Friday File: Mini Panics over Growth, a New Royalty Company, and a few Portfolio Updates

Notes on Amazon, Shopify, Okta, Disney, Hipgnosis, Sandstorm Gold and more...

By Travis Johnson, Stock Gumshoe, April 5, 2019

A happy Friday to all of you out there in Gumshoeland… I’ve got a bunch of little stories to cover, starting with a chain of thoughts about some of the overvalued “cloud” stocks that have generated a little news in recent days, and then I’ll provide a few updates on other stocks, and a couple buy/sell updates to the Real Money Portfolio…

A new Citron short piece on Shopify (SHOP) came out this week, essentially reading the tea leaves of a string of bad news items that are each quite minor on their own (a competing product from Microsoft, the dissolution of their partnership with Mailchimp over privacy concerns, more competition from Square following its Weebly acquisition, more selling options provided by Facebook in Instagram).

Crazy valuations abound in the cloud software sector and among all the similar small software stocks, and that seems to have just as much impact as Citron’s piece. Andrew Left has come out with short attacks on Shopify before, and reiterating a short thesis is rarely as impactful as coming out with a new one — though the argument this time is a little different. His last certainty was that SHOP would be “caught red-handed” by the FTC for nefarious marketing and drop to $60, that was when SHOP was trading at about $110 in the fall of 2017… now it’s trading right around $200 and his target is $100. Here’s the summary of his current thesis:

“The move of 50% in Shopify’ stock price this year despite its below consensus profit guidance can be attributed to the rise in social commerce. However, remember that this guidance was given BEFORE the news flow over the past 30 days. Just when the business seemed unstoppable, the obvious change in narrative for this market darling will soon cause it to fall victim to the forces of gravity from its stratospheric valuation — which was based on no competition, no regulatory risk, and flawless execution.

“While Shopify has been expensive for a while, the short now is not a valuation call but rather a drastic change in the competitive and regulatory landscape. These risks will almost certainly negatively impact the growth of a stock priced at a forward multiple of over 300x.”

Citron’s argument is compelling in the way that criticism of pretty much all the nosebleed-valuation stocks is compelling — we are primed to lok for reasons for them to fall, because ...

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