Investing Strategies: Shopify COO Discusses Software Firm’s Strategic Initiatives

hi everyone and welcome to Investing
Strategies it’s Alissa Coram with Investor’s Business Daily from the
Nasdaq market site in Times Square with the NASDAQ and S&P now in new high
territory what should investors do differently with their holding the chief
investment strategist at new mean is shedding some light on portfolio tactics
to consider in the current market environment plus Shopify’s chart is the
focus of this week’s technical analysis we’ll also be going one-on-one with
e-commerce software platform CEO o to learn more about the company’s growth
trajectory and Excel capital is here to discuss the methodology behind its index
which has the goal of eliminating holdings that are the most at risk for
disruption investing strategies starts now let’s kick things off with our market
insights for the week the stock market is moving full steam ahead into new high
territory and here with me now to discuss the current investing
environment and how investors should be positioning their portfolios now is
Brian Nick Chief Investment Strategist at Nuveen thanks so much for joining
me today Brian thanks for having me all right now solidly a new high territory
what is your take on the market right now well it’s been a pretty
extraordinary run over the last couple of weeks I think we’ve seen the base
case probably stay kind of where we thought it would be easy okra growth we
got the 1.9 percent GDP number for the third quarter kind of confirming our
sense of things that slowed down the rest of the world doesn’t look like it’s
speeding up might be stabilizing at relatively weak levels in China and in
the eurozone but I think what’s really happened to help the market get this
extra boost is some of the downside scenarios seem to have melted away or at
least diminish you look at the idea that there’s gonna be a no deal breaks it
that seems to have diminished for the time being the the trade war seems like
it’s gone off the front burner the October tariffs were delayed or canceled
looks like the same thing might happen to the December tariff so if we’re at
sort of the high-water mark for tariffs that’s another sign that the markets may
see it as a sort of all-clear to climb higher and valuations still aren’t as
expensive as they were say two years ago coming off of the passage of a tax cut
bill so we feel okay about where things are we’ve been pretty surprised about
how quickly they’ve moved we’re not look at that same trajectory moving forward
but you know we’re pretty happy with the underlying fundamentals supporting this
market interesting so you think that the shifting story with the trade war is
really just eliminating basically the worst case scenario but maybe not
setting us up for a powerful move higher yeah my message for the fourth quarter
to investors is literally this isn’t the worst-case scenario and I think that’s
been enough I mean you see the tail where I start to get priced out interest
rates rise a little bit so this idea that investors are running for the most
defensive safe areas of the financial markets and some government bonds and
even in Europe rates have come up just a little bit not because I think that
we’ve seen this spectacular new economic scenario unfolding for 2020 but if you
were really concerned about some of the dangers out there you’re probably a
little bit less concerned today and a little bit more apt to want to take a
bit more risk in your portfolio all right so then looking beyond q4 over the
next 12 months what is really your anticipation for
growth of global equities still not intensely strong but a bright picture
would you say given that we’re up sort of globally and they’re sort of the high
teens low 20s we’re not expecting anything like that for 2020 is a similar
what we’ve had in 2019 I think we’re gonna be held hostage a bit to earnings
growth that’s gonna be sort of the leash holding us back you look at this quarter
it looks like earnings growth might come in just eat out a positive
year-over-year gain for the third quarter we could see something similar
in the fourth quarter and then I think expectations for next year are a bit too
high in the consensus so we’re looking for mid-single digit earnings growth tie
that to our return expectations maybe four to six percent on the sp500
something similar for other global indices all right well let’s talk
sectors and what sectors do you think investors should be watching right now
especially when you’re talking about earnings prospects yeah so it’s been a
sort of game of pinball with the sector’s giving from quarter to quarter
you had this kind of dramatic shift in leadership technology has been one of
the most steady we think that’s going to continue to be an opera former the trade
war sort of melting away just a bit is good for technology stocks although they
whether the trade war pretty well considering they’re sort of at the
center of things between US and China on trade so we still like technology but at
the same time we were adding tech technology in the last couple of months
we’ve also been adding two utilities which is not an inexpensive bet at the
moment but it’s also a high dividend sector and because we think total
returns are going to be relatively low that means the dividends gonna be a
larger component of those returns and we still aren’t exactly sure that we should
be completely dismissing the downside scenario from our outlook so something
like utility is very defensive high dividend is a pretty good insurance
policy to have in a mix of equities all right and then what are your thoughts on
semiconductors standing out lately after a period of underperformance well again
this is that the the sort of the core the crux of the
us-china trade war and trying to trade negotiations so if it doesn’t look like
they will get higher tariffs on existing goods a lot of which of these kind of
semiconductors or technology taxed each time they do then the semiconductor
market looks a bit stronger and again text one of our favourites for 2020 I
think we were going to put our money on sort of a more cyclical board upside
scenario it would be in in semiconductors but I think in in
technology more broadly so we like it but the trade war is kind of
throwing this sort of binary variable into the equation if it gets worse we
expect that section to get hit pretty hard again right and you mentioned
investors potentially getting a little bit more aggressive now with their
portfolios so what else would you say in terms of positioning portfolios would be
key to consider right now in addition to the tech sector well we know from all
year investors have been pulling their money out of ETFs and mutual funds that
are targeted towards equities they’ve been putting their money into cash and
fixed income so it’s still a pretty bearish individual investor out there if
we could could have distilled it into one one person I think for next year
where should we be looking income is still a big consideration for a lot of
investors something we focus on a lot at Nuveen emerging market income us
corporate bonds still look relatively good compared to other options you can
get on things like cash government bonds we talked about getting income in the
equity markets that’s the thing that we hear the most from investors how can I
continue to generate income in an environment where you have sub 2% US
10-year Treasury yields that seem like they’re here to stay for the time being
if they get a little bit above 2% it won’t be by much at least in the next
year all right fantastic we’ll have to leave it there for now but thank you so
much for all of your insights today nice to be here thank you all right and
coming up after the break we’re going to take a look at the chart of Shopify is
the e-commerce software stock setting up for another big new tire leaderboard helps you invest better with
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alerts improve your investing with leaderboard start your free trial today when you see it stock making massive
move and you’re sitting on the sidelines you might be feeling like you’ve missed
out but there’s a silver lining the very best stocks will always present another
buying opportunity you just have to be patient and wait for it
Shopify is a great example of a top stock that’s made a monster move this
year shares broke out of a seven month long consolidation in February and
proceeded to run up from around 177 to 409 in a little over six months now
during that time the stock was able to find support at its ten week moving
average that’s the red line on this weekly chart here so the first two pull
backs and rebounds off of the 10 week line after a breakout are considered
opportunities to add shares to an existing position an aggressive
shareholders can also use these pull backs to initiate positions and after
such a huge run it’s not surprising to now see a new consolidation for Shopify
investors should also note that even with the big run up this new base is not
considered a late-stage base because this last consolidation was long enough
to reset the base count now this is key because later stage bases have a greater
likelihood of failing since they come after a stock has already made a giant
move now this current consolidation comes amid broader weakness in the
software group but Shopify is still holding well above its 200-day moving
average that’s this gray line on the daily chart here and shares are now
trading about 23% below highs and a potential buy point at 409 71 which is
10 cents above the prior high right there so what would fuel the next move
higher for the stock while earnings and sales growth are huge contributing
factors in the most recently reported quarter Shopify reported a loss of 25
cents a share and that came after several quarters of accelerating bottom
line growth still the stock did not give up much ground on the earnings results
and revenue growth has been slowing slightly but it was still a solid 45
percent last quarter analysts are bullish on Shopify is international
expansion and Shopify is building a u.s. distribution network to store and
shit products for its merchants customers with plans to spend 1 billion
dollars over five years to do so whenever a company’s initiatives boost
earnings and sales growth that typically bodes well for the stock all right well
coming up next we’re going to go one-on-one with the CEO of Shopify to
discuss how these latest strategic initiatives are set to impact the
software platforms employed contradictory we’ll be right pick
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Market Smith by Investor’s Business daily try three weeks for $19.95 astounding run this year more than
doubling in price and the company now powers over 1 million merchants on its
platform joining us remotely via Zoom to discuss the e-commerce software
company’s growth trajectory and strategic initiatives this Harley
Finkelstein the COO of Shopify thanks so much for joining me today Harley thanks
for having me all right so now more than 1 million
merchants on Shopify why do you think merchants are increasingly coming to the
platform look I think entrepreneurship is nothing new I think the issue
historically has been that it was difficult for entrepreneurs to access a
global market it was very expensive it was very complicated and software
technology just wasn’t built for them the history of the company is was really
around building software to allow entrepreneurs people that are makers and
creators and even curators to build beautiful online stores and then take it
to a global audience and that we now have a million merchants that have done
that on Shopify they’ve sold more than 135 billion dollars and actually do a
great just our Us stores alone we’re the third largest retailer at the
u.s. online so we’re seeing a lot of great growth and what we’re really doing
is loving the playing field so that entrepreneurs can compete interesting so
if you’re considering yourself a retailer then it does seem like it’s
more than just the software platform now you’re expanding to distribution centers
can you tell us a little bit more about the thought process behind that move to
expanding with distribution centers sure so as I mentioned the history of the
company was we were the best in the world at helping small businesses build
beautiful online stores but a couple things change over the last five
years or so the first thing that changed was that ecommerce moved to commerce
everywhere we’re now consumers want to purchase wherever they they wherever
their preferences so they may want to buy offline or on Instagram or on
Facebook or on eBay or Amazon and so more and more what Shopify has has
transitioned into as the world’s first retail operating system where you can
use shop but it sell across any channel you want and access customers anywhere
in the world using those channels that’s the first thing the second thing was we
began to think about what are the other challenges and entrepreneurs have things
like shipping and payments and topler logistics and if you take a lot of small
things and aggregate them you actually get a really big thing and what we
realized was that we had the opportunity to go in negotiate on behalf of a
million merchants do things they couldn’t do on their own
and give them the economies of scale so in the case of capital for example we’ve
now given up more than 700 million dollars to small businesses who can
access capital on their own shipping labels that are pricing on shipping
labels payment rates and more recently fulfillment leave this we’ve announced
about four months ago that we’re creating the Shopify fulfill a network
so that any entrepreneurs and any small businesses in the US can put their
products into this network of filmin centers and they can provide their
customers the same type of delivery options that traditionally only the
biggest companies on the planet able to afford and again all you’re seeing here
is this incredible democratization of entrepreneurship and and as leveling the
playing field so that any small business can compete with the biggest businesses
right so then do you think that this approach really gives the merchants an
edge over what they would get via Amazon which of course is the 800-pound gorilla
in the e-commerce space yeah look often when you talk with e-commerce companies
like Amazon of course come up and and Amazon does a good job of selling you
the things you need to buy your household items your commoditized
products but more and more consumers want to purchase products and the people
that make the products and what technology has done what Shopify has
done is we’ve allowed these businesses to scale at a much faster rate and they
no longer have to read customers from the marketplaces they now can have their
own customers that they own themselves now when you look at companies like all
birds or bombas or fashion Nova or Kylie cosmetics
these are brands that didn’t exist five years ago and now there’s some of the
largest brands in their category and they’ve built and they’ve been built
entirely on Shopify so Shopify’s expansion these investments obviously a
short-term impact on earnings but what do you think that the long-term payoff
will be will the company be able to turn this into a growth opportunity and how
quickly so the history of the company was we were profitable in the early days
we were bootstrapped and we plan to be profitable again but right now it feels
like the opportunity for us is just so big we think that we can help more
merchants more places and provide the more services and so right now we’re
really focused on ensuring that the most amount of people use Shopify and then
once they come onto the platform they use more and more of our services but
from a financial perspective you’re seeing growth of 45 percent
year-over-year revenue growth we announced q3 our revenue is about three
hundred ninety million dollars gmv was almost fifteen billion dollars that’s
almost 48 percent year-over-year so these are really wonderful growth
numbers but we feel like there’s a big opportunity for us and we need to
educate investing right now right speaking of top-line growth how
sustainable do you think forty five or even a thirty plus percentage top-line
growth is as as you continue to grow well if you go back a year and a half or
so ago Shopify really focused mostly on the english-speaking world we were a
company focused really on North America UK Australia more and more now you’re
seeing merchants all countries all over the world begin to use Shopify we’ve
translated our product we’ve integrated with right payment gateways we’re
developing an ecosystem of partners globally so we think global expansion
will certainly help with that growth Shopify Plus which is our enterprise
offering is growing leaps and bounds we’re seeing brands like Procter &
Gamble and Unilever and Gatorade and aerosols come onto Shopify these are
brands that traditionally may have not done that so more and more as we create
more services enter new markets and provide more products for those existing
merchants we think we can into growing I had a similar pace to what we’ve been
doing alright well thank you so much for giving us a look at the company’s
strategic initiatives that’s definitely been fun watching the stock and seeing
the company grow thanks so much for being here today thank you so much okay
well after a quick break we’re sitting down with XOUT capital to learn about
the quantitative rules based methodology behind its XOUT us large cat index
we’ll be right back on cultural capital we are in New York City and San
Francisco come with me as I tour some of the world’s most innovative companies
from Squarespace to c3a I get e & figma learn how CEOs built growing companies
while maintaining the ultimate office culture on season 3 of cultural capital
on the brand-new Nasdaq calm when new innovations spark industry disruptions
only the companies that can adapt survive well now there’s an ETF ticker XOUT that has the goal of eliminating holdings that could be ripe for
disruption and joining me today is the CEO of that etf’s index provider and
that’s David Barse of XOUT capital thanks so much for being here today
David wonderful to be here thanks all right so give us a quick little premise
of what the index is really going after you look there are two primary focuses
one is the most important or significant forward facing risk that all investors
and companies are facing is technological disruption and if they
don’t think or focus on that that’s a big problem and the second thing is
we’ve come up with a strategy that’s something intuitively simple but no
one’s doing it which is it’s more important what you leave out of your
portfolio then what you leave in thus the name XOUT so we are eliminating
those companies that are or likely will be disrupted by technology from a
broad-based index and our first indexes the 500 largest companies in the US
right and let’s take a little bit into the methodology so what line items are
you really looking at and you’re honing in on that are the signifiers for what’s
in and what’s out yes so if you think about technology and what it might be
doing to disrupt companies there are things like growth hiring capital
expenditures on business what the analyst community might think
about a business whether that company’s profitable or not whether the company’s
investing in its own stock through buybacks we use a multi fundamental
economic measurement to create a score and the bottom 250 companies that score
get eliminated from our index right and with the focus being fundamentals have
you or in creating the index if you consider at all adding in price
performance as one of your metrics and and why is that left out yeah we we have
a management factor that we call it that has price performance as its key
indicator for us cuz how else to judge a CEO for instance who’s running a
business then the price of the security at which time he takes so he or she
takes over the company to the present day and you compare that against all the
other companies in your constituency so we use price performance just with a
slightly nuanced manner god it makes sense and then I think I guess it can be
called a classic example now disruption blockbuster that whole model really
being disrupted by Netflix but now this year we’re seeing all of these streaming
services come out and Disney and maybe some other more old-school media
companies look like they may potentially be disrupting Netflix so how do you take
that into consideration yeah so the index rebalance is quarterly
and companies that perform better in the current quarter might end up getting put
back into the portfolio so that that elimination decision or Xing out of as
we call it is not a permanent one it’s one that looks at the here and now what
kind of information are we receiving from financial statements that are
produced on a quarterly basis and then the the score is assigned so Disney
which is actually XOUT today maybe in the future put back into the portfolio
if its financial performance starts to meet and exceed the scoring of the 250
so it doesn’t get on the bottom of the list right
but today we’re getting a lot of hit they’re getting a lot of headlines
because of all the money the they’re spending but they’re really
catching up quite frankly and so it’ll be interesting to see if they’re
successful at it right and IBD we are all about looking at data and making
decisions based off of that data so how do you think that this type of approach
is really enabling investors to put aside their biases when it comes to
picking which I guess indirectly which stocks are in their portfolio yeah I
mean this is one of the things that I’ve learned in my professional career that
biases tend to have strong influences over individual active security pickers
and so if you create a rules-based methodology and you stick to those rules
you have a good chance of eliminating those biases the active component of
what we do is really the creation of the index once we establish those rules we
sort of systematically have set up an active combustive but now it’s permanent
right that rule is in place we will not change it and the biases hopefully go
away over time we tend to look at some financial data that one might say well
is that the right way to examine what might be disrupted or not and that’s
open for debate there are thousands of factors that you
can use to create the elimination decision and I’m not saying we’ve we
find the perfect one or multi ones but we’ve done a pretty decent job we think
with what we’ve created all right and this is a large cap index so are you
going to apply this to other areas of the market moving forward yeah
ultimately our goal is to create a suite of indexes that are really based around
disruption in some cases and maybe in other cases a different thematic way in
which we eliminate from a portfolio companies that that should be excluded
from the portfolio but it be driven around the business in other words where
our asset flows going we know they’re going into the largest US market cap
companies right now but small cap mid cap international which are currently
out of favor but maybe they’ll be in favor over some period of time in the
future and that’s likely where we’ll focus our
well thank you so much we’ll definitely keep an eye on XOUT thanks for having
me it’s great all right and thank you all for watching Investing Strategies
next week I’ll be joined by Tangler Wealth Management Wisdom Tree and
MasterCard until next time i’m Alissa Coram

3 thoughts on “Investing Strategies: Shopify COO Discusses Software Firm’s Strategic Initiatives

  1. Hi Alissa you re amazing buy 52 week highs on spy and qqq with low floats and listen to market smith/ibd advice

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