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Good day to you all and me. I have received a few messages asking me how I connect my statement that Shopify is a Ponzi to disappearance, probably, murder of the head of Shopify treasury, Brett O'Grady. Here I decided to connect all information that I base my statement on.
To not ruin the presentation I say my positions in advance:
A lot of puts 150-200 strike range Jan22 and some 160-300 range for Jun22 and Sep22. This company will go to 0. I am poor so my positions do not qualify for YOLO post. It is repost of yesterday post. Nothing new is here.
Shopify “has” substantial growth of book revenue for the last 2 years. Shopify claims that they have generated 1.12 bln. Revenue in 3Q 2021. They claim that this much revenue was generated by 42 bln. of Gross Merchandise Volume (hereafter - GMV) of all Shopify stores.
*Exhibit from latest 10Q:
“Key performance indicators, which we do not consider to be non-GAAP measures, that we use to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions include Monthly Recurring Revenue ("MRR") and Gross Merchandise Volume ("GMV"). Our key performance indicators may be calculated in a manner different than similar key performance indicators used by other companies. The following table shows MRR and GMV for the three and nine months ended September 30, 2021 and 2020... ...Three months ended September 30, Gross Merchandise Volume $ 41,764,997”
There are some companies for comparison 3Q 2021: Coca-Cola with all subsidiaries - 10.4 bln. revenue, Phizer - 24 bln. revenue. Yes, Shopify says that Shopify stores selling yoga equipment or metal straws sold more than two companies from S&P 500 combined.
This can be true: Shopify powers stores of Pepsi Co., Staples, Fenty Beauty, right?
Wrong! Pepsi does not sell from its website, B2B only, Staples and Fenty Beauty do not have SHOPIFY PAYMENTS checkout meaning they are not part of revenue sharing plan, you can check it yourself.
Why Shopify payments is important? Because it composes 50% of all Shopify revenue or 75% of merchant solutions revenue.
*Exhibit from latest 40F
“Merchant solutions revenues increased $1,084.8 million, or 115.9%, for the year ended December 31, 2020 compared to the same period in 2019. The increase in merchant solutions revenues was primarily a result of Shopify Payments revenue growing by $835.2 million, or 121.2%, in 2020 compared to the same period in 2019.”
Formula: $835.2 /121.2% + $835.2 = 1,524 mln. Payments revenue of 2,021 mln. Merchant solutions revenue in 2020.
So Shopify is now a fintech company? If it is, it has the best equipment in the world that can generate >300x yearly revenue of its book value:
*Exhibit from the latest 40-F
“10. Property and Equipment, December 31, 2020 Computer equipment Net book value $ 9,331”
Or rents the best equipment in the world:
*Exhibit from the latest 10-q
“The components of lease expense were as follows: Nine months ended September 30, 2021 Operating lease expense 16,041 Variable lease expense, including non-lease components 9,210 Total lease expense 25,251”
Really, it doesn't. There are 10 000 employees at the moment. It means that IT company has 980 USD of computer equipment per employee. That means that this company only has PC for each employee and probably a couple of old servers for accounting department. That's it!
The reality is that Shopify payments is a Stripe with Shopify logo on it:
*Exhibit from latest 40F
“We currently rely on a single supplier to provide the technology we offer through Shopify Payments.
At present, we have payment service provider agreements with Stripe, Inc. ("Stripe"), which automatically renew every 12 months, unless either party terminates the agreement earlier upon 180 days' notice. These agreements are integral to Shopify Payments and, at this time, any disruption or problems with Stripe or its services could have an adverse effect on our reputation, results of operations and financial results. We have the ability, under our current agreements, to integrate alternative payment service providers for Shopify Payments. However, if Stripe were to terminate its relationship with us before an alternative payment service provider was fully integrated we could incur substantial delays and expense, and the quality and reliability of such alternative payment service provider may not be comparable.”
The whole responsibility for Shopify payments is on Stripe according to the contact (section 5, it is a bit long, didn't quote):
Despite that Shopify has no responsibility over payments and has no infrastructure it still recognizes revenue as a principal despite that in reality it is acting as an agent:
*Exhibit from latest 40F:
“The Company follows the guidance provided in ASC 606, Revenue from Contracts with Customers, for determining whether the Company is the principal or an agent in arrangements with customers that involve another party that contributes to providing a specified service to a customer. In these instances, the Company determines whether it has promised to provide the specified service itself (as principal) or to arrange for the specified service to be provided by another party (as an agent). This determination depends on the facts and circumstances of each arrangement and, in some instances, involves significant judgment. The Company recognizes revenue from Shopify Shipping, the sales of apps and Shop Pay Installments on a net basis as the Company is not primarily responsible for the fulfillment, does not have control of the promised service, and does not have full discretion in establishing prices and therefore is the agent in the arrangement with merchants. All other revenue is reported on a gross basis, as the Company has determined it is the principal in the arrangement.”
Note that Shop Pay instalments are not Shopify Payments. These are two different products.
Why it is important? (writing like Motley fool, lol, it is because they are publishing bullish article about Shopify every day and I read them).
It is important because even with abuse of Point-of-sale revenue recognition method for Shopify payments Company is still overvalued by PE metric. And there are two ways to increase profit:
1. To cut costs - impossible, because all costs are commission of Stripe
2. To increase revenue - possible.
This brings us to the thesis why Shopify is Ponzi. In order to show higher profit Shopify Inc. creates fake stores and makes fake sales from them. There is a study published in Forbes supporting this statement:
Revenue from these fake stores is not real but cost of sales (fee of Stripe) is real and Shopify has constant cash outflows from its operations. It is surviving only by friquent SPOs: Feb 2018, Dec 2018, Sep 2019, May 2020, Sep 2020, Feb 2021 (see 10Q and 40F).
This brings us to the darkest part of fraud. Shopify gets clear audit opinion. Cash balance is confirmed. Does it mean that if cash flow statement is correct and balance is correct then P&L is correct? Not neceserally. What is in the cash balance? 71% of cash is marketable securities:
*Exhibit from latest 40-F
“As at December 31, 2020 and 2019, the Company's cash and cash equivalents balance was $2,703,597 and $649,916, respectively. These balances included $1,927,013 and $423,443, respectively, of money market funds, repurchase agreements, U.S. federal bonds and corporate bonds and commercial paper.”
And there are 2 ways how to get marketable securities:
1 - Buy them with cash 2 - Buy them on margin
Shopify got these marketable securities on margin because they don't have that much cash. Auditors send confirmation request to broker of Shopify and receive an answer with open positions but without margin. Clear audit opinion is in the pocket. In quarterly statements no need for such manipulation because there is no audit. Cash balance can also be used as collateral or Shopify could provide a bank guarantee. There are many ways to get a margin.
One day head of Shopify treasury, Brett O'Grady, sees financial statements and asks the top management why margin is not presented in them (in liabilities section of balance sheet). (This is fine. I am responsible for preparing financial statement at my current work place and the head of treasury is my closest friend. He has never seen FS of our company despite that I send them to all employees of finance department. He doesn't care because it is not his responsibility). After getting no real answer or answer that Shopify is committing a fraud. And seeing that it is the reason why 20 executives left the company in the past 2 years:
He calculates 2 + 2 and says something wrong. Then Shopify executives make him disappear from this world. Leaving wife and his child:
There is no sign of violence. Bike is in perfect condition. He just disappeared. His father says that it is not in his character. Because there is no body homicide case can't be open. To clear possible trace and avoid suspicion Shopify hires private investigation firm:
TLDR: Shopify operates under the following scheme: Create fake stores -> make fictional sales through them -> report revenue growth -> do SPO when Stripe eats all your money -> repeat -> at the end of the year for auditors buy marketable securities on margin and remaining cash to get clean opinion.
Support it by paying Motley fool to publish a bullish thesis on you every day and spending 500 mln. in a year sales and marketing.
If there is a risk of Stripe going public and your fraud to be exposed purchase <1% of Stripe for the amount of your yearly R&D budget (400 mln.) It will satisfy Stripe for some time.
Why I performed such investigation on Shopify, what made me target this company? It is pure coincidence driven by my low IQ and dirty pumping. As a true retard I started my play with stocks in 2021. I read Motley fool and bought SHOP myself, it was my first stock. Only after it I read 40F myself and sold it in panic.