific marketplaces, open marketplaces, offline).
Ross MacMillan,
14
Shopify Inc.
Celerant
eFashionSolutions
MarketLive
Prosodie Interactive
Upshot Commerce
Ability Commerce
ChannelAdvisor
Elastapath
Micros
ProStores
VE Interactive
AbleCommerce
ColdFusion
Enfinity
Microsoft
SaleCycle
Volusion
Acadaca
CommerceRack
Epicor
MiRetail
SAP
Weblinc
AdvancedEMedia
CommerceServer
EPiServer
MIVA Merchant
SAP Triversity
X-Cart
Agilence
Constant Contact
Everest Software
NetCache
Savtira
Xenocast
Americommerce
CoreCommerce
Greatson Media
Netsolace
SearchFit
Yahoo
Ascentium
CoreSense
Homestead TechnologiesNetSuite
SEO-Cart
Znode
ASP.NET
CRE Loaded
IBM
Network Solutions
Aspdotnetstorefront CS Cart
InstanteStore.com
New Directions
Shopify
Auspient
CyberSource
Intershop
NOX
ShopSite
BigCommerce
Delivery Agent
Interspire
OfBiz
ShopVisible
Blueport Commerce
Demandware
InterWorld
OneStop
Sitefinity
Blueswitch
Digital River
Java Technologies
Onestop Internet
Smith
BPS Solutions
Divinity
Opentaps
Speed Commerce
Broadleaf
DomaNet
Kalio
Optimum return
Spree Commerce
BroadVision
Drupal
LAMP
Oracle
StoresOnline
BT Fresca
Dydacomp
LemonStand
Orbit
Symphony Commerce
BV Commerce
eBay Enterprise
Lucidiom
OrderDynamics
Truition
CartLogic
Ecometry
Magento
Pinnacle Cart
UniteU
Ross MacMillan,
15
Shopify Inc.
Website Builders
In House Infrastructure
Custom Software
Commerce
Solutions
Payments /
Processing
Outbound
Marketing
ENTERPRISE
SMB
SOHO
ecommerce pure-plays
Magento (eBay)
Shopify has grown merchants
faster than other pure play
platforms.
Magentos early development started in 2007 and the company was fully acquired by eBay in
2011. Currently under eBay Enterprise, Magento is one of the more technologically flexible
and sophisticated ecommerce solutions for SMBs in the space. Running at ~240K merchants
with their own app ecosystem (Magento Connect), we believe this platform requires more
technical knowledge on the part of merchants to build a robust solution (hiring Magento
developers, etc). Magento Go, a simplified version of the Magento offering, was
discontinued in February 2015 after limited successful traction. Notable Magento customers
include: Rosetta Stone, Christian Louboutin, Ghirardelli, Olympus, Nike, Fiji Water, Fun4Kids,
Mikimoto, Vizio, etc.
Bigcommerce
Founded in 2009, Bigcommerce is a global ecommerce provider helping entrepreneurs and
growing businesses sell more online. Selected as the SaaS ecommerce migration provider for
ProStores and Magento Go, Bigcommerce has migrated more than 6K retailers from these
platforms onto its platform. Bigcommerce runs over 90K stores and prices are in the same
range as Volusion and Shopify. Current clients include established and emerging brands such
as Grace and Lace, Josie Maran, Stupid Cancer, Gibson Guitars, and Schwinn.
Volusion
Founded in 1999, Volusion employs 450+ people and runs over 40K stores. The company
claims that the annual sales of the average Volusion merchant are $85K vs. Shopify at $34K,
implying a generally larger merchant skew. Current clients include established and emerging
brands such as Nalgene, Airloop, Evolution Motorsports, Korbella, Popcorn Bistro, etc.
We demonstrate in the table below that pricing on the basic subscription package is highly
competitive for largely similar feature sets.
June 30, 2015
Ross MacMillan,
16
Shopify Inc.
Exhibit 12: Pricing benchmark for closest equivalent plans (similar feature sets) implies limited pricing power
Starter Plan
Basic
Professional
Unlimited
Shopify
$14
$29
$79
$179
Volusion
$14
$35
$75
$135
$30
$80
$36
$86
Bigcommerce
3dCart
$20
$130
Mid-market competitors
NetSuite
Shopify today does not
compete with NetSuite or
Demandware, but growth in
larger merchants may change
that in future.
NetSuites SuiteCommerce is positioned as a highly integrated ecommerce suite for midmarket customers. It is positioned as an alternative to the upper-tier solutions from Oracle,
IBM, and SAP yet includes multiple product areas including ecommerce, Point of Sale, Order
Management, Merchandising, and Financials. SuiteCommerce can be purchased as a standalone, but we think the majority of implementations include other parts of the NetSuite
product portfolio. We also note that NetSuite recently augmented its organically developed
solution with the acquisition of Venda in mid-2014 and Bronto Software in early 2015. The
next generation of SuiteCommerce with its in-store POS solution and customer profile
framework marks a clear shift to focus on omnichannel commerce.
Demandware
Founded in 2004, Demandware provides a hosted service that enables companies to develop
and manage easy-to-use, customizable ecommerce websites, rather than building a site from
scratch. The technology includes an open, cloud-based platform with applications for
ecommerce merchants, developers, and administrators. The platform enables worldwide
consumer engagement across devices, including laptop, desktop, tablet and mobile
computers. Demandwares subscription structure uses a revenue share model.
Demandwares solution is evolving to become a full commerce vendor addressing digital,
store and analytic solutions. The company is integrating its acquisitions of Order
Management (Mainstream), Predictive Intelligence (CQuotient) and Point of Sale (Tomax)
and plans to have a group of charter customers using multiple solutions exiting 2015. By way
of comparability, Demandware currently has 279 live customers, at an ARPU of $591,000, 22
of which have over $100M GMV per year.
Others
Website creators Wix/GoDaddy/Weebly/Jimdo/Squarespace
While the primary focus of these businesses is web design, construction and hosting, they
generally compete with Shopify in the form of ecommerce vertical specific solutions.
WixStores, GoDaddy Online Stores, Weebly ecommerce, JimdoBusiness commerce and
Squarespace commerce offer solutions with varying levels of sophistication for the aspiring
ecommerce entrepreneur. We believe these options, while easily accessible and benefiting
from the larger customer base that the complementary web hosting solution provides, are
generally less scalable and flexible (e.g., no app ecosystem, shipping/payment/bandwidth
limitations, etc.) than Shopify. In fact, some of these website creation properties partner
with Shopify such as Wix (which has had a Shopify app since 2012).
Ross MacMillan,
17
Shopify Inc.
While Google and Facebook are partners today, the risk is that they could become
competitive in the future. SEO, SEM and Facebook together represent about 70% of
customer acquisition traffic for Shopify. Search engine algorithm changes could affect
organic traffic trends. Google has entered the domains business and could enter website
creation related services for SMBs. Furthermore, the Buy with Google functionality for
mobile search serves a similar use case as the Buy with Shopify button to reduce customer
friction for online purchases. Facebook has made several attempts at ecommerce in different
forms in the past, with Gifts and free business pages with the ability to accept payments
through Stripe. The recent beta test with Shopify is promising, but it is possible that they
could decide to introduce deeper functionality on an independent basis.
Ross MacMillan,
18
Shopify Inc.
Exhibit 13: Hypothetical analysis: Base effect makes it harder to sustain growth at larger sizes
2012
Year
Small Business Cumulative Failure Rate
2013
2014
2015
2016
2017
25%
36%
44%
50%
55%
31
26
23
21
18
53
40
34
30
27
79
59
50
44
80
60
51
94
70
Period
1
41
2
3
4
5
41
41
84
145
196
254
(10)
(18)
(29)
(35)
(44)
53
79
80
94
121
84
145
196
254
331
1.0%
17.5%
29.0%
35.0%
29.8%
30.3%
Ross MacMillan,
19
Shopify Inc.
88%
79%
77%
88%
78%
92%
89%
90%
83%
81%
81%
79%
79%
80%
77%
Merchant solutions GM
77%
75%
Overall GM
78%
75%
76%
74%
64%
62%
61%
60%
67%
Shopify launched
Payments in the U.S.
in Q3:2013
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
34%
Jun-13
Sep-13
Dec-13
32%
32%
33%
Mar-14
Jun-14
Sep-14
76%
56%
29%
Dec-14
Ross MacMillan,
20
Shopify Inc.
0.4x
0.2x
0.0x
Dec-14
Sep-14
Jun-14
Mar-14
ServiceNow (NOW)
NetSuite (N)
Dec-13
Sep-13
Jun-13
Mar-13
Dec-12
Sep-12
Demandware (DWRE)
Fleetmatics (FLTX)
Salesforce.com (CRM)
Jun-12
Mar-12
Dec-11
Sep-11
Jun-11
Mar-11
Dec-10
Sep-10
Jun-10
Mar-10
Dec-09
Workday (WDAY)
Shopify (SHOP)
Benefitfocus (BNFT)
Ross MacMillan,
21
Shopify Inc.
$0.05
$0.00
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
8,000
100.0%
7,000
90.0%
6,000
5,000
80.0%
4,000
70.0%
3,000
2,000
60.0%
1,000
BNFT
ELLI
ULTI
SHOP
NOW
DWRE
CRM
WDAY
1Q15
4Q14
3Q14
2Q14
1Q14
4Q13
3Q13
2Q13
1Q13
4Q12
3Q12
2Q12
1Q12
50.0%
Ross MacMillan,
22
Shopify Inc.
Ross MacMillan,
23
Shopify Inc.
Notes
Year
Small Business Cumulative Failure Rate
1
15%
Subscription
Merchant Services (est.)
Annual Revenue
Annual Contribution
$100
$37
$1,644
$1,069
Uplift Multiplier
Annual Value
1.00
$1,069
1.02
$1,090
1.02
$1,112
1.02
$1,134
1.02
$1,157
1.02
$1,180
1.02
$1,203
1.02
$1,227
1.02
$1,252
1.02
$1,277
$908
$845
$778
$714
$659
$590
$542
$516
$488
$460
2
23%
3
30%
4
37%
5
43%
6
50%
7
55%
8
58%
9
61%
10
64%
Lower Churn
Monthly
Monthly
Annual
Annual
Discount rate
NPER
Discount rate
10%
1
1.10
2
1.21
3
1.33
4
1.46
5
1.61
6
1.77
7
1.95
8
2.14
9
2.36
10
2.59
826
698
585
488
409
333
278
241
207
177
120
Gross Margin
706
1,404
1,989
2,477
2,886
Notes
1
25%
2
36%
3
44%
4
50%
5
55%
6
60%
7
63%
8
66%
9
69%
10
71%
Source: statisticbrain.com
Subscription
Merchant Services (est.)
Annual Revenue
Annual Contribution
$20
$28
$576
$288
Monthly
Monthly
Annual
Annual
Uplift Multiplier
Annual Value
1.00
$288
1.02
$294
1.02
$300
1.02
$306
1.02
$312
1.02
$318
1.02
$324
1.02
$331
1.02
$337
1.02
$344
$216
$188
$168
$153
$140
$127
$120
$112
$105
$100
50%
Discount rate
NPER
Discount rate
10%
1
1.10
2
1.21
3
1.33
4
1.46
5
1.61
6
1.77
7
1.95
8
2.14
9
2.36
10
2.59
196
155
126
104
87
72
62
52
44
38
120
232
358
462
549
621
Gross Margin
Ross MacMillan,
24
Shopify Inc.
2013A
2014A
2015E
2016E
2017E
LT Model
Gross Margin
80%
73%
59%
56%
55%
54%
60-64%
26%
25%
22%
19%
18%
17%
14-15%
51%
46%
43%
38%
36%
32%
20-22%
7%
8%
8%
9%
9%
8%
7-8%
Total Opex
84%
78%
73%
65%
63%
58%
41-45%
-4%
-5%
-14%
-9%
-8%
-4%
20%+
Customer addition sensitivity assuming a base, keeping in mind that the company added
17K merchants from 4Q14 to 1Q15.
Base
Upside 1
Upside 2
2015
4Q14
4Q15
Adds
GMV ($000)
Revenues ($M)
145
196
51
$5,813
$159
0%
145
203
58
$5,898
$161
1%
145
210
65
$5,983
$164
3%
145
218
73
$6,068
$166
4%
145
225
80
$6,153
$168
6%
Merchants (000s)
Base
Upside 1
Upside 2
Difference
2016
Difference
4Q15
4Q16
Adds
GMV ($000)
Revenues ($M)
196
254
59
$8,015
203
274
71
$8,433
$210
0%
$221
11
5%
210
294
84
$8,859
$232
22
10%
218
315
98
$9,295
$243
33
16%
225
337
112
$9,739
$255
45
21%
Ross MacMillan,
25
Shopify Inc.
2)
Mix shift We keep our base customer counts from 2015 and 2016, and instead
sensitize the mix of large and small customers within it, assuming similar estimated
historical unit economics.
Exhibit 22: Top line sensitivity based on High Value vs. Low Value merchant mix shift
Mix Sensitivity
4Q15
Base
Upside 1
Upside 2
Mix
Upside 1
Upside 2
Mix
High
Low
Revenues
High
Low
196
59
137
$159
0%
30%
70%
196
64
132
$164
3%
33%
67%
196
69
127
$169
10
6%
35%
65%
196
74
122
$174
14
9%
38%
62%
196
79
117
$178
19
12%
40%
60%
4Q16
Base
2015
Merchants
Mix
2016
Difference
Mix
Merchants
High
Low
Revenues
High
Low
254
76
178
$214
0%
30%
70%
254
81
173
$219
2%
32%
68%
254
86
168
$228
15
7%
34%
66%
254
91
163
$243
30
14%
36%
64%
254
96
158
$263
50
23%
38%
62%
The conclusion from this is that if you assume any degree of accelerated mix shift towards
higher value add customers with a slightly less conservative assumption around customer
adds, you can find material upside to our $210M 2016 revenue estimate number.
ARPU
2%
2%
3%
4%
5%
6%
7%
8%
9%
10%
2022
CAGR
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
ARPU ($)
$903
$949
$995
$1,044
$1,095
$1,148
$1,202
$1,259
$1,318
4.0%
400
Revenue ($M)
$361
$379
$398
$418
$438
$459
$481
$504
$527
6.0%
600
$542
$569
$597
$627
$657
$689
$721
$755
$791
8.0%
800
$723
$759
$796
$835
$876
$918
$962
$1,007
$1,054
10.0%
1,000
$903
$949
$995
$1,044
$1,095
$1,148
$1,202
$1,259
$1,318
12.0%
1,200
$1,084
$1,138
$1,195
$1,253
$1,314
$1,377
$1,443
$1,511
$1,581
14.0%
1,400
$1,265
$1,328
$1,394
$1,462
$1,533
$1,607
$1,683
$1,763
$1,845
16.0%
1,600
$1,445
$1,518
$1,593
$1,671
$1,752
$1,836
$1,924
$2,014
$2,108
18.0%
1,800
$1,626
$1,707
$1,792
$1,880
$1,971
$2,066
$2,164
$2,266
$2,372
20.0%
2,000
$1,807
$1,897
$1,991
$2,089
$2,190
$2,295
$2,404
$2,518
$2,636
Ross MacMillan,
26
Shopify Inc.
Valuation
Our $35 price target is based on the stock trading at 11x our CY17 EV/ Sales estimate of
$271M, a premium to the peer group median multiple of 4x (refer to Exhibit 28). We believe
this premium is acceptable given the higher sustainable growth over a longer period, in light
of the runway the company has in its addressable markets. The price target is also supported
by our DCF that assumes the company achieves ~12% unit market share and 10% higher
ARPU by 2022.
Exhibit 24: Discounted Cash Flow analysis
Cash Flow Projection (FYE)
($ in Ms)
2014
Total Revenue
Y/Y Growth
2022
2023
2024
2025
2026
2027
2028
CAGR: 2014-2028
31%
271
379
531
719
972
1,313
1,641
2,002
2,383
2,812
3,234
3,557
29%
40%
40%
36%
35%
35%
25%
22%
19%
18%
15%
10%
(15)
(14)
(16)
(11)
11
37
72
117
171
230
300
381
506
614
711
-14%
-9%
-8%
-4%
3%
7%
10%
12%
13%
14%
15%
16%
18%
19%
20%
22
35
51
69
90
114
152
184
213
0%
0%
0%
0%
0%
0%
30%
30%
30%
30%
30%
30%
30%
30%
30%
-15
-14
-16
-11
11
37
50
82
119
161
210
267
354
430
498
-14%
-9%
-8%
-4%
3%
7%
7%
8%
9%
10%
11%
11%
13%
13%
14%
142
12
15
23
32
36
49
53
66
80
95
112
129
4%
5%
6%
5%
6%
6%
5%
5%
4%
4%
4%
4%
4%
4%
4%
(20)
(25)
(23)
(25)
(27)
(32)
(43)
(49)
(66)
(66)
(80)
(95)
(112)
(129)
(142)
20%
15%
11%
9%
7%
6%
6%
5%
5%
4%
4%
4%
4%
4%
4%
12
10
15
21
26
35
48
46
51
53
60
59
45
357%
-14%
-45%
61%
71%
40%
24%
34%
35%
-4%
10%
5%
13%
-2%
-23%
Less: Capex
Less: Increase in WC
Y/Y Change in Revs ($)
55
54
51
61
108
152
188
253
341
328
361
380
429
422
323
21%
19%
11%
15%
14%
14%
14%
14%
14%
14%
14%
14%
14%
14%
14%
uFCF
(19)
Y/Y Growth
(21)
(21)
(12)
23
58
70
117
154
207
261
320
414
489
543
10%
1%
-44%
-290%
157%
19%
68%
32%
34%
26%
23%
29%
18%
11%
(21)
(19)
(10)
17
39
42
64
77
93
106
118
138
148
PV of uFCF
2,037
($ in Ms)
961
32%
2,037
68%
2,999
100%
Add: Cash
197
148
7,461
2021
210
D&A as a % of Revs
Terminal Value
2020
32%
Add: D&A
WC as a % of Change in Rev
2019
159
NG NOPAT
Y/Y Growth in WC
2018
52%
Tax Rate
Capex as a % of Revs
2017
105
Tax Expense
NOPAT Margin
2016
109%
NG Operating Income
NG Op Margin
2015
DCF Assumptions
WACC
10.5%
4.0%
1.3
3.0%
5.0%
Tax Rate
10.5%
30.0%
$2.19
Capital Structure
Equity Value
Equity Value
3,196
FDS
Equity Value/ Share
#Calc
#VALUE!
0%
Total Capitalization
$35
100%
Debt Value
90
#Calc
100%
Rd
3.6%
Tax Rate
30%
WACC
10.5%
Ross MacMillan,
27
Shopify Inc.
3.25%
3.50%
3.75%
4.00%
4.25%
4.50%
4.75%
5.00%
4.00%
$55
$52
$49
$46
$44
$41
$39
$38
4.25%
$51
$48
$45
$43
$41
$39
$37
$35
Target
4.50%
$47
$45
$42
$40
$38
$36
$35
$33
Share
4.75%
$44
$42
$40
$38
$36
$34
$33
$31
Price
5.00%
$41
$39
$37
$35
$34
$32
$31
$30
5.25%
$38
$37
$35
$33
$32
$31
$29
$28
5.50%
$36
$34
$33
$32
$30
$29
$28
$27
5.75%
$34
$33
$31
$30
$29
$27
$26
$25
0.0025
3.25%
3.50%
3.75%
4.00%
4.25%
4.50%
4.75%
5.00%
4.00%
8.5%
8.7%
9.0%
9.2%
9.5%
9.7%
10.0%
10.2%
4.25%
8.8%
9.0%
9.3%
9.5%
9.8%
10.0%
10.3%
10.5%
WACC
4.50%
9.1%
9.4%
9.6%
9.9%
10.1%
10.4%
10.6%
10.9%
Analysis
4.75%
9.4%
9.7%
9.9%
10.2%
10.4%
10.7%
10.9%
11.2%
5.00%
9.8%
10.0%
10.3%
10.5%
10.8%
11.0%
11.3%
11.5%
5.25%
10.1%
10.3%
10.6%
10.8%
11.1%
11.3%
11.6%
11.8%
5.50%
10.4%
10.7%
10.9%
11.2%
11.4%
11.7%
11.9%
12.2%
5.75%
10.7%
11.0%
11.2%
11.5%
11.7%
12.0%
12.2%
12.5%
Ross MacMillan,
28
Shopify Inc.
17.0x
16.0x
15.0x
14.0x
13.0x
12.0x
11.0x
10.0x
9.0x
8.0x
Average
14.0x
SHOP
12.0x
10.0x
8.0x
HUBS
DWRE
ZEN
6.0x
MKTO
WIX
CVT
4.0x
GDDY
2.0x
0.0x
10%
15%
20%
25%
30%
35%
40%
Ross MacMillan,
29
Shopify Inc.
Market
Enterprise
Revenue
EV / Sales
Growth
Company
Ticker
6/29/15
Cap
Cash
Debt
Value
2015E
2016E
2017E
2015E
2016E
2017E
Godaddy
GDDY
$28.18
4,807
198
1,418
6,027
1,601
1,826
2,067
3.8x
3.3x
2.9x
14%
13%
Demandware
DWRE
$68.95
2,735
244
2,491
234
312
nm
10.7x
8.0x
nm
34%
nm
Zendesk
ZEN
$22.71
1,973
122
1,858
194
265
353
9.6x
7.0x
5.3x
37%
33%
Marketo
MKTO
$27.36
1,325
113
1,217
209
278
355
5.8x
4.4x
3.4x
33%
27%
Hubspot
HUBS
$48.58
1,765
124
1,642
167
212
255
9.8x
7.7x
6.4x
27%
20%
Cvent
CVT
$25.72
1,138
168
970
182
224
257
5.3x
4.3x
3.8x
23%
14%
Wix.com
WIX
$23.26
1,091
95
996
203
271
339
4.9x
3.7x
2.9x
33%
25%
Mean
7.1x
5.5x
4.1x
29%
22%
Median
5.8x
4.4x
3.6x
33%
23%
High
10.7x
8.0x
6.4x
37%
33%
Low
3.8x
3.3x
2.9x
14%
13%
16.5x
12.5x
9.7x
32%
29%
Shopify
SHOP
$31.32
2,820
197
2,622
159
210
271
Source: Company reports, RBC Capital Markets estimates for Shopify, FactSet for comparables
Ross MacMillan,
30
Shopify Inc.
Product overview
Shopifys subscriptions incorporate all the basic functionality that a small business needs to
sell both online and in person (more recently developed). While the old way of ecommerce
involved merchants having to find separate solutions for hosting, payment, analytics, SEO,
etc., Shopify deals with the complexity for a fraction of the cost. The feature set is listed
below for both functions.
Exhibit 29: Feature sets
Sell Online
Storefront
Shopping cart
Store
Management
Marketing and
SEO
Products
Web Hosting
Analytics
Shopify Mobile
24/7 Support
Secure s hoppi ng ca rt
SEO
Inventory ma na gement
Da s hboa rd
Mobi l e da s hboa rd
Product va ri a tions
Da i l y ba ckups
Product reports
Ma na ge i nventory
Knowl edge ba s e
Work wi th expert
Export reports
Shopi fy Experts
Drops hi ppi ng
Di s count codes a nd
coupons
Soci a l medi a i ntegra tion
Di gi tal products
Da ta s ync
Di s cus s i on Forums
Refunds
Ema i l ma rketing
Mul tipl e i ma gs e
Ma na ge on the go
Sel l on Fa cebook
Sell In Person
Payments
Checkout
Store
management
Customer
management
Products
Hardware
Analytics
Shopify Mobile
24/7 Support
Di s counts
Refunds
Work wi th i Pa d or i Phone
Da s hboa rd
Mobi l e da s hboa rd
Us e own termi na l
Cus tom s a l e
Order hi s tory
Ba rcode s upport
POS Ki ts
Product reports
Ma na ge i nventory
Knowl edge ba s e
Spl i t tenders
Order notes
Ca s h fl oa t
Ema i l ma rketing
Inventory Ma na gement
Export reports
Shopi fy Experts
Store Credi t
Ta xes
Da i l y total s
Product va ri a tions
Retai l reports
Da ta s ync
Di s cus s i on Forums
Shi ppi ng
Staff a ccounts
Pa rtia l pa yments
Gi ft ca rds
Simplicity is at the core of the online store setup process. We took 15 minutes from start to
finish in order to set up basic functionality for a trial store. Admittedly, it could have taken
longer if we went through the full range of customizable themes and functionality through
third-party apps. The point is that a merchant can be up and running in a very short space of
time with a professional and highly functional storefront.
Ross MacMillan,
31
Shopify Inc.
Source: Shopify
Ross MacMillan,
32
Shopify Inc.
Segments
Shopify generates revenue under two reporting segments: Subscription Solutions and
Merchant Solutions.
Subscription Solutions: Shopify generates revenue in this segment through the sale of
subscriptions to its platform, as well as the sale of themes, applications and registration of
domain names. Plans typically have a one-month term, although a small number of
merchants have annual or multi-year terms. Subscriptions auto renew and fees are paid in
advance.
Subscription plans span various price points, from starter plans to plans catered to
merchants with high volume sales and additional functionality requirements (e.g., Gift Card
Support, Abandoned Cart Recovery and Advanced Analytics). Themes, apps and domains
provide uplift to the basic subscription package, averaging ~10% of MRR in 2012, ~7% in
2013 and ~7% in 2014.
Exhibit 32: Unit economics of Subscription
AVERAGE
Average MRR
Average merchants ('000s)
MRR per Merchant
End 4Q14
End 1Q15
1Q15
6,573
7,400
6,987
145
162
153
45
46
46
MRR x 3
20,960
106.6%
$22,352
Features:
Starter Plan
Basic
Professional
Unlimited
Plus
$14
$29
$79
$179
$1000+, Custom
In person: 2.7% + 0c
In person: 2.4% + 0c
In person: 2.2% + 0c
Custom
1 GB File Storage
Shopify POS
Shopify POS
Shopify POS
Up to 25 Products
1 GB File Storage
5 GB File Storage
Account management
24/7 Support
Unlimited Products
Unlimited Products
Unlimited Products
Advanced API
Unlimited bandwidth
24/7 Support
24/7 Support
24/7 Support
Project Management
SSL checkout
Gift cards
Gift cards
Professional Reports
Professional Reports
ERP/CRM/Accounting
Multichannel Sales
CDN
Custom Fulfilment
Ross MacMillan,
33
Shopify Inc.
Starter Plan
Basic
Professional
Unlimited
Plus
In person: 2.7% + 0c
In person: 2.4% + 0c
In person: 2.2% + 0c
$0.01 - $3,000.00
$3,000.01 - $10,000.00
$10,000.01 - $100,000.00
Over $100,000.00
Custom
Merchant solutions represent Shopifys fastest-growing revenue segment. While lower gross
margin than the subscription business, it is overall accretive to revenue/profitability on an
absolute basis. This segment has some variability to it, given the seasonality inherent in any
commerce business (i.e., holiday season GMV). Newer initiatives (currently non-revenue
generating) with slightly different margin profiles such as shipping (starting 3Q) may change
the medium- to long-term margin profile of this segment as they grow.
Cost of Goods
The subscription costs are 7580% and are close to best-in-class SaaS subscription gross
margins. Costs primarily consist of those associated with hosting infrastructure, billing
processing fees, operations and merchant support expenses, third-party developer payouts,
domain registration fees and certain capitalized development costs. The slight decrease in
gross margin percentage in 2014 was principally due to a one-time cost associated with
building out the companys second data center for geographical redundancy, and is expected
to result in operational efficiencies going forward.
Costs for the Payments revenue stream of merchant Services largely comprise of interchange
and fees paid to Stripe (an online payments structure platform). We present an illustrative
gross margin walkthrough below. Keep in mind that payments currently account for 35% of
transaction volumes on the overall platform (resulting in a take rate of ~1%+ on overall
GMV), and this is expected to grow higher over time. Shopify currently supports other
payment providers like PayPal, Authorize.Net, allowing customers full freedom of choice. We
believe continued scale should allow them to gain operating leverage with Stripe and
interchange. Shopifys target model assumes a long-term gross margin of 6064%, which
implies a revenue mix of up to ~30% coming from merchant Services at current gross margin
levels.
Ross MacMillan,
34
Shopify Inc.
$100
2.9% + 30c
$3.20
$1.81
Stripe
$0.26
Default/Chargeback/Others
$0.17
Total COGS
$2.24
Gross Profit
$0.96
Gross Margin
30%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
N
WDAY
CRM
DWRE
NOW
SHOP
ULTI
ELLI
BNFT
40% of customers have historically been acquired through organic means (word of mouth)
given Shopifys thought leadership in the space. 30% of other customer acquisitions have
typically come half from partner referrals and the remaining 30% from advertising spend
(Facebook and Google).
Ross MacMillan,
35
Shopify Inc.
We estimate online ad spend at ~45% of overall Sales and Marketing costs; headcount
related costs at 3540%, with the remaining split between partner referrals and others. Thus,
we can conceptually see leverage on about 80% of the Sales and Marketing cost base (more
so on the headcount side than the online ad spend side), both as the company uses
headcount to target High Value merchants, and as the Shopify brand effect increases the
efficacy of the ad spend. We highlight the Google Trends graph below, of Shopify vs. their
closest competitors.
Exhibit 37: Google Trends of Shopify vs. competitors
To get a sense of the competitive dynamic and sustainability of Shopifys brand advantage,
we ran a series of 16 Google search terms covering three main themes Attracting new
customers (e.g., Start ecommerce business), Switching to competitive alternatives (e.g.,
Alternatives to Bigcommerce), and Vertical specific searches (e.g., Sell Jewelry Online). The
results were telling and mirror the Google Trends graph, with none of Shopifys closest
competitors in the SMB space showing up in the organic search results.
Exhibit 38: May 2015 Paid vs. Organic search results
Paid search results
10
9
8
8
7
6
5
4
3
2
1
0
Shopify
BigCommerce
Volusion
18
16
14
12
10
8
6
4
2
0
16
Shopify
May-15
BigCommerce
Volusion
May-15
Ross MacMillan,
36
Shopify Inc.
Management team
Tobias Ltke Chief Executive Officer and Co-Founder
Tobias Ltke co-founded Shopify in September 2004. Mr. Ltke has served as Chief Executive
Officer since April 2008. Prior to that, Mr. Ltke acted as the Chief Technology Officer
between September 2004 and April 2008. Mr. Ltke worked on the core team of the Ruby on
Rails framework and has created many popular open source libraries such as Active
Merchant.
Ross MacMillan,
37
Shopify Inc.
CY15E
Dec-17E
FY17E
15.6
17.7
20.4
66.7
22.4
23.0
23.7
26.2
95.3
29.0
30.7
31.1
33.4
124.2
35.9
37.9
38.4
41.3
153.6
Y/Y
74%
80%
75%
69%
74%
71%
48%
34%
29%
43%
30%
33%
31%
28%
30%
24%
24%
24%
24%
24%
Q/Q
8%
19%
14%
15%
10%
3%
3%
10%
11%
6%
1%
8%
7%
6%
1%
8%
Q/Q
Total Revenue
Y/Y
Q/Q
Cost of Subscription Solutions
Subscription Solutions Gross Margin
Cost of Merchant Solutions
Merchant Solutions Gross Margin
Total Cost of Revenue
Dec-14
FY14
Mar-15
Jun-15E
Sep-15E
Dec-15E
FY15E
Mar-16E
Jun-16E
Sep-16E
CY17E
13.1
Y/Y
Sep-14
CY16E
Jun-14
Dec-16E
FY16E
Mar-17E
Jun-17E
Sep-17E
5.8
8.1
9.7
14.8
38.3
15.0
15.1
15.4
18.4
63.9
18.8
20.0
21.5
25.5
85.8
25.7
27.3
29.3
34.9
117.1
253%
313%
264%
162%
222%
160%
86%
59%
24%
67%
25%
33%
40%
38%
34%
37%
36%
36%
37%
37%
2%
41%
19%
54%
1%
1%
2%
20%
2%
7%
7%
19%
1%
6%
7%
19%
18.8
23.7
27.3
35.2
105.0
37.3
38.1
39.1
44.6
159.1
47.7
50.8
52.6
58.9
210.0
61.6
65.2
67.7
76.2
270.7
106%
123%
115%
98%
109%
98%
61%
43%
27%
52%
28%
33%
34%
32%
32%
29%
29%
29%
29%
29%
6%
26%
15%
29%
6%
2%
3%
14%
7%
6%
4%
12%
5%
6%
4%
13%
3.2
3.8
4.6
4.9
16.5
5.0
5.5
5.8
6.3
22.6
7.1
7.5
7.6
8.0
30.3
8.6
9.1
9.2
9.9
36.9
75.2%
75.7%
74.2%
75.7%
75.2%
77.8%
76.0%
75.5%
76.0%
76.3%
75.5%
75.5%
75.5%
76.0%
75.6%
76.0%
76.0%
76.0%
76.0%
76.0%
3.9
5.5
6.5
10.5
26.4
10.8
11.2
11.5
14.0
47.4
14.2
15.1
16.2
19.1
64.6
19.3
20.5
21.9
26.2
87.8
32.3%
31.9%
32.8%
29.0%
31.1%
28.3%
26.0%
25.0%
24.0%
25.7%
24.5%
24.5%
24.5%
25.0%
24.6%
25.0%
25.0%
25.0%
25.0%
25.0%
7.1
9.3
11.1
15.5
43.0
15.7
16.7
17.3
20.3
70.0
21.3
22.7
23.8
27.1
94.9
27.9
29.6
31.2
36.1
124.7
11.7
14.4
16.3
19.7
62.0
21.6
21.4
21.8
24.3
89.1
26.5
28.1
28.7
31.8
115.1
33.7
35.7
36.5
40.1
146.0
62%
61%
60%
56%
59%
58%
56%
56%
55%
56%
55%
55%
55%
54%
55%
55%
55%
54%
53%
54%
9.6
12.4
11.3
12.0
45.2
13.4
14.6
15.7
16.1
59.7
17.7
18.6
19.2
19.1
74.6
20.9
21.5
21.7
22.9
87.0
5.2
6.0
6.1
5.9
23.1
6.5
7.5
7.8
8.0
29.9
9.5
9.6
9.5
10.0
38.7
11.4
11.7
11.5
12.6
1.7
2.0
2.2
2.7
Operating Expense
16.5
20.5
19.5
Operating Profit
(4.9)
(6.1)
(3.2)
-25.8%
-25.7%
(0.4)
(5.2)
Operating Margin
47.2
8.7
3.2
3.6
3.5
3.6
13.9
4.3
4.6
4.7
4.7
18.3
5.2
5.5
5.7
6.4
22.7
20.5
77.0
23.1
25.8
27.0
27.7
103.5
31.5
32.8
33.4
33.8
131.6
37.5
38.7
38.8
41.8
156.9
(0.8)
(15.0)
(1.5)
(4.3)
(5.2)
(3.4)
(14.4)
(5.1)
(4.7)
(4.7)
(2.0)
(16.5)
(3.8)
(3.1)
(2.3)
(1.7)
(10.9)
-11.8%
-2.4%
-14.3%
-3.9%
-11.4%
-13.4%
-7.6%
-9.1%
-10.6%
-9.2%
-8.9%
-3.5%
-7.8%
-6.2%
-4.7%
-3.4%
-2.2%
-4.0%
0.2
(0.2)
(0.3)
(0.7)
(1.1)
(0.3)
(0.3)
(0.3)
(1.8)
(0.3)
(0.3)
(0.3)
(0.3)
(1.0)
(0.3)
(0.3)
(0.3)
(0.3)
(1.2)
(5.9)
(3.4)
(1.1)
(15.7)
(2.5)
(4.6)
(5.5)
(3.6)
(16.2)
(5.3)
(4.9)
(4.9)
(2.3)
(17.5)
(4.1)
(3.4)
(2.6)
(2.0)
(12.1)
Tax
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Tax rate
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
(5.2)
(5.9)
(3.4)
(1.1)
(15.7)
(2.5)
Net Income
(4.6)
(5.5)
(3.6)
(16.2)
(5.3)
(4.9)
(4.9)
(2.3)
(17.5)
(4.1)
(3.4)
(2.6)
(2.0)
(12.1)
(0.08)
(0.07)
(0.05)
(0.26)
(0.07)
(0.06)
(0.06)
(0.03)
(0.22)
(0.05)
(0.04)
(0.03)
(0.02)
(0.15)
Y/Y
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
Q/Q
NM
NM
NM
NM
NM
NM
NM
NM
(0.09)
NM
(0.09)
NM
(0.06)
NM
(0.35)
NM
(0.09)
NM
(0.08)
NM
(0.07)
NM
(0.07)
NM
EPS Operating
EPS GAAP
(0.11)
(0.10)
(0.07)
(0.31)
(0.10)
NM
NM
NM
NM
NM
NM
NM
NM
NM
55.7
75.6
76.7
61.9
77.5
78.3
79.1
79.9
78.7
80.7
81.5
82.3
83.1
81.9
55.7
75.6
76.7
61.9
77.5
78.3
79.1
79.9
78.7
80.7
81.5
82.3
83.1
81.9
Y/Y
Q/Q
(0.30)
NM
Ross MacMillan,
38
Shopify Inc.
CY15E
Jun-14
Sep-14
Dec-14
74%
80%
253%
313%
106%
123%
58%
67%
-1307%
432%
-1364% 259098%
75%
264%
115%
70%
32%
282%
FY14
CY16E
Mar-15E
Jun-15E
Sep-15E
Dec-15E
69%
162%
98%
74%
-66%
-56%
71%
160%
98%
85%
-76%
-52%
48%
86%
61%
49%
35%
-22%
34%
59%
43%
34%
522%
62%
FY15E
CY17E
Mar-16E
Jun-16E
Sep-16E
Dec-16E
29%
24%
27%
23%
-78%
216%
30%
25%
28%
22%
17%
111%
33%
33%
33%
31%
-11%
7%
31%
40%
34%
32%
38%
-10%
FY16E
Mar-17E
Jun-17E
Sep-17E
Dec-17E
28%
38%
32%
31%
-86%
-37%
24%
37%
29%
27%
-19%
-23%
24%
36%
29%
27%
-34%
-31%
24%
36%
29%
27%
14%
-46%
24%
37%
29%
26%
-90%
-12%
FY17E
301%
176%
128%
189%
147%
362%
166%
143%
138%
149%
248%
65%
87%
119%
82%
141%
24%
56%
98%
49%
120%
25%
39%
85%
40%
80%
25%
18%
79%
26%
57%
29%
39%
60%
38%
31%
37%
34%
30%
35%
35%
46%
32%
34%
37%
36%
28%
27%
26%
27%
37%
21%
23%
34%
24%
34%
25%
19%
32%
22%
31%
19%
18%
20%
19%
31%
22%
16%
20%
18%
31%
22%
13%
20%
16%
33%
25%
20%
36%
24%
8%
2%
6%
3%
98%
102%
19%
41%
26%
23%
25%
13%
14%
19%
15%
13%
-47%
-43%
15%
54%
29%
21%
-74%
-66%
10%
1%
6%
10%
75%
120%
3%
1%
2%
-1%
196%
82%
3%
2%
3%
2%
20%
19%
10%
20%
14%
12%
-35%
-34%
11%
2%
7%
9%
50%
47%
6%
7%
6%
6%
-8%
-8%
1%
7%
4%
2%
0%
0%
8%
19%
12%
11%
-56%
-53%
7%
1%
5%
6%
85%
78%
6%
6%
6%
6%
-18%
-17%
1%
7%
4%
2%
-25%
-22%
8%
19%
13%
10%
-27%
-24%
11%
11%
25%
25%
20%
30%
15%
29%
17%
24%
19%
1%
-9%
9%
-5%
40%
-3%
6%
25%
5%
2%
12%
12%
17%
12%
6%
15%
9%
13%
12%
4%
4%
7%
-3%
5%
17%
3%
3%
1%
3%
5%
19%
10%
21%
14%
6%
1%
5%
6%
4%
5%
-2%
4%
4%
2%
14%
6%
-1%
0%
1%
3%
14%
10%
10%
11%
6%
3%
3%
6%
3%
5%
-2%
1%
4%
0%
16%
9%
6%
13%
8%
69%
31%
100%
62%
-26%
66%
34%
100%
61%
-26%
65%
35%
100%
60%
-12%
58%
42%
100%
56%
-2%
63%
37%
100%
59%
-14%
60%
40%
100%
58%
-4%
60%
40%
100%
56%
-11%
61%
39%
100%
56%
-13%
59%
41%
100%
55%
-8%
60%
40%
100%
56%
-9%
61%
39%
100%
55%
-11%
61%
39%
100%
55%
-9%
59%
41%
100%
55%
-9%
57%
43%
100%
54%
-3%
59%
41%
100%
55%
-8%
58%
42%
100%
55%
-6%
58%
42%
100%
55%
-5%
57%
43%
100%
54%
-3%
54%
46%
100%
53%
-2%
57%
43%
100%
54%
-4%
38%
28%
51%
9%
88%
39%
25%
52%
9%
86%
40%
22%
41%
8%
71%
44%
17%
34%
8%
58%
41%
22%
43%
8%
73%
42%
17%
36%
9%
62%
44%
20%
38%
10%
68%
44%
20%
40%
9%
69%
45%
18%
36%
8%
62%
44%
19%
38%
9%
65%
45%
20%
37%
9%
66%
45%
19%
37%
9%
65%
45%
18%
37%
9%
64%
46%
17%
32%
8%
57%
45%
18%
36%
9%
63%
45%
19%
34%
8%
61%
45%
18%
33%
8%
59%
46%
17%
32%
8%
57%
47%
17%
30%
8%
55%
46%
17%
32%
8%
58%
Ross MacMillan,
39
Shopify Inc.
Jun-14
74.2
CY14
Sep-14
65.5
Dec-14
42.0
CY15E
Sep-15E
169.7
17.7
7.3
1.0
195.7
CY16E
Sep-16E
144.5
17.7
9.8
1.0
173.0
CY17E
Sep-17E
129.8
17.7
12.6
1.0
161.2
5.3
5.9
6.5
7.2
85.8
80.9
72.8
68.4
FY14
42.0
17.7
7.2
1.5
68.4
PPE
Goodwill
Intangibles
Total LT Assets
5.5
2.4
1.4
9.4
8.0
2.4
1.6
11.9
15.8
2.4
2.0
20.2
21.7
2.4
2.7
26.8
21.7
2.4
2.7
26.8
25.5
2.4
1.4
29.3
29.9
2.4
1.7
34.0
34.7
2.4
3.3
40.4
39.8
2.4
3.5
45.6
39.8
2.4
3.5
45.6
42.1
2.4
3.7
48.2
44.5
2.4
4.0
50.9
47.2
2.4
4.7
54.2
50.0
2.4
5.0
57.4
50.0
2.4
5.0
57.4
52.2
2.4
5.6
60.2
54.6
2.4
5.7
62.7
57.1
2.4
5.8
65.3
59.9
2.4
6.0
68.2
59.9
2.4
6.0
68.2
Total Assets
95.2
92.8
92.9
95.2
95.2
97.3
236.2
236.1
232.9
232.9
232.4
229.2
227.2
226.4
226.4
226.7
226.1
226.5
226.9
226.9
9.0
4.9
0.4
14.4
10.1
5.6
0.4
16.1
12.0
6.0
0.4
18.5
12.5
6.8
0.5
19.8
12.5
6.8
0.5
19.8
15.9
7.9
0.5
24.3
15.6
9.0
0.5
25.0
18.0
9.6
0.5
28.2
18.2
9.8
0.5
28.5
18.2
9.8
0.5
28.5
21.9
10.7
0.5
33.1
23.3
10.9
0.5
34.7
24.8
12.1
0.5
37.3
25.3
12.8
0.5
38.6
25.3
12.8
0.5
38.6
28.7
13.5
0.5
42.7
30.5
14.2
0.5
45.1
32.4
14.9
0.5
47.8
33.6
15.7
0.5
49.8
33.6
15.7
0.5
49.8
LT Deferred
Lease Incentives
Total LT Liabilities
0.2
0.4
0.6
0.2
2.2
2.4
0.3
3.2
3.5
0.4
7.3
7.7
0.4
7.3
7.7
0.4
7.8
8.2
0.7
7.8
8.5
0.8
9.8
10.7
1.0
9.8
10.8
1.0
9.8
10.8
1.2
9.8
11.0
1.3
9.8
11.2
1.6
9.8
11.5
1.9
9.8
11.7
1.9
9.8
11.7
2.2
9.8
12.0
2.5
9.8
12.3
2.8
9.8
12.7
3.2
9.8
13.1
3.2
9.8
13.1
Total Liabilities
15.0
18.5
21.9
27.5
27.5
32.6
33.5
38.8
39.3
39.3
44.1
45.9
48.8
50.3
50.3
54.7
57.5
60.5
62.9
62.9
64.8
202.7
197.2
193.6
188.2
183.3
178.4
176.1
172.0
168.6
166.0
164.0
97.3
236.2
236.0
232.9
232.3
229.2
227.2
226.4
226.7
226.1
226.5
226.8
Cash
ST Investments
Trade and Other Receivables
Other ST Assets
Total ST Assets
Shares
APIC
Accumulated Deficit
Shareholders Equity
Shareholders Equity and Total Liabilities
80.2
74.3
71.0
67.7
91.1
5.7
(29.1)
67.7
95.2
92.8
92.9
95.2
95.2
Mar-15
41.5
17.7
7.3
1.5
68.0
Jun-15E
176.0
17.7
7.1
1.5
202.3
Dec-15E
161.5
17.7
7.1
1.0
187.3
FY15E
161.5
17.7
7.1
1.0
187.3
Mar-16E
156.1
17.7
9.4
1.0
184.2
Jun-16E
150.1
17.7
9.5
1.0
178.3
Dec-16E
139.3
17.7
11.0
1.0
169.0
FY16E
139.3
17.7
11.0
1.0
169.0
Mar-17E
135.7
17.7
12.2
1.0
166.5
Jun-17E
132.5
17.7
12.2
1.0
163.4
Dec-17E
126.2
17.7
13.8
1.0
158.7
FY17E
126.2
17.7
13.8
1.0
158.7
Ross MacMillan,
40
Shopify Inc.
Jun-15E
(6.1)
CY15E
Sep-15E
(13.4)
Dec-15E
(19.0)
4.7
3.8
0.7
0.1
1.5
1.4
0.0
0.0
3.5
3.0
0.0
0.0
5.7
4.7
0.0
0.0
8.0
6.8
0.0
0.0
0.5
0.0
0.0
0.0
Change in Receivables
Change in Payables
Changes in Lease Incentives
Changes in Deferred Revenue
Changes in non-working capital items
7.3
2.8
1.7
(0.1)
1.8
0.5
1.1
1.3
0.1
1.4
0.5
2.5
1.1
(0.8)
7.6
5.9
(20.5)
(17.8)
(2.1)
(3.8)
0.3
0.0
(10.2)
0.0
0.0
(17.2)
0.0
0.0
(24.6)
0.0
0.0
(40.4)
(3.6)
(10.2)
(17.2)
0.1
0
0.1
138.3
0.0
0.1
0.1
(0.5)
0.0
Net Loss
Amortization and Depreciation
Stock Based Compensation
Vesting of Restricted Stock
Gain/ Loss on Asset Disposal
Other
Unrealized Foreign Exchange Loss
Capex
Purchase/ Sales of ST Investments
Intangible Assets
Acquisitions of businesses, net of cash
Cash flow from Investing
Issuance of Shares
Proceeds from exercise of stock options
Cash flow from Financing
Mar-14
(6.4)
1.0
1.1
Jun-14
(13.2)
2.1
2.1
CY14
Sep-14
(17.5)
3.4
3.0
Dec-14
(22.3)
4.7
3.8
0.7
FY14
(22.3)
(41.6)
83.5
42.0
4.1
42.0
46.0
Mar-16E
(7.6)
Jun-16E
(14.9)
CY16E
Sep-16E
(22.3)
Dec-16E
(27.3)
Mar-17E
(7.0)
Jun-17E
(13.5)
CY17E
Sep-17E
(19.4)
Dec-17E
(24.8)
8.0
6.8
0.0
0.0
2.8
2.2
0.0
0.0
5.8
4.6
0.0
0.0
9.0
7.2
0.0
0.0
12.5
9.9
0.0
0.0
12.5
9.9
0.0
0.0
3.4
2.9
0.0
0.0
6.9
6.0
0.0
0.0
10.7
9.3
0.0
0.0
14.8
12.7
0.0
0.0
14.8
12.7
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
(0.1)
3.9
2.5
3.3
(0.1)
0.1
4.1
2.5
3.7
(0.3)
0.1
4.1
2.5
3.7
(0.3)
(2.3)
3.7
0.0
1.0
(0.2)
(2.4)
5.1
0.0
1.4
(0.5)
(2.7)
6.6
0.0
2.9
(1.2)
(3.9)
7.1
0.0
3.9
(1.5)
(3.9)
7.1
0.0
3.9
(1.5)
(1.2)
3.4
0.0
1.0
(0.6)
(1.2)
5.2
0.0
2.0
(0.7)
(1.6)
7.2
0.0
3.0
(0.8)
(2.8)
8.3
0.0
4.2
(0.9)
(2.8)
8.3
0.0
4.2
(0.9)
6.7
5.9
5.9
(0.3)
(0.8)
(0.6)
0.5
0.5
1.9
4.8
8.4
11.5
11.5
(24.6)
0.0
0.0
(5.1)
0.0
0.0
(10.6)
0.0
0.0
(16.4)
0.0
0.0
(22.7)
0.0
0.0
(22.7)
0.0
0.0
(5.6)
0.0
0.0
(11.6)
0.0
0.0
(17.9)
0.0
0.0
(24.7)
0.0
0.0
(24.7)
0.0
0.0
(24.6)
(24.6)
(5.1)
(10.6)
(16.4)
(22.7)
(22.7)
(5.6)
(11.6)
(17.9)
(24.7)
(24.7)
138.3
0.0
138.3
0.0
138.3
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
138.3
0.0
138.3
138.3
138.3
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
134.0
42.0
176.0
127.7
42.0
169.7
119.6
42.0
161.5
119.6
42.0
161.5
FY15E
(19.0)
(5.4)
161.5
156.1
(11.4)
161.5
150.1
(17.0)
161.5
144.5
(22.2)
161.5
139.3
FY16E
(27.3)
(22.2)
161.5
139.3
(3.6)
139.3
135.7
(6.8)
139.3
132.5
(9.5)
139.3
129.8
(13.1)
139.3
126.2
FY17E
(24.8)
(13.1)
139.3
126.2
Ross MacMillan,
41
Shopify Inc.
All statements in this report attributable to Gartner represent RBC Capital Markets interpretation of data,
research opinion, or viewpoints published as part of a syndicated subscription service by Gartner, Inc., and have
not been reviewed by Gartner. Each Gartner publication speaks as of its original publication date (and not as of
the date of this research report). The opinions expressed in Gartner publications are not representations of fact,
and are subject to change without notice.
Ross MacMillan,
42
Shopify Inc.
Required disclosures
Non-U.S. analyst disclosure
Paul Treiber (i) is not registered/qualified as a research analyst with the NYSE and/or FINRA and (ii) may not be associated
persons of the RBC Capital Markets, LLC and therefore may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on
communications with a subject company, public appearances and trading securities held by a research analyst account.
Conflicts disclosures
The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including
total revenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated
by investment banking activities of the member companies of RBC Capital Markets and its affiliates.
Please note that current conflicts disclosures may differ from those as of the publication date on, and as set forth in,
this report. To access current conflicts disclosures, clients should refer to https://www.rbccm.com/GLDisclosure/PublicWeb/
DisclosureLookup.aspx?entityId=1 or send a request to RBC CM Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza,
29th Floor, South Tower, Toronto, Ontario M5J 2W7.
A member company of RBC Capital Markets or one of its affiliates managed or co-managed a public offering of securities for
Shopify Inc. in the past 12 months.
A member company of RBC Capital Markets or one of its affiliates received compensation for investment banking services from
Shopify Inc. in the past 12 months.
A member company of RBC Capital Markets or one of its affiliates expects to receive or intends to seek compensation for
investment banking services from Shopify Inc. in the next three months.
RBC Capital Markets, LLC makes a market in the securities of Shopify Inc..
RBC Capital Markets is currently providing Shopify Inc. with investment banking services.
RBC Capital Markets has provided Shopify Inc. with investment banking services in the past 12 months.
Ross MacMillan,
43
Shopify Inc.
Distribution of ratings
For the purpose of ratings distributions, regulatory rules require member firms to assign ratings to one of three rating categories
- Buy, Hold/Neutral, or Sell - regardless of a firm's own rating categories. Although RBC Capital Markets' ratings of Top Pick(TP)/
Outperform (O), Sector Perform (SP), and Underperform (U) most closely correspond to Buy, Hold/Neutral and Sell, respectively,
the meanings are not the same because our ratings are determined on a relative basis (as described below).
Distribution of ratings
RBC Capital Markets, Equity Research
As of 30-Jun-2015
Investment Banking
Serv./Past 12 Mos.
Rating
BUY [Top Pick & Outperform]
HOLD [Sector Perform]
SELL [Underperform]
Count
Percent
Count
Percent
935
707
117
53.15
40.19
6.65
293
124
6
31.34
17.54
5.13
References to a Recommended List in the recommendation history chart may include one or more recommended lists or model
portfolios maintained by RBC Wealth Management or one of its affiliates. RBC Wealth Management recommended lists include
the Guided Portfolio: Prime Income (RL 6), the Guided Portfolio: Large Cap (RL 7), the Guided Portfolio: Dividend Growth (RL 8),
the Guided Portfolio: Midcap 111 (RL 9), the Guided Portfolio: ADR (RL 10), and the Guided Portfolio: Global Equity (U.S.) (RL 11).
RBC Capital Markets recommended lists include the Strategy Focus List and the Fundamental Equity Weightings (FEW) portfolios.
The abbreviation 'RL On' means the date a security was placed on a Recommended List. The abbreviation 'RL Off' means the date
a security was removed from a Recommended List.
Conflicts policy
RBC Capital Markets Policy for Managing Conflicts of Interest in Relation to Investment Research is available from us on request.
To access our current policy, clients should refer to
June 30, 2015
Ross MacMillan,
44
Shopify Inc.
https://www.rbccm.com/global/file-414164.pdf
or send a request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South
Tower, Toronto, Ontario M5J 2W7. We reserve the right to amend or supplement this policy at any time.
Analyst certification
All of the views expressed in this report accurately reflect the personal views of the responsible analyst(s) about any and all of
the subject securities or issuers. No part of the compensation of the responsible analyst(s) named herein is, or will be, directly or
indirectly, related to the specific recommendations or views expressed by the responsible analyst(s) in this report.
The Global Industry Classification Standard (GICS) was developed by and is the exclusive property and a service mark of MSCI Inc. (MSCI) and Standard & Poors Financial Services
LLC (S&P) and is licensed for use by RBC. Neither MSCI, S&P, nor any other party involved in making or compiling the GICS or any GICS classifications makes any express or implied
warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties
of originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing,
in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special,
punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
Disclaimer
RBC Capital Markets is the business name used by certain branches and subsidiaries of the Royal Bank of Canada, including RBC Dominion Securities Inc., RBC
Capital Markets, LLC, RBC Europe Limited, RBC Capital Markets (Hong Kong) Limited, Royal Bank of Canada, Hong Kong Branch and Royal Bank of Canada, Sydney
Branch. The information contained in this report has been compiled by RBC Capital Markets from sources believed to be reliable, but no representation or warranty,
express or implied, is made by Royal Bank of Canada, RBC Capital Markets, its affiliates or any other person as to its accuracy, completeness or correctness. All
opinions and estimates contained in this report constitute RBC Capital Markets' judgement as of the date of this report, are subject to change without notice and
are provided in good faith but without legal responsibility. Nothing in this report constitutes legal, accounting or tax advice or individually tailored investment
advice. This material is prepared for general circulation to clients and has been prepared without regard to the individual financial circumstances and objectives of
persons who receive it. The investments or services contained in this report may not be suitable for you and it is recommended that you consult an independent
investment advisor if you are in doubt about the suitability of such investments or services. This report is not an offer to sell or a solicitation of an offer to buy
any securities. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. RBC Capital
Markets research analyst compensation is based in part on the overall profitability of RBC Capital Markets, which includes profits attributable to investment banking
revenues. Every province in Canada, state in the U.S., and most countries throughout the world have their own laws regulating the types of securities and other
investment products which may be offered to their residents, as well as the process for doing so. As a result, the securities discussed in this report may not be
eligible for sale in some jurisdictions. RBC Capital Markets may be restricted from publishing research reports, from time to time, due to regulatory restrictions and/
or internal compliance policies. If this is the case, the latest published research reports available to clients may not reflect recent material changes in the applicable
industry and/or applicable subject companies. RBC Capital Markets research reports are current only as of the date set forth on the research reports. This report is
not, and under no circumstances should be construed as, a solicitation to act as securities broker or dealer in any jurisdiction by any person or company that is not
legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. To the full extent permitted by law neither RBC Capital Markets nor
any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information
contained herein. No matter contained in this document may be reproduced or copied by any means without the prior consent of RBC Capital Markets.
Ross MacMillan,
45
Shopify Inc.
Ross MacMillan,
46