It wasn’t until 2017 that I learned that Shopify was trading in the public markets. In 2018 I loaded up a sizeable chunk of my portfolio with SHOP.TO even through I thought it was very expensive and overpriced at the time. I believed that it was a great business platform with huge growth potential, and I still believe that. I believed that in the long run it it would be worth way more $150 per share. I also thought that even at that price it was very expensive. Selling at 15 to 20 times revenue with no actual earnings was expensive to me. Shopify’s story combined with the momentum it had and its balance sheet is what convinced me to purchase so much of it.
And I kept buying more and more at every pull-back. My plan was to hold for the long run. But now that it is selling for over 50 times revenue, I convinced myself to liquidate 80% of my shares.
The way I currently see it is in a five year time period. If revenues grow to $5 billion and the multiple comes back to a very respectable but more normal multiple of 15 times revenue (which is on the high end of a tech growth company) then its market capitalization will be $75 billion. So my issue is that it is currently selling with a $66.65 billion market capitalization. After laying in bed contemplating these numbers for a few days I decided I’ve held SHOP.TO at these multiples for long enough. I still think it is an AMAZING company with HUGE growth potential. Going from $1.3 to $5 billion in five years is HUGE! I just don’t think it will still be selling for over 50 times revenue in 2026.
There are two assumptions I am making that I could be wrong about. First, Shopify could actually grow faster over the next five years than it has the last five years. Second, it could take longer than five years for the multiple to come down. Either way, for the time being I want a bit less excitement and a bit more stability in my portfolio.