David Gardner’s “The Next Amazon.com” Stock

Motley Fool Rule Breakers teases: "Why this may be our second chance at banking an e-commerce fortune..."

Newer versions of the ad hint that "This 37-Year-Old CEO Is Betting $782,000,000 on 1 Stock"

By Travis Johnson, Stock Gumshoe, September 1, 2017


This article was originally published on January 12, 2017. I have updated my disclosures and the Irregulars Quick Take, and added some comments and number updates to update my thoughts on the stock, but many of the quotes are from the earlier version of the ad and not everything has been updated. The company being touted, Shopify, was just under $50 a share when this article first appeared, it is currently in the $110 neighborhood.

The Motley Fool has another sales pitch for their Rule Breakers newsletter service that has led a few readers to send questions our way, so it’s time for us to fire up the ol’ Thinkolator and see what it is that they’re hinting at.

Rule Breakers is the growth-focused “entry level” newsletter from the Motley Fool these days — as they’ve focused more on recruiting members for their hugely expensive Supernova and Motley Fool One and asset management and “get everything” products, most of what used to be their more exclusive newsletters (Hidden Gems, Rule Breakers, etc.) have drifted down in price to that key $49ish level where they can bring in new “never subscribed to anything before” customers (who then become the best candidates for their “upgrade to our better stuff” pitch in the months following their signup).

That’s what all publishers do, but it’s good to keep it in mind — in the Motley Fool’s case, the basic strategy seems to be that they do all the stock recommendations and analysis in the newsletters, and then do all the real portfolio allocation advice and more hands-on “service” in the pricier memberships. So at least they’re not pitching you a “secret” stock for this $49 service and then pitching a second “even more secret” stock for the $5,000 service the day after you sign up.

But most of you don’t care about that — what you’re wondering, I gather, is “what’s the stock?” Let’s look into some clues from the ad so we can get you an answer. First, the big picture promise of future riches:

“Two of the smartest (and most successful) investors I’ve ever met say that buying shares of this company today could be like going back in time and snapping up Amazon.com in 1997…

“Just before it shot up over 25,000% and made investors like you and me rich beyond their wildest dreams… turning every $10,000 invested into more than $2.5 million!”

It’s true that David Gardner recommended Amazon way back when it was a fresh new company that only sold books, before the dot-com crash… and that he rode it all the way to today, making it a fantastically incredible investment.

It’s also true that they’re a little free with the “next Amazon” comparisons in the marketing department at the Motley Fool… and that, like other growth stock services, they emphasize those few huge winners that any such service always has. Most growth stocks that they tease get the “next Netflix” or “like buying Priceline at $50” or the “looks a lot like Amazon in the early days” treatment as they try to remind you of Gardner’s past successes and, perhaps, gloss over the fact that it is typically a few blowout performers that bring up the average returns for the sometimes 100 or more stocks recommended by the newsletter… so you better buy all the stocks, or somehow pick the ones that will be huge winners instead of the ones that never take off.

One of David Gardner’s more recent heavily promoted “secret” ideas was Match Group (MTCH) last Spring, and that also got the “like buying Amazon in the 1990s” comparison (the stock is doing well since that recommendation, incidentally, up about 50%).

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And this one also gets the “Netflix” mention from Eric Bleeker, the analyst who actually signs the recruiting letter (the Fool, probably wisely, has gotten away from having their stars, founders Dave and Tom Gardner, sign the heavily promotional teaser letters)…

“I haven’t been this excited about a stock since Netflix – which has delivered returns of 5455% to those who followed David’s December 2004 recommendation!”

But anyway… which specific one is being pitched today? Inquiring Gumshoe’s wanna know! Clues for you:

“… this one is still a relatively tiny company – meaning its biggest gains may well still be yet to come.

“In fact, it’s currently just 1/100th the size of Amazon, yet it is exhibiting the same kind of eye-popping numbers that have turned Amazon into arguably the greatest growth story of our generation.

“For instance, this company has…

  • Managed to grow the number of companies that sell goods on its websites from 84,000 in 2013 to well over 325,000 today (a 287% increase)…
  • Seen the value of merchandise sold across its platform soar from $1.7 billion to $9.8 billion in less than three years’ time (a 476% increase)…
  • And as a result, had its yearly revenues jump from just $23.7 million in 2012 to over $258.9 million so far this year (an incredible 992% increase!)…

“… like Amazon, this company was started by a brilliant and super passionate entrepreneur who set out to sell just a single category of goods online (in this case, snowboards, of all things)….

“… just like with Amazon, the founder of this company still not only leads its day-to-day operations but also owns a significant amount of the company’s stock (9% at last count, to be precise)…

“… insiders own roughly 22% of this company’s shares…”

OK, so that ticks a lot of the boxes that we know David Gardner and the Motley Fool folks are often looking for — passionate founder still in charge, large insider ownership, rapid growth, and, we’re told, it also has high gross margins (unlike Amazon) because it’s really more of a software/service provider that helps people create and support online stores.

So… hoodat? This is, sez the Thinkolator without even having to shift out of first gear, the little Canadian company Shopify (SHOP).

Shopify has been touted a couple times by the Motley Fool’s Canadian Stock Advisor publication (which is also still pitching it in ads today, though those ads really started running late last Spring) and, last Summer, by the US flagship Stock Advisor newsletter that’s run by both Gardner brothers.

Shopify is indeed a founder-led software company that sells e-commerce and business management software, both to smaller businesses and to large corporations that have online stores as a side business (like the Bud Shop, where you can pick up your Budweiser flannel shirt or cowboy hat). And it does seem to have a great market position and brand power among small entrepreneurs — much like Square (SQ) does, where we see the power of branding as those little Square terminals might take over most of the cash registers in a small town (like mine) even though there are dozens of companies that provide a similar product service.

Shopify is doing well so far, as you may have noticed — the shares are up 150% or so over the last year, and it’s not profitable but it is growing revenue very quickly and maintaining a strong relationship with its customers. Online storefronts and business services (like inventory management, payment processing, etc.) are sticky businesses — it’s a pain in the arse to change from one provider to another, so as long as SHOP keeps at least on pace as one of the leaders (if not the absolute best or cheapest) they should have good customer retention.

It’s very much a “story” stock, there is huge revenue growth and there is potential to turn that revenue growth into substantial earnings at some point if they stop investing in the growth… but, like Amazon, they are not aiming for maximum profitability, they’re aiming to build the business.

That can lead to very lumpy stock movements as the actual bottom line results vary sharply (and the range of estimates is pretty wide as well), so this is one that you’d have to buy because you have faith in management to drive growth and you think they can hold off the many competitors — analysts are expecting the company to continue losing money this year and to make a small profit of 20 cents a share in 2018, so at 500X 2018 earnings forecasts it’s not a “buy this great PE ratio” stock, it’s a “buy the story” stock with a hope that it will dominate a large sector for years to come.

Will it? I have no idea. They do have a good partnership with Amazon to help their customers get into the Amazon marketplace, and their large cash hoard means they have no worries about financing or lack of flexibility (they have almost $1 billion in cash after equity offerings this year and last and the 2015 IPO, and they are close to being break-even on a cash basis right now so they can invest much more aggressively in growth if they have that desire and opportunity).

But I will leave you with that and let you research it for yourself — the company is no longer small… but it is arguably small enough (market cap now about $10 billion, roughly $500 million in annual revenue) and growing fast enough (50% annual revenue growth expected for the next couple years, after tripling revenue in the last two years) that there are ways to justify an investment… which does not, of course, mean that you should go in confident that Tobi Lütke is the next Jeff Bezos, or that the company will rise forever without hitting stumbling blocks or challenges along the way (certainly Amazon has had its share of troubles, despite that massive long-term return).

I get a little bit of confidence in the high insider ownership — Lütke as the founder and CEO does own roughly $790 million worth of SHOP shares, as the ad teases… and I suppose you can say that’s a “bet” on his company, since he’s not selling many of them (he does sell about a million dollars worth of shares a week), but he also didn’t buy them… like most smaller tech companies, SHOP never has any insider buying but gives lots of stock options and stock grants to employees and the board.

Those same Motley Fool ads used to say that “This 36-Year-Old CEO Is Betting $560,100,000 on 1 Stock” — he hasn’t increased his bet by $230 million, it’s just that his holdings have increased in value (actually, it’s probably over $790 million now — and he is over much entrenched as the leader of the company, with 60% ownership of the super-voting Class B shares that are owned by company insiders).

I also like the relatively long history and established customer and developer base using Shop’s foundation (Shopify has been around for more than a decade), and I like the scalability of some of Shopify’s services (like the payments processing, which gives them more exposure to the growth of their best customers), but I wouldn’t personally make big bets on the stock at this valuation… odds seem pretty good, given the small size and the varying analyst expectations and high level of attention SHOP has received recently (particularly after announcing their better integration with Amazon earlier this year), that there will probably be large stumbling points when harder to buy the stock, and that’s probably the smartest time to get on board if you otherwise love the story. For now, I hold my small stake and will watch for opportunities and see how the story develops.

That’s just my take, though — it’s your money, what do you think? Let us know with a comment below.

P.S. Have you ever subscribed to Motley Fool Rule Breakers? Click here to let your fellow investors know what you thought. Thanks for sharing your opinions!

Disclosure: I currently own shares of both Shopify and Amazon.com. I will not trade in any stocks mentioned for at least three days following publication of this article.


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ltrane25
Member
👍4
ltrane25

thanks T. The folks at Stansberry like SHOP also.

ChuckP
Guest
ChuckP

I think to compare Match.com to Amazon is like comparing the RaceHorse Secretariat to a Shetland Pony. No comparison in other words.

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jyoung0071
Member
👍548
jyoung0071

Of course no company in the world begins to compare to AMZN in terms of pure genius in vision, execution, growth and what it is becoming. But all that investors should care about is appreciation potential in a given time frame. So it is possible that a Match.com or more likely SHOP will % appreciate more then AMZN over the next 2 – 5 years.

jrlartful
Member
👍15
jrlartful

Here’s one for the unpleasant war stories file. A few years ago, I think it was 2013, I took a flyer on a company styling itself as the Spanish language Facebook, Que Pasa.com. Que Pasa soon decided that Facebook had already eaten its lunch and transmogrified itself into Match.com or as I preferred to call it Dorky Dating Site. I promptly sold Dorky Dating Site.

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Warrren
Guest
Warrren

Wasn’t quepasa bought by meetme, which used to be myyearbook? I’ve owned $MEET since it was in the 1’s… I even found my fiance on the site 3 years ago.

jyoung0071
Member
👍548
jyoung0071

CML Pro also reco $SHOP, Value Line likes too. Very long Shop, love it. Motley originally reco 2-24-16 at $21.02. Price today is $48.50. Expecting huge 4th Qtr report.

thinairmony
Member
👍-202

Very familiar with Motley Fool, The notorious “Rule Breakers” first magnetic stock magazine that really got me in to trading stocks myself instead of a brokerage company like Fidelity. And I will tell any 401 k or IRA retirement contributor to self manage your own portfolio. With some intense learning and familiarity investing training and most people with good sense will out perform the brokerage company running their own retirement portfolio. But can not over state doing your home work. And it will come to you. And if your the least bit intimidated trying it . Do a test portfolio(imaginary… Read more »

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deanbob
Guest
deanbob

I whole heartedly agree. It worked out very well for my 401K for ~14 years.

Bill
Guest
Bill

Thinair, thanks for your imput. Very good information. I trade my own account and I have accumulated quite a bit from my real estate business and am a bit concerned trading all of it with what seems like my limited knowledge investing in the market. I have trade for quite a while but seem to always be chanllened in my decisions. Would like to talk to you sometime if you get this so share some ideas. I have been doing options selling spreads and also doing some buying of eep in the money calls.

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thinairmony
Guest

Hi, Bill just a little bit of my style of investing. I never mess with options. I study stocks at as low as $.89 to $50.00 stocks that I find through, Zack’s , Motley Fool, Nasdaq, NYSE, thefly, stockgumshoe, Dr.KSS PHD MD from Stockgumshoe, Fidelity, google stock companies, and a bunch more. And buy after a very intense investigation that is done in a very tight window. Depending on price is usually the amount of shares I will invest. From 5,000 to 100 shares. And after buying keeping a eye on all the latest news on my stocks I own… Read more »

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MrT
Guest
MrT

Rained on the Fool’s parade…Who’s going to sing up for those news letter trolls as long as we have Travis…

jyoung0071
Member
👍548
jyoung0071

MrT, Look, Stock Gumshoe is absolutely invaluable, Travis’s wealth of knowledge in virtually all aspects of investing is as great or greater then anything I have witnessed; but S.G. is not the be all, end all. Motley’s overal record is superior and speaks for itself. CML pro, which I mentioned has a brilliant record, Value Line is irreplaceable. I learn and benefit from all these and many more. You might want to read all of Warren’s letters from the beginning.

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Warrren
Guest
Warrren

I recently “sat” through one of the Fool’s long, drawn-out come-ons … three years for $159 for their incredible advice on AI. I was hoping for one of those tiny $0.79 stocks like the teasers tout. When Travis made no mention of this particular tout, I figured paying for it means the world doesn’t know about this “amazing AI secret” yet. The $159 got me $GOOGL. $FB and $NVDA… two of which I already own!! Yeah, Dave and Tom… some real ten-bagger future appreciation there! I had long ago sniffed out $SHOP when it was catering to crafts sellers and… Read more »

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Diane
Guest
Diane

I’m curious, how do you calculate easily for the taxman (cost basis etc) if you ate a day trader or frequent trader? You don’t have to itemize correct? That would be a deal breaker…..! Appreciate input

Jeff
Guest
Jeff

Did you buy STM … there is a winner that MF put out though Paul Mampilly? If you did when recommended by his report up 240% … I got report but did not act so quickly but still up 166%.

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Sir Charged
Guest
Sir Charged

What is IBD?

Opposeablethumb
Member
👍1313

They use the line “this stock is like Amazon” in a number of their publications. Fool me once (they did) shame on you(some energy efficiency company that would get government contracts, but then they did not). Fool me twice shame on me.
Near an all time high, rumors of Amazon partnership, probably a good short here.
Yes you will have winners when you recommend 216 stocks, but this is unlikely to be the next Amazon based on simple probability. Do your DD.

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PZinDenver
Guest
PZinDenver

How’s that short working for you, stock WAY up since your post…

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chengunlam
Irregular
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chengunlam

Dear Travis, Thanks for the insight on SHOP. You made an observation about the company that I don’t quite understand, one that I read in other analyses by other writers describing growing companies. How is it possible that a company loses money each year and for many years into the future yet still have a large cash hoard? Is it because the amount of cash on hand is too small to cover the losses? Or the company decides not to (or is now allowed to in its accounting to) apply the cash hoard to offset all or part of the… Read more »

thinairmony
Guest

Buying Amazon or any high inflated Stock that hasn’t split after $110 I don’t buy. And if it get up there I sell. I buy good new company stocks $60.00 and down When you buy $10,000 for a High price it’s like credit cards do. It;s you the investor pretty much giving a unsecured loan. If a correction hits like the one 97-98 you fall 75% or more it’s a feeling you don’t like to experience.

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Mia
Guest
Mia

amazon was worth at a high price

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Axel
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Axel

Two different discussions. Imagine you have $100k in the bank, but within your personal budget you spend $1k more per month than you earn. You are losing money, but have enough money to continue that way for more than 8 years. The hope is that the company starts making money before the cash pile is gone.

thinairmony
Member
👍-202

If you have a $100,000 in a personal budget just doesn’t fly. You have to keep playing the investment game. And when older there are many different ways to do it that are not as time consuming. Safe havens. And surely retirement should not be in anyone’s vocabulary. A rolling stone gathers no moss.

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RampageKy
Member
👍69

A company can lose (or make very little) money on their income statement while having strong numbers on the cash flow statement. Amazon is the king at this. Their cash flow gets reinvested in the business, which triggers expenses that hit their earnings, so they end up making little in profits even though the business is incredibly healthy.
The other possibility is what you see more often: companies raise a bunch of cash from equity/debt to fund their losses when starting out.

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chengunlam
Irregular
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chengunlam

Thanks for explanation about cash piles while not making profit, to RampageKy and Axel.

thinairmony
Member
👍-202

So true Amazon runs their company like to many people in today’s world live paycheck to pay check. If Amazon stops adding new content to it’s stock. Or adding new spokes to its wheel or it stops rolling . It’s stock will drop like a rock.

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thinairmony
Guest

Enjoyed reading this as usual. . As reading this article one stock that comes to mind is a Amazon,and Alibaba type stock sweeping Latin America. Mercado Libre symbol (MELI) closed at $176.45 at close 4:00 PM ETS 01/13/17, It was up $3.26(1.9%) 52 week Low $84.19 High $193.58 .They have a dividend 0.3% $0.41 Mrk Cap. $8.26 billion PE 71. It’s pretty tempting . And on the up swing. I have also read a while back that they have done like Amazon has done in letting individuals sell on it like eBay sellers. Latin Amazon, Baba. Just thinking out load.… Read more »

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YAZ
Guest
YAZ

I bought MELI in July 16 at $149., it was pitched as South America’s Ebay. Today, it closed at $198.00. I am tempted to take my proft as region is still shakey.

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thinairmony
Member
👍-202

MELI
ALERT
AFTER HOURS
Last Updated: May 4, 2017 7:59 p.m. EDT
$
251.55
15.04 6.36%
After Hours Volume: 36.2K
CLOSE CHG CHG %
$236.51 1.54 0.66%

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thinairmony
Member
👍-202

MELI-Open $243.20 SHOP-Open $93.29 Previous Close- $240.16 Previous Close $91.71 Volume (Avg) 876.37k (803.12k) Volume (Avg) 1.68M (2.29M) Day’s Range $234.55-$243.20 Day’s Range 93.25-95.50 52Wk Range $148.98-$297.95 52Wk Range 37.00-105.79 Market Cap. 10.60B Market Cap. 9.04B Dividend Rate (Yield) 0.60 (0.25%) Dividend Rate NONE Shares Outstanding 44.16M Shares Outstanding 85.40M P/E Ratio (EPS) 73 P/E Ratio (EPS) NA

Gordon birkett
Guest
Gordon birkett

What is this with{TRUMPS GOLD} supposedly to have the biggest Gold deposit anywhere and is is located in Alaska.

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thinairmony
Guest

Here is a little of it Gordon. Google-President, Donald Trump will roll back one of Obama’s biggest mistakes… But not the one you expect.

The result will unlock a $128 billion fortune in a forgotten part of America. And it could send a tiny $1 stock through the roof…

“Trump’s election could be the best thing to happen to the stock market. And this company could be the best investment of his entire presidency.”

~ Doug Casey, author of NY Times bestseller, “Crisis Investing”

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thinairmony
Guest

Here is a article on the subject-Peter Moskowitz in New York Friday 18 July 2014 16.26 EDT Last modified on Friday 11 November 2016 09.10 EST This article is 2 years old The Environmental Protection Agency has announced a set of restrictions that will in effect prevent the development of a controversial copper and gold mine in Alaska which many said would have been disastrous for the state’s largest salmon fishery. Pebble Mine, located in south-west Alaska near Bristol Bay, would have been one of the largest opencast mines in the world — more than a mile deep, the depth… Read more »

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kaygene
Member
👍2
kaygene

Northern Dynasty Minerals (NAK) @ about $3.00+ is biggest shareholder of Prebble

jakeslicks
Member
👍3
jakeslicks

“April 11, 2017, Vancouver, BC – Northern Dynasty Minerals Ltd. (TSX: NDM; NYSE MKT: NAK) (“Northern Dynasty” or the “Company”) announces that its 100%-owned US subsidiary Pebble Limited Partnership (“Pebble Partnership”) has received notice of approval of a Miscellaneous Land Use Permit (“MLUP”) from the Alaska Department of Natural Resources (“DNR”) for its ongoing activities at the Pebble Project in southwest Alaska.” (Not sure what this means..doesn’t seem to be much positive news around though)

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jakeslicks
Member
👍3
thinairmony
Member
👍-202

House Passes Bill to Repeal Obama Care
Last Updated May 4, 2017 at 7:36 pm ET
The House voted 217 to 213 to pass the GOP health-care law, designed to replace Obamacare

prince
Guest
prince

GOP is full of B/S fix Obamacare don’t repeal

Gr8Full!
Member
👍11348

FRIDAY FILE: QUICK LOOK AT DOUG CASEY’S “BIGGEST BET” AND GOLD’S THREE CATALYSTS http://www.stockgumshoe.com/reviews/the-casey-report/friday-file-quick-look-at-doug-caseys-biggest-bet-and-golds-three-catalysts/#comments

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Bob
Guest
Bob

Pebble Mine

Dr Snowball
Member
👍8
Dr Snowball

Hi Travis,
Any idea which ticker is the appropriate one on the TSX? There are two Shopify tickers: SH.TO and SHOP.TO.
thanks

Jack
Guest
Jack

Wrong. It is stamps.com

fatboy2281
Irregular
👍21
fatboy2281

Gummy,
I’ve been at this a long time and still don’t understand options. You said you have $60 call options (April) on shopify and they are still out of the money. Would you mind walking me through that?
Thanks

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liberallez
Member
👍54
liberallez

Basically, he paid an amount for the right to buy the stock at 60.
He’s betting the price of the stock will go above 60 before his option to buy it at 60, expires.
Ignoring transaction costs…If the price goes to 70 before the expiration date, he can buy it at 60, sell it at 70 and collect 10 profit.
With the price currently about 48 he’s “out of the money” by 12.

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