Three Things to know today (July 30th)

Commentary15 days ago
“It took about 10 years' time for Shopify to be an overnight success.” - Tobi Lutke, Shopify CEO
1. Shopify (SHOP) shares jump 7% as revenue skyrockets. Bulls think this shows the stock can “grow into” its lofty valuation.
As COVID-19 has forced physical storefronts to close worldwide, companies have rushed to Shopify’s platform which helps bring their businesses online. SHOP’s Q2 revenue and gross merchandise volume (GMV) jumped 97% and 119% year-over-year, respectively -- impressive compared to eBay’s 26% growth in GMV in the same period. Investors are smitten: the stock has more than tripled since the March lows. The valuation isn’t cheap at 40x 2021E sales, but if revenue keeps growing at this rate with the accelerated shift to e-commerce, SHOP could possibly look like a bargain in a few years.
2. Spotify users are streaming again, but ad revenues still suffered in Q2 due to the COVID-19 crisis. Omen for Facebook’s Q2 results today?
Shares of the music streaming platform fell -2% on slower than expected ad revenue growth (-21% in Q2). We chalk this up to a macro-driven pullback in ad budgets rather than Spotify-specific issues. User growth was strong (+29% monthly active users), and listening hours are now back to levels near what they were before the pandemic began. Plus, ~90% of the company’s revenues comes from Premium subscriptions which grew +17% in the quarter. Still, we’ll be listening on Facebook’s earnings call later today to understand how broad-based this ad industry slowdown could be.
3. ByteDance investors value TikTok at $50 billion. That’s a Shopify-type valuation. Worth it?
Investors seeking to take over the video sharing app are valuing TikTok at 50x its projected 2020 revenue of ~$1 billion - far above other social platforms like Snap (15x 2020E revenue) and even the aforementioned Shopify (40x). The reason for such a high appraisal? Rapid growth and engineered virality. TikTok is hitting a nerve with consumers using algorithms that drive virality without having to build a “social graph.” The result: a prized social asset on track to generate $6 billion of revenue in 2021.

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