Why I Won’t Sell My Shopify Stock

Shopify is one of the biggest positions in my stock portfolio, and I believe it has an incredibly bright future. 

About two years ago, I bought the stock, but it was terrifying then. Around that time, a short seller, Citron, was on the scene and was putting reports about how Shopify was illegitimate and a “scheme.” It’s laughable now since they publicly announced that they were wrong about Shopify. But it wasn’t funny then—at all. Their words moved the price a lot. It felt like riding the worst rollercoasters ever, and, with each rise and nauseating dip, someone was taking or adding to my net worth. I hated it.

I’ve had a history with Shopify that extends beyond just as a person who owns their stock. I have a creative agency that has used Shopify to build online stores for our clients. And I’ve been well aware of Shopify’s power and ability for years. I saw first hand that businesses were making hundreds of thousands and millions of dollars on Shopify since we helped build them.

And you would think that after having that experience and doing further research on the company and seeing its incredible growth and climb into success, it would have given me the confidence to hold onto it when things with the stock got rocky, with Citron making waves. But it didn’t. I still got spooked.

When a stock price moves so violently down and you own it, it’s hard not to doubt. I even wondered if Shopify was a legitimate investment. And that says nothing about them and more about me, that I’m easily shaken. And I also knew that short-sellers are incented to make negative statements about the companies they’re shorting because they get richer when the stock price goes lower. But I still doubted.

I don’t think I sold my position, or if I did, I bought back in. Regardless, I own stock with the price from around that time. And, in one of my accounts it’s up 389%, another over 500%. And I don’t say this to brag. I only tell you this because it’s easy to sell when everyone else is. Getting scared out of a stock when the markets get turbulent, like the past couple of weeks, is common. 

But to get the gains, you have to go through the pain. And Shopify, I think, still has a lot more room to gain. 

It’s just getting started. The pandemic pulled the future of e-commerce closer. Some say it has sped up the move to online shopping by five years. No matter what you think, e-commerce isn’t going anywhere and will only continue to grow.

And retail as a whole is huge—like, massive. Global retail sales are over $23 trillion. $5 trillion of that is in the US alone. And retail is still growing. People aren’t going to stop buying things, even in a pandemic. Families still need diapers. People still need to eat. Socially distanced kids need toys. Some people are buying more, others less. But humans still need things. As long as that is the case, they will continue clicking and buying.

And yes, Amazon is huge, but even they can’t gobble up $23 trillion worth of business. There is plenty of space for competitors, or, better yet, alternatives. 

There are plenty of reasons why businesses wouldn’t want to sell on Amazon. Amazon doesn’t let other retailers own the channel, the distribution, not even the customers. When a brand sells on Amazon, they must play by Amazon’s rules and pay their fees and use their systems to tap Amazon’s customers. 

Shopify is different. When you build an online store there, it’s yours. The sales are yours; the customers are yours; the email list you collect is yours; the branding is yours. Sure, you pay to use Shopify’s services and platform. But it’s a pittance compared to starting without them. To build your new system and e-commerce site from scratch would cost bundles more. So using Shopify makes sense. 

My wife and I used Shopify to build a little online business selling vegan and gluten-free cookies. It took me less than a day to set up the website. Shopify’s free trial was risk-free, and all I had to do was spend my time putting the site up. And since then, we’ve been able to grow a business that seems to have real potential, slinging delicious, clean cookies, through the incredible power of Shopify. 

Not all e-commerce plays will win. For instance, Stitch Fix reported earnings a couple of days ago, and their stock tanked because their business model isn’t relevant at the moment. They dress women who want great outfits styled for them by professional stylists. But since people aren’t really going out, there’s no real need for anything other than the sweatpants we’re all wearing. 

Shopify isn’t Stitch Fix. 

They are launching new products that have a lot of potential. Last year they launched their fulfillment services, where they will store inventory and ship products for customers. It’s just like Amazon’s fulfillment service, except its from Shopify. And it has been a business-to-business company, meaning they have a product that helps other businesses. But now they’re trying out a B2C play, leveraging their stores, and listing them on an app. People can look for various products and stores by location or other filters to find interesting new products.

And they have a lot of stores. This site states that there are over five hundred thousand stores on Shopify, which amounts to $40 billion worth of sales. Those numbers are huge, but, I believe, they will only get bigger. The pie is growing, with e-commerce taking more and more market share from brick and mortar. And Shopify has great brands using their software. Allbirds, Shopnova, Kardashians, and many more are using them to power their online stores. And this gives Shopify a vast advantage over other platforms trying to make a play in this space. 

Lastly, I’ll mention that they have an app store that is mature with a healthy eco-system of developers building supporting software for Shopify and its customers. It’s a significant edge. Imagine the iPhone without apps. What would that experience be like without being able to open up an app to check your bank accounts, or play games, or take notes, or the thousands of other things people do on their phone? The Apple App Store set the iPhone apart. Shopify has the same thing. Except their apps help you get deliveries optimized and recorded, and figure out accounting and fulfillment, and set up a subscription system so vegans can buy your vegan cookies every week to get their fix. A mature app store is difficult to cultivate, and to have one already established only establishes Shopify as an incumbent that will be very difficult to dislodge. 

There are a lot of reasons to be afraid these days. But the more I consider this company, the more confident I get in its future. 

And plan on holding my position in Shopify for a long time. 

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Changing My Mind About Tesla

It took me two years to change my mind about Tesla.

I didn’t invest in it. And it wasn’t the price going up that kept me from investing. It wasn’t the production delays. It wasn’t the sky-high market value. Not, it was this. 

A story. 

Why I Didn’t Invest in Tesla

A couple of years ago, I thought about investing in Tesla even though I heard about how expensive it was and how there were so many shorters shorting the stock (which means people were betting that Tesla’s stock price would go down). But I didn’t. 

Right around the time I was thinking about the company that makes those sexy electric vehicles rolling that everyone wanted, I heard a podcast that changed everything. I don’t remember the interviewee’s name. But I do remember what he said: He was convinced that Tesla was a fraud and that it would go down and he was certain. 

And you know what it did to me? It scared the crap out me and I didn’t invest. 

The stock has gone up over 800% from just last year. And I missed one of the greatest investment opportunities to bet on one of the most innovative entrepreneurs ever to live.

See, that’s the thing about negative stories: They’re so believable. No one wants to look stupid and buy a loser or make a mistake, and, certainly, everyone hates losing money. And when you see a stock that seems too good to be true, and then you hear an “expert” say that it’s a fraud, that sticks with you. The thing about a story is that they are sticky. 

But eventually, I got unstuck. 

Looking at Tesla Afresh

So, what changed my mind? It was the Gigafactory that came online in Shanghai. I saw a headline on it and it shook something inside of me and made me question my stance against Tesla. And I started to trace the reasons why I didn’t invest in it and I remembered the podcast. 

After I realized how much I let that podcast affect me, 

I started to think and look at Tesla afresh. I saw that it was the premier electric vehicle company, led by one of the greatest entrepreneurs ever. And I feel a little uncomfortable using such superlatives, but I don’t think I’m exaggerating. 

It’s vertically integrated, trying to control the whole production and manufacturing stack. That sets it apart from American auto manufacturers. Tesla can control its quality and destiny for years, decades to come. And that’s not even mentioning that Elon Musk did what most people thought was impossible: He created another American mass-production auto manufacturer, which hasn’t been done in a century.

See, that’s the thing about a company like Tesla, when you talk about its accomplishments, it does sound like exaggerations, a string of superlatives that almost seem too good to be true. 

But that’s because Tesla is superlative. It’s so great, it feels too good to be true. 

The Foolishness in Investing

And that’s the thing about investing: you’ve got to be foolish enough to bet on the it’ s-too-good-to-be-true-investments because that’s where the real growth is. See, it’s tough to be a great investor and be pessimistic. You need to be optimistic to bet on the companies that will innovate and change the world. It’s those moonshot companies that do that thing that everyone says “can’t be done,” because it’s too hard or no one has ever done it or whatever. But they give us the best returns. 

That’s Tesla. They’ve done the impossible. They’ve built the next American automotive manufacturer; they’ve scaled their business; they’ve become profitable. They’re beating the odds. Optimism often wins.

Yes, price matters. You need to invest at the right price. But how do you price a unique item like a rare gem, or a Van Gogh water lily painting, or a company that’s not like any other? That’s the problem here, with Tesla. It’s not like many, or really any, other company. That doesn’t mean it will hold its price or there won’t be volatility or drawdowns. No, there will be. But that doesn’t mean that ten years from now it won’t be more valuable. So I don’t have a great answer for the pricing; it’s a conundrum. 

Closing Thoughts on Tesla

But ten years from now, I do think Tesla, as a company, will be worth far more than it is now. It will possess all of that institutional knowledge, expertise, grit, scale, technologies, and innovative culture. And how much harder will it be for another manufacturer to catch up to them? Sure, one, let’s say a Chinese manufacturer, will have a lot of those qualities, but it’s unlikely they’ll have the quality and the mystique that Tesla has. I doubt they will have the magic. Tesla doesn’t just make cars. They make art on wheels. 

And then it’s not hard to think about the future and wonder who will catch up to Tesla? If it was that hard to create a mass car manufacturer, which no one has done for over a century, how will anyone create one that will compete with Tesla? Because they didn’t just make a company and build a manufacturer that makes good cars; they created one that makes great cars, ones that people die for, lust after, aspire to. Musk didn’t just build the impossible, a new auto manufacturer; he also created a timeless brand. 

So, yeah, I thought to myself about myself, “You’re an idiot for listening to someone else and not investing in one of the most iconic brands that accomplished the impossible and created one of the most desired products ever.”

That’s the story I believe now. 

So I invested. It happened about two weeks ago.

I’m up 3%. 

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Snapchat: The Stock You Should Seriously Look At

Snapchat’s stock (SNAP) is easily overlooked, but shouldn’t be.

It may look like just a silly app, but, really, they mean serious business.

Yes, it’s got these ridiculous videos and filters you can put on your face that make you look like an old person or a bunny or a fire god; and it feels like if you put a circus in app form, you would get Snapchat.

But really, it’s a visual innovation powerhouse that’s worth your attention.

Misunderstanding SNAP Is an Opportunity

Snapchat has struggled these last few years as an investment. After it’s IPO, it dipped, a lot. There are some good reasons for that. It’s not profitable. They made some design changes that got push back from key users. And I think the biggest reason for its lagging price is that many investors just don’t understand it. It’s too silly, too childish, too weird.

But just because you don’t understand something doesn’t make it a poor investment. Often that makes it an opportunity. If you don’t comprehend it, that often means others won’t either. When investors don’t understand a company that is doing innovative work and has a diehard fan base, it’s an opportune investment.

Snapchat’s Users Love It

Yes, it might be like a circus, but young people love circuses. Snapchat’s audience is young, but they love the app. 69% of 13-17 year olds use the app. And teens say it’s the most important social media app they use.

Snapchat has also improved the amount they monetize on their audience from 32 cents in 2016 to about $2 in June 2020. That’s 6X growth in revenue per user in four years.

And maybe you’re hung up on the idea of them being unprofitable. But many great companies had the same issue, for years, like Amazon, Netflix, Google, Facebook, etc. But they turned out pretty ok. And I don’t know if Snapchat will become as big as those companies, but it’s not impossible. It’s not like Snapchat doesn’t have a user base and that it doesn’t have revenue. It has both. But Snapchat is also focused on something else, something more. It’s innovating.

SNAP’s Power of Augmented Reality and Video

They have quietly built one of the greatest augmented reality companies in existence. Those crazy face filters, yeah, that’s AR. They have dozens and dozens of them, hundreds, and they are creating more. And those filters aren’t just for faces of people but the faces of places, for iconic landmarks like the Eiffel Tower. Snapchat is also empowering its users to use AR to create on places everywhere. They are literally changing the way people are engaging the world with their devices.

Not only that, but it’s also building an enormous mobile-first video library that’s entertaining its audience. They don’t just have user-generated content, which is rich and produced by a very engaged user base, where 60% of their users create content, whereas only 10% of Twitter’s users create 80% of the content. Snapchat also has it’s own Snapchat Originals, which is content that the company produces.

The pandemic is making technology like this even more powerful, useful, and essential. Since it’s harder and more dangerous to engage physically, people use digital tools to connect, communicate, and share. Snapchat is at the forefront of that, especially for young people.

And all of that points to one thing: value. Snapchat is becoming more valuable. And it’s getting bigger and more prominent, but it’s within a population of people investors often overlook—kids.

Snapchat and Tencent

But Tencent hasn’t. You might know Tencent by the headlines it’s getting these days for being a Chinese tech giant that the Whitehouse is trying to fight against in its battle with China. Tencent is one of the world’s biggest tech companies and has been making investments in all kinds of companies like Riot Games, Epic Games, and Tesla. As of 2017, it holds a 12% stake in Snapchat. Tencent understands the future is more than just writing posts and posting pictures of our kids on their first day of school on platforms. It will be more creative, digitally rich, and richly integrated between the digital and physical worlds.

Tencent is betting on the Metaverse. The Metaverse is the idea that eventually, technology will become so advanced that we will live in the digital world almost seamlessly with the physical one. We will shop, attend concerts with friends, date, see a doctor all online, virtually or with augmented reality, or some combination. And when we are walking around in the physical world, we will see digital realities, like advertisements or videos or murals and art all over through augmented reality. And this digital world, some believe, will be worth trillions.

Closing Thoughts on Investing in Snapchat

Snapchat is at the tip of this movement. With their deep investing in AR and the user base that is already using their platform to create these realities, they have the makings of not just possessing staying power but changing power. They have the capacity and the eventual makings of being on the cusp of making the future of technology and how humans will interact with it.

They are creating the future today.

Yes, no one really knows what tomorrow will hold. But it’s often a good idea to bet on companies who create the future instead of letting it be created for them.

At least, it’s time to see Snapchat afresh.

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Investing in Unity Technologies? Read this

Unity Technologies is a gaming company that IPO’d today. But the value they provide isn’t just about games. It’s about a new world.

Unity’s IPO is exciting because they are a dominant player in the gaming industry. Not just for its games but for its engine for creating games and 3D simulations, called Unity engine.

Before I go further, it will be helpful to zoom out and look at the gaming industry as a whole.

Unity Is in a Huge Industry—Gaming

First, gaming is big business. Some estimate it to be $200 billion annually. And that’s not the best part. It’s this: it’s growing. There are over two billion gamers worldwide. And this industry is already bigger than the movie and music industry combined. Even Reed Hastings, CEO of Netflix, doesn’t fear Disney as its competition; he fears Fortnite, a wildly popular game, developed by Epic Games, that your kids are probably playing right now in your basement. You see, even Netflix, the consummate attention king, knows that gaming is big and is getting bigger. Yet, many believe that this industry is only in its infancy.

Other big tech companies have there eyes on gaming, too; and they’re getting into the space. Amazon owns Twitch, the leading live-streaming platform for gamers; Microsoft has Xbox; Google has Stadia, it’s cloud gaming platform, and the list goes on. And they’re not stopping there. They see the growth potential, too.

It’s easy to see why big tech is jumping into games. It’s all about attention. People’s eyeballs are increasingly being pulled into gaming. And it makes sense. These games aren’t just games; they are worlds—universes, in fact. They are immersive, fluid, and magical. They are realms where people can remake themselves and transform. You see, the games don’t just grab people’s eyeballs, their lives are subsumed in them.

The pandemic has only made these universes even more relevant and valuable. People aren’t going out as much, but they still want to feel like they’re going out, like freely meandering, jaunting about, even though they haven’t moved from their couches. But these digital realities create the feeling of freedom.

And all of this is leading to a place that is beyond games, namely—life.

Gaming Isn’t Just a Game—The Metaverse

Some tech thought-leaders believe gaming is taking us toward the future of how technology will merge with all of life. We won’t just have supercomputers in our pockets (i.e. smartphones) that we have to pull out to engage a digital world; no, we will swim in technology, be immersed in it, everywhere. That’s when the confluence of augmented reality and virtual reality and other technologies will integrate seamlessly with the physical world. Think mashing up Minority Report and The Matrix, that’s the world we will get, except better. (I mean, hopefully, we won’t be slaves to the computers.) And this new world has a name. It’s called the Metaverse.

Sure, it’s years, likely decades, away. And, really, no one can be certain it will become a reality. But the inklings, whisperings of it are here. And they are in the games we play, like Fortnite, League of Legends, The Witcher, etc. We see it when people worldwide are connecting simultaneously in a created digital world where people are cooperating, communing, playing, purchasing. They are all simulations of life except gamified to the nth degree. And yet, they’re not just simulations; people are living their lives in these computer-generated places. In that, we are peering into the future with each moment played. And, if you squint, you can see the Metaverse.

Unity’s IPO Is Game Changing

And that leads us back to Unity’s IPO. 

The gaming companies themselves have enormous potential. But what about the companies that help gaming companies make their games? How much more potential would they have?

A lot.

And Unity is one of those companies. 

It isn’t just a gaming company; it’s a company for gaming companies. One of its greatest assets is a 2D and 3D engine, called Unity, that game creators use to create their own games. Unity, the company, says that over 53% of the 1000 most popular mobile games use the Unity engine. And that is a testament to the value this company is already creating.

When a creator uses an engine, it means, instead of starting from scratch, they use software to give them a head start on developing their new game. And Unity engine a game-building software. When creators use the Unity engine, they can collaborate with their team members and create immersive experiences in real-time. They can also operate their games on Unity by growing their audience and monetizing them. And that’s very sticky. Unity’s customers would have a hard time leaving them since their platform is vital to their game and revenue.

Large companies to a single person who dream of making a hit game can do it much faster and more cheaply on Unity’s engine. That’s the point. That’s a game changer.

The Other, Bigger Simulation Engine—Unreal Engine

Now, it isn’t the only kid in town. There’s the bigger boy, Epic Games, which developed the Unreal Engine that appears to be more powerful than the Unity engine. But that doesn’t mean that Unity won’t be able to grow. In this business, there’s more than enough space for two companies to play in the playground nicely.

As an aside, it’s interesting that Epic, a privately held company, could make more money on its engine, but it chooses not to. They are lowering their fees. And it seems like they are doing it in order to empower creators. And not just that, they seem to be trying to pull forward the Metaverse. But I digress.

Unity Engine Is About More Than Just Games

The Unity engine isn’t only powering those in gaming; it’s helping companies in other sectors and industries, too. Hollywood, the automotive industry, architects, and anyone who wants to create 2D or 3D visualizations can use Unity’s engine to create for their specific industry. Manufacturers use the engine to create 3D drawings and simulate how the designs would work in real life. Architects can create virtual buildings and show them to the developers before a nail is hammered. You get the point, the engine is powerful, and it can power other businesses to generate more value. The versatility is wide, and their technology’s utility will only grow, especially now in our new, physically isolated, stay-at-home world.

Unity Isn’t Profitable, Yet

Unity, however, isn’t profitable. They’re running at a loss. Although it’s trending towards profitability, they are not yet there. Losses, however, are not unusual for high growth technology companies. Amazon and Facebook were losing money when they IPO’d; Snapchat still is; Snowflake, which went public this week and doubled its value on the first day it traded, and was invested in by Warren Buffett’s Berkshire Hathaway, is also unprofitable. So it’s not a reason avoid investing in Unity. But it is a reason to step with caution, do your homework, and know that there’s risk here, just as there is in every investment.

But I do think it’s likely that Unity will become profitable. Amazon ran at a loss for years, and now it’s the opposite, clearly. Unity may or may not succeed like Amazon, but it does have a great business model. It’s an intellectual property based model, built on software. These types of businesses can be otherworldly valuable. That’s because they are scalable. That means they can have as many users as they can find without spending much more to accommodate them. In short, they can generate more revenue without incurring much increased cost. That’s the beauty of software.

The future of gaming and the business of empowering creators in this industry presents an interesting proposal for any investor. Sure, there is no guarantee that any company will survive, especially in such a competitive sector as technology. But I do think that Unity’s engine is a moat and sets them apart.

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