Shopify (SHOP) & Briefly CrowdStrike (CRWD) – Price Hikes – February 10, 2024

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Shopify (SHOP) & Briefly CrowdStrike (CRWD) – Price Hikes – February 10, 2024

Shopify is raising Shopify Plus subscription plans by 25% from $2,000 per month to $2,500 per month. Last time it hiked pricing, the increases were met with “zero pushback.” Shopify provides far more value than its competition. Many, many companies offer pieces of what Shopify does like web building or business banking. Nobody else does it all. Nobody else combines a pre-built, massive base of shoppers, sophisticated marketing tools, merchant credit products, end-to-end supply chain help (through partners), ubiquitous channel integrations and (so much) more neatly tied into a single merchant dashboard. Nobody gives merchants as overarching of a view of their operations as Shopify does because nobody touches as many parts of it as Shopify does. It will continue to periodically raise pricing as it introduces more value into its bundles – always with a goal to underprice vs. the utility it delivers.

What does unmatched utility mean? Pricing power. This news is Shopify flexing that pricing power. The financial impact could be quite material. There are about 20,000 Shopify Plus merchants. Some have a few standalone stores, so let’s assume there are 26,000 total subscriptions and that 1,000 will churn (pessimistic, but go with it). This hike means $6,000 in added annual revenue per merchant for the 25,000 remaining subscriptions. That’s $150 million in added annual revenue, or a 2% boost to 2024 revenue. The $150 million will be purely profit, meaning it could prop up earnings per share by a full 11% in 2024. That would take its 2024 earnings multiple from 83x to 75x, with earnings growing at a 2-year forward CAGR of about 45%. Expensive, which is why I trimmed 6% of the position on Friday, but certainly not ridiculous or bubblicious. And a best-in-class player in a massive, massive industry with briskly rising market share, accelerating growth and explosive operating leverage deserves a premium.

I really don’t see much near-term share price upside coming from next week’s earnings report. I do see a lot of long term upside and expect the upcoming results to reiterate that opinion. What could lead to more explosive short-term upside for a red hot stock? Its suite of GenAI products (Shopify Magic) realizing significant traction and leading to a large beat and raise vs. consensus. It would need to have a Palantir moment where analysts suddenly grow wildly more bullish on 2024 GenAI monetization potential. If Shopify (and CrowdStrike) deliver shockingly good quarters and see the stocks pop, great. If they don’t, I selfishly hope the data is still as good as it should be and that the sell-off is sharp enough to allow me to add more shares.

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