Fool’s “This Little Known Stock Took On Amazon …And Won”

What's being teased as a three-time recommendation from the Motley Fool's Tom Gardner this month?

By Travis Johnson, Stock Gumshoe, July 18, 2016

I may have to add a little dose of guessing to the Thinkolator results on this one, but we’ve had a few folks asking “who beat Amazon?” of late, thanks to this latest Motley Fool ad, so I’m going to give it a try.

The ad is for the Motley Fool’s flagship Stock Advisor service, which features a pick from each of the Gardner brothers each month and has had a strong long-term performance (but also holds sometimes hundreds of stocks and almost never sells, and a lot of that strong performance comes from a handful of 1,000%+ long-term winners like Netflix and Priceline).

And the ad hints at a recent pick by Tom Gardner, who tends usually to be the more “value” oriented part of the due (his brother David is the one who generally picks the “rule breaking” growth stocks). It is, apparently, a “little known stock” that won a battle with Amazon… which, as you can imagine, is not the usual story when Amazon is competing with somebody. Here’s a bit from the ad:

“… just less than a year ago, it seemed as though nobody could pose a credible threat to Amazon if it decided to venture into their industry …until one nimble company did just that.

“They quietly beat Amazon in the race to capture an up-and-coming industry.

“The very same company was just named a high-conviction “BUY” by legendary stock investor and Motley Fool cofounder, Tom Gardner.”

OK, so who is it? Some hints…

“When Amazon decided to launch into this small company’s territory back in 2015, it boldly stood its ground, stuck to its rapidly scaling business model – and within less than a year, Amazon had given up.

“Not only that – they struck a partnership with this fast-moving innovator that refused to go down.

“Amazon, that very same juggernaut that dominates almost everything it touches, recognized that it simply couldn’t take on Tom’s newest pick, so the two companies joined forces instead.

“And since then, the stock is already up 23%.”

And apparently this isn’t the first time the Fool has recommended this stock — they like to make a big deal out of the fact that their re-recommended stocks by the Gardner brothers have been some of the most spectacular performers over the years, and this one is apparently a three-peat in just the last six months. In their words:

“It’s not hard to see why …in the weeks since that first recommendation in February, this stock quickly went on to crush the S&P 500 – by over five times.

“In the weeks since its second recommendation in March …it went on to crush the S&P 500 again – by another five times.

“And now Tom is recommending this freight train yet again – because he and his elite team of analysts firmly believe it’s just beginning its meteoric run.”

OK, so it was picked by the Foolies in February, March and, apparently, July… so what is this stock that they’re calling a “David and Goliath story?”

Thinkolator sez, with a little bit of guessing, that they’re probably talking about Shopify (SHOP, SH in Toronto).

And that stock has come up here in the pages of Gumshoe in recent months as well — this Canadian company was teased by the sister Stock Advisor service from Motley Fool Canada last month, and I wrote about it on June 6.

Why is this the match today? Well, Shopify is a company that essentially helps retailers (budding or giant) set up online stores, and integrates those stores with a website, payment solutions, fulfillment solutions, and marketing connections that integrate social media.

And Shopify does have a partnership deal with Amazon, one that partly is related to the fact that Amazon introduced a Webstore product/service back in 2010 that was not overwhelmingly successful… Amazon’s Webstore service, which helped people set up independent webstores that were fulfilled by Amazon, is now officially closed.

And, as it so happens, the “preferred migration partner” for those affected by the Webstore shutdown is Shopify. I wouldn’t necessarily say that Shopify beat Amazon, since I don’t think Amazon’s heart was in it. Amazon isn’t incentivized to help people build their own brands, they’d much rather have them sell directly through Amazon… and I expect their Webstore product reflected how little Amazon really cared about whether it succeeded. Shopify built their product with the focus of helping retailers, not with adding more fulfillment volume to Amazon’s business, so it’s no surprise that Shopify’s product is a lot better in those merchants’ eyes.

The announcement that Shopify has a partnership with Amazon helped to boost the SHOP share price back in September when it was announced, that’s why the shares were above $35 for a little while, but it’s been a bit softer in the months since then — currently, the shares are at about $32, and it’s a tiny company with a market cap of about $2 billion… but it does seem to have a strong market position with new businesses and with large companies who are looking to outsource a branded online retail operation.

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Nothing fundamental has changed about the company since then, other than the stock going up about 7%, and I haven’t done additional research on the stock at this point, so I’ll reproduce here what I said back on June 6:

They are in an appealing space, with a good business model — they sell a service to small and medium-sized retailers on a monthly subscription that scales with the company, smaller companies might just use their technology to offer a “buy” button and ordering system for their Facebook page for $9 a month, or they might pay $29 for a real online store, or up to ten times that much for a more robust offering that provides more analytics and marketing options. Revenue is driven both by their monthly subscribers and, because they offer a payment processing system and disincentivize the use of alternate payment systems, by the credit card fees that are somewhat comparable to those charged by PayPal or most online “shopping cart” providers.

It’s a very competitive business, and they’re competitive in their pricing but certainly aren’t the cheapest, and Shopify seems to be pretty popular — particularly with those who want a “one stop shop