Shopify’s FY and Q4 2020 results just blew away expectations!

February 19th, 2021 Comments off

Only a few people expected less:

Shopify Inc. (NYSE:SHOP) released FY and Q4 2020 results that beat expections!

Reported revenue in Q4 jumped to $978 million, up 94% year over year.

Adjusted net income came in at $199 million which translates into adjusted earnings per share that soared 198% to $1.58.

Primarely those results were driven by “merchant solutions” revenue that jumped 117% to $698 million year over year in Q4 but also “subscription solutions” revenue grew an impressive 53% to $279 million.

Operating margin in FY 2020 for the first time swung to 3% from a loss and the sales / free cash flow margin came in at 13%.

And all this happened while Shopify continous to investing heavily in its future!

Shopify continued to build out its “Shopify Fulfillment Network”. 52% of eligible merchants in the United States and Canada already utilized Shopify Shipping in the fourth quarter of 2020.

They launched the all-new Shopify POS, a faster, more intuitive, and more scalable POS software designed to meet the needs of the more complex Brick-and-Mortar retailers and expanded Shopify Payments and the accelerated checkout Shop Pay.

Shopify’s stock was down after releasing these results, because Shopify tried to dampen highflying expectations for FY 2021:

“… the ongoing shift to ecommerce, which accelerated in 2020, will likely resume a more normalized pace of growth.”

But don’t forget that Shopify the past years has always been prudent with its outlook.

Shopify certainly has a bright future given the rapid change of commerce which will continue and the shift to ecommerce accelerated in an unprecedented way by the pandemia which will go on in a more normelized way.

But Shopify’s stock valuation reflects all these optimistic assumptions.

The stock trades at a price/sales ratio of about 56 and a mind blowing price/free cash flow ratio of more than 400!

But Shopify remains the top dog in an at least $78 billion small- to medium-sized business market and we all know how profitable dominant software provider can become over time!

Shopify remains a “buy” whenever there is a pullback in the market!

Markel reports good FY 2020 results!

February 6th, 2021 Comments off

Markel released FY 2020 results!

At speciality insurer Markel Corp. (NYSE:MKL) earned premiums rose 11% from $ 5’049’793 in FY 2019 to 5’612’205 $ at the end of FY 2020

Book value per common share outstanding rose 10% from $ 802,59 to $ 885,13 at the end of FY 2020.

The combined ratio in FY 2020 was 98% after 94% in 2019 but in the fourth quarter 2020 Markel reported an improved combined ratio of only 89%, which even included four points of pandemic and catastrophe-related losses.

Markel’s insurance operations improved in a significant way:

“Our insurance operations delivered an underwriting profit for 2020 in the face of significant losses attributable to the global pandemic and the unusually high number of natural catastrophes as we benefited from capturing meaningful rate increases and new business in targeted growth areas globally, while exercising strong expense discipline,” commented Thomas S. Gayner and Richard R. Whitt, Co-Chief Executive Officers.

The investment return of Markel decreased 18% primarily driven by the impact of lower short-term interest rates on short-term investment income.

Net investment gains of $ 617,979 in 2020 were primarily attributable to an increase in the fair value of equity securities.

Looking at the private equity segment “Markel Ventures” operating revenue rose 36% to $ 2,794,959 thanks to 2 acquisitions in 2020 and operating income rose 51% to $ 254,078

Investors were pleased with these results. Markel’s share price rose 11% since the 2nd of February when results were released.

The all important book value / share price ratio stands at 1.2 ,rather cheap for Markel which is normally valued at 1.5!

This low ratio reflects 2 problems Markel has in the current environment:

1. Today to find great businesses as acquisiton targets at acceptable prices for Markel Ventures is very hard!

2. Regulatory control of the way Markel holds and invests capital!

Therefore investors should not expect market beating results in the near future but over a time horizon of 5 to 10 years the picture could change materially.

Markel today is a „Hold“!

Shopify: stock market correction versus long term view!

November 10th, 2020 Comments off

Shopify’s (NYSE:SHOP) share price yesterday fell more than 13% together with other online retail and digital payment stocks after Pfizer and BioNTech released coronavirus vaccine news.

It is understandable that investors want to lock in gains they made year to date. Even after this correction shares of Shopify surged 127% this year!

But should they ignore long term trends? The coronavirus pandemic only accelerated economic and technological trends that existed before and will continue after the pandemic.

So perhaps this is a good moment to look at Shopify’s Q3 2020 financial results:

Shopify grew revenue 96% and gross volume merchandise (GMV) which is all what is sold by merchants on Shopify’s platform, grew 109% year over year!

These are incredible numbers: “The accelerated shift to digital commerce triggered by COVID-19 is continuing“, said Shopify’s president Harley Finckelstein.

And don’t forget that this year we most probably look ahead to the biggest online shopping holiday season ever!

The company also signed up a record number of merchants to its premium-level plan for high volume merchants called Shopify Plus like p.e. luxury brand Dior.

Q3 2020 was Shopify’s second profitable quarter: Net income for Q3 2020 was $191.1 million, or $1.54 per diluted share, compared with a net loss of $72.8 million, or $0.64 per basic and diluted share, for Q3 2019.

Shopify also fortified its balance sheet this quarter: at September 30, 2020, Shopify had $6.12 billion in cash, cash equivalents and marketable securities, compared with $2.46 billion on December 31, 2019.

To fund its growth and new initiatives the company raised additional cash with a stock offering of 1.265 million shares, bringing in $1.12 billion, and a convertible note equivalent to $920 million.

It is almost certain that Shopify’s long term growth trend will continue. After yesterday’s pullback the stock is still valued at a price/sales ratio of more than 50.

That is not cheap but considering the growth potential Shopify today is a buy!

Markel released better than expected Q3 2020 results!

November 2nd, 2020 Comments off

Markel Corp. (NYSE: MKL) reported Q3 2020 results amidst a pandemic which left investors with a lot of doubts about insurers.

Markel’s stock lost about 20% since the beginning of this year. Other insurance stocks behaved the same way.

So let’s have a look at the numbers of Q3:

Earned premiums are up 7% to $ 1’394’428’000

Markel Ventures operating revenue is up strongly by 66% to $ 824’132’000

and comprehensive income more than doubled to $ 520’089’000

Book value per share outstanding climbed slightly to $819,71 from $802,59 at 31st of december 2019.

CFO Jeremy Noble explained: “.fortunately, we saw positive contributions from each of our three engines during the third quarter.

Our insurance operations produced an underwriting profit despite elevated levels of natural catastrophe losses, as well as increases to reserves related to the pandemic, reflecting the strong underlying performance of our business.

Our Markel Ventures operations delivered meaningful profits, demonstrating their resilience despite economic uncertainty, and our investment portfolio also saw gains amid volatile market conditions.”

Co CEO Tom Gaynor pointed out that “losses occured by Markel’s clients stem not just from the things you see in the headlines regarding the pandemic, but also a spate of natural catastrophes such as more hurricanes than hurricane names, wildfires, a major derecho, and ongoing and recurring events and circumstances that we see regularly in our insurance operations”

Markel already in Q1 2020 increased reserves in a meaningful way. So investors could be cautiously optimistic that the worst is coming to an end. And Markel Ventures seems to be very resilient to the crisis.

Markel’s stock today is valued at a price/book ratio of only 1.1 which is rather cheap for this high quality company.

For patient investors with a long term horizon Markel today is a „buy“!

Shopify’s Q2 2020 results blew past analyst estimates

July 31st, 2020 Comments off

Shopify’s Q2 2020 results were just incredible: second-quarter revenue grew 97% on gross merchandise volume growth of 119% year on year!

Shopify’s $714.3 million in quarterly revenue was more than $200 million ahead of what analysts forecasted.

New stores created on the Shopify platform grew 71% in Q2 2020 compared with Q1 2020, driven by the shift of commerce to online as well as by the extension of the free trial period on standard plans from 14 days to 90 days.

Adjusted operating income for the second quarter of 2020 was $113.7 million, or 16% of revenue, compared with adjusted operating income of $6.4 million or 2% of revenue in the second quarter of 2019.

Shopify is clearly working with a huge tailwind caused by the pandemic and the rapid shift to online-commerce.

2 days ago Shopify filed for a $7.5B mixed shelf offering to give it the right to sell several different types of securities. The size of this offering added phantasy to the stock and fueled speculation about a big acquisition.

As the tailwind of rapid digitalization of organisations continues Shopify is certainly a „buy“ even at today’s prices.

Shopify is not immune to economic uncertainty if buyers spend less but in these days merchants of all kind need to develop an online-strategy and Shopify is by far the no.1 company to help them.

Markel’s Q2 2020 results impacted by the pandemic

July 31st, 2020 Comments off

Markel Corp. Q2 2020

Markel Corp. (NYSE:MKL) the speciality insurer released Q2 2020 results.
It comes as little surprise that the results were severely impacted by the pandemic.

The positive news are that gross written premiums were 3.7 billion for the first half of 2020, compared to 3.3 billion in 2019, an increase of 12%.

The underwriting results for the six months ended June 30, 2020 included $325 million of underwriting loss attributed to the COVID-19 pandemic, which added 12 points to the consolidated combined ratio which jumped to 103%.

But as we know the “Markel style“ the ample reserves should now be sufficient to cover all future losses caused by the pandemic.

Luckily the investment results benefitted from a meaningful recovery in public equities in the second quarter.

Markel’s share price recovered these days after after a decline in the first half of 2020 and ended yesterday at $ 1’045,37
For long term investors Markel is a buy!

“This post-COVID world is what we’re building for” explains Shopify and the stock jumped!

May 8th, 2020 Comments off

Shopify Inc. (NYSE:SHOP) stock shot up after releasing impressive Q1 2020 results:

Revenue in Q1 2020 soared 47% to $470 million, way ahead of analysts estimates and of their own guidance.

The company posted a surprise profit: adjusted net income came in at $22.3 million, or $0.19 per share. Analysts were expecting an adjusted net loss of $0.18 per share.

Gross merchandise volume (GMV) jumped 46% to $17.4 billion, with gross payments volume (GPV) of $7.3 billion.

And here comes a fantastic number which underlines the value Shopify is creating for its merchants:

GMV through point-of-sale (POS) channels plunged 71% between March 13 and April 24 when physical stores were closed, but Shopify’s retail merchants were able to replace 94% of those sales on average with online sales!

This means an impressive immediate and accelerated shift away from brick-and-mortar toward online purchasing which certainly saved a lot of shops!

“This post-COVID world is what we’re building for and we have shifted accordingly.
Shopify’s world view has not changed. Our conviction that merchants need to be able to sell to their buyers wherever they may be remains as true today as it was a decade ago” explained COO Harley Finkelstein on the conference call!

Shopify continues to invest heavily in its Shopify Fulfillment Network, which was announced last summer and launched its „Shop app“ last week, an aggregated e-commerce marketplace that will compete more directly with Amazon.

Shopify’s balance sheet continues to be very strong. At the end of last quarter they had cash and cash equivalents of $2.36 billion and no meaningful debt.

Since the beginning of 2020 Shopify’s share price has risen 77%!
Is Shopify still a buy at today’s price?

Shopify’s stock is valued at an impressive price/sales ratio of 53 which means that a lot of the future is already priced in.
But on the other hand Shopify has an enormous potential to become the no.1 platform for independent online merchants.

Therefore it could be wise to wait until the stock price will possibly decline further following today’s anouncement of a secondary offering of 1’850’000 shares or when the general mood at the stock market turns negative!

… until February everything went well… but then…

May 1st, 2020 Comments off

Markel Corp. (NYSE:MKL) the specialty insurer and investment company released Q1 2020 Earnings

… until February everything went well… but then…

As Co-Ceo Thomas S.Gayner put it:

„At the beginning of the year, we started with excellent operational momentum in our diversified insurance, investment and ventures operations. We entered the year with a conservative balance sheet, marked by high-quality fixed income holdings, no near-term debt maturities and a publicly traded equity portfolio that stood at 69% of shareholders’ equity. Those equity securities had a cost basis of $3.3 billion and a market capitalization of $7.6 billion at that time.“

Starting with the top line things are not looking so bad:
gross written premiums were $1.9 billion for the quarter compared to $1.7 billion in 2019, an increase of 13%. This increase is almost entirely due to our insurance segment, which reported gross written premiums of $1.4 billion, an increase of 19% compared to the 2019 period.

But then the picture changes:
the consolidated combined ratio for Q1 2020 was 118% compared to 95% in Q1 2019.

During the quarter, Markel recognized their best estimate of pre-tax net losses and loss adjustment expenses of $325 million for COVID-19. These COVID-19 losses increased the consolidated combined ratio by 24 points. This means that without the effects of COVID-19 the combined ratio would be 94%.

Net investment losses for the quarter were $1.7 billion compared to net investment gains of $612 million last year, a year-over-year decline of $2.3 billion.
Essentially all of the net investment losses in 2020 were attributable to the decrease in the fair value of our equity portfolio during the period as COVID-19 caused unprecedented volatility in the capital markets as they explained on the conference call.

Revenues from Markel Ventures their investment arm increased by 12% to $511 million for 2020 compared to $455 million last year.
The increase in revenues was primarily related to an acquisition in 2019 and, to a lesser extent, an overall increase in the consumer and building products businesses.

Markel reported a net loss to shareholders of $1.4 billion for 2020 compared to net income to shareholders of $576 million a year ago.

Book value per common share outstanding was $705.68 at March 31, 2020, 12% less than $802.59 at December 31, 2019.

After the earnings release the market reaction was positive and the share price went up.
Knowing the management and the sound traditions of Markel we can assume that they put all the estimated loss into the reserves of the first quarter.

So if this crisis will not worsen we do not have to expect further increases in loss reserves.

On the other side as the Federal Reserve lowered interest rates to near zero there will be very low investment returns to earn on the short term fixed income side.
Luckely Markel still has about 58% of shareholder’s equity invested in stocks.

At yesterday’s closing price of $ 865.84 Markel has a price/book per share ratio of 1.2
It is a good price to buy but don’t expect quick returns on this one!

Investment decisions in times of crisis!

March 28th, 2020 Comments off

Following the spread of the new Coronavirus financial markets got into a turmoil even older market participants have not yet seen

(Warren Buffett: „it took me 89 years to experience something like this“).
But for sure we shoud not only blame the new virus for this.

For years now markets were flooded by central banks with cheap money or – even worse – money at no or negative cost. The stock market until January 2020 reached tremendous highs. The bond market and the real estate markets even worse.

Private, corporate and public debt has risen to levels not yet seen in human history.

Younger traders in financial institutions at the age of 30 never experienced a „bear market“ in there life! They are shocked now!

Therefore a correction was overdue. But the problem is that only in retrospect we can see whether we were in bubble territory or not.

So what to do now as an investor in stocks?

.….. sometimes the best in life …. nothing!

In all this downturn I never sold shares of stock, not even one!
I am convinced of my holdings and the losses are only in book value. When the crisis is over shares will go up again. This is not the end of the world. Be patient!

Our blog follows 2 stocks, Shopify Inc. (NYSE:SHOP) and Markel Corp. (NYSE:MKL)
The investment thesis of both companies has not changed within the last weeks. Shopify’s prospects have even improved!

1.) – Let’s start with Markel:

Markel operates in the specialty insurance and in the reinsurance business and it has a long history of underwriting profitability.

Unlike other insurance companies Markel invests not only in investment grade bonds but also in equity. At the end of 2019 about 40% of markel’s investment portfolio was in stocks.
Those stocks are certainly down now but they will recover.

In the meantime Markel earns money collecting dividends and earns money in their basic insurance business which by the way is not very sensitive to economic changes.

And if this is not enough to convince you Markel at the end of 2019 had $3.1 billion of cash and cash equivalents on the balance sheet, that’s 25% of today’s market capitalization!

So Markel today is a clear „buy“.

2.) – And what about Shopify?

We think that Shopify’s prospects actually improved during this crisis.
In the past online commerce grew significantly year after year. Just watch Amazon!

And in these days where many people are stuck at home they are buying online with etailers delivering essential goods to their door.
This structural change from offline to online shopping will accelerate. E-commerce is booming now!
Amazon as the biggest one will profit from this trend and is already hiring additional logistics workers.

But Shopify powers the independant and smaller online merchants and is even building up a logistic network for them. Shopify over time will become an alternative for third party sellers on Amazon.
And even better: Shopify is the merchant online solution admitted for legalized Cannabis selling in Canada and the US.
A lot of consumers of „recreational cannabis“ these days will buy online and not in shops for health reasons.

Shopify belongs to the group of companies that will profit from this crisis and the accelerated structural change of retail. Shopify is a „strong buy“.

But let us be clear!
Buy only stocks now with money you do not need for at least 5 years.
If you are loosing your job during the crisis or your monthly pay is reduced don’t invest in stocks but stay in cash. You will need financial reserves!

And if you decide to invest now be prepared that another severe market correction could always be around the corner. You could follow the old rule „buy in thirds“ and start to invest only with a small portion.

Shopify’s impressing 2019 results!

February 14th, 2020 Comments off

Shopify’s (NYSE:SHOP) 2019 results were even better than already high expectations!

Revenue in the last quarter of 2019 came in at $ 505.2 million which means a growth rate of 47% accelerating from the 45% growth in Q3 2019.

The real big growth driver was the segment „merchant solutions“ (payment processing, transactions etc.) growing 53% yoy.

Gross merchandise volume, the volume of all merchandise sold over Shopify’s platform for 2019 reached $61.1 billion, an increase of 49% over 2018.

Operating loss on a GAAP basis for 2019 was $141.1 million, or 9% of revenue, versus $91.9 million, or 9% of revenue, for 2018. This reflects the cost of heavy investments into new offerings for their merchants, p.e. Shopify launched „Shopify Fulfillment Network“ a new logistics offering for their merchants.

By year end 2019, already 29% of Shopify’s merchants were based outside the core geographies of the US and Canada, compared with 24% in these largely non-English-speaking markets in 2018.

Shopify now starts to expand internationally which soon could mean another growth driver for the company.

The company announced that 2020 will be another year of heavy investments.

So don’t expect Shopify to be bottom line positive any time soon. But we believe these investments will pay off rather soon.

For 2020 the company expects revenues in the range of $2.130 billion to $2.160 billion an increase of 35% compared to the 2019 revenue of $1.578 billion

Consider this estimate „conservative“! Shopify will rather exceed that goal.

At yesterday’s closing price of $532.97 and a market capitalization of $ 61.75 billion Shopify is valued at a 2020 price/sales ratio of 29! This looks expensive but in our view is more than justified by future growth possibilities this company has.

Even after the tremendous runup we consider this stock a „buy“!