The Quality Of New Shopify Merchants Is Significantly Deteriorating

We had a lot of success with our initial Shopify report and we believe we significantly advanced the short case, initially put forward by Citron Research. We provided hard data to back up claims about customer churn and added much more. Since we published the initial report we have uncovered something worthwhile for a follow up report. Very worthwhile.

We believe we have found evidence that clearly shows the quality of Shopify new customer adds is significantly deteriorating and the most recently acquired cohorts of customers will show much larger churn and shorter customer lifetimes. This will catch up with Shopify very soon and will have a very serious detrimental effect on growth in its Subscription solutions segment and its sky-high valuation currently sitting at $17.5 billion as of July 16.

In our initial report we described how Shopify caught the Wall Street bug and became completely addicted to its constantly rising valuation attained because of its hypergrowth (almost 1,000% return since IPO). This hypergrowth was made possible by Shopify significantly expanding its total addressable market by pitching its solution as a make money online scheme (an easy way to make money online with little effort – by becoming a drop shipper and peddling items from with a 5x markup) as opposed to targeting standard online merchants. Shopify’s massive revenue growth was/is heavily reliant on acquiring very large amounts of low quality customers that have very short customer lifetimes, as our previous research has shown (Shopify doesn’t disclose customer churn numbers, for good reason). For Wall Street to take the bait, Shopify had to/has to keep on increasing the number of new customer additions, otherwise the huge churn of its customer base would catch up with them and Wall Street would instantly realize this is no standard SaaS business with 5-10-year customer lifetimes.

We believe Shopify has reached a point where its race to add more and more new customers is becoming increasingly more difficult, more expensive and what is most important, the quality of the newly added merchants is significantly deteriorating in comparison to the quality of merchants signed up in prior quarters.

How have we come to this conclusion?

Download our Shopify follow up report: shopify_followup_report