Shopify’s shares fell c.15.6% between Monday’s close and the end of trading yesterday. The heavy fall comes off the back of the research note released by Citron, which claims the company is in violation of the FTC Business Opportunities Act. The report argues that Shopify makes too many bold claims that entrepreneurs can become millionaires in an incredibly short period of time, and that it doesn’t disclose when they pay affiliate marketers and influencers who refer others to Shopify. Additionally, Citron argues that the company only generates c.50% of its revenues from subscriptions when other SaaS companies typically generate c.85% or more from subscriptions, yet it trades at a significant premium to companies like Salesforce. When adjusting on a like-for-like basis (based on the percentage of revenues generated from subscription revenues), Citron claim the shares should be trading at half the price as at the time of publishing. Whether the allegations and analysis are proven correct is an unknown, but the market certainly listened with c.$1.83bn wiped off the company’s market cap by Thursday’s close.
With increased scrutiny on the FTC issue, members of the Shopify partner program might want to ensure that they disclose payments they receive from Shopify, per existing FTC regulations.
In other SaaS news this week, Microsoft announced at their Ignite Conference the integration of Cloudyn with Microsoft Azure, aimed at allowing Azure customers to monitor monthly subscription charges for cloud services. This initiative comes in the wake of a growing issue with SaaS companies, where customers are sometimes incorrectly charged for fees they don’t actually owe. SaaS business owners will likely want to pay close attention to ensuring that users are not forced to request too many refunds and chargebacks, as this announcement represents an industry shift to focus on the power of the consumer.New in affiliate listings this week we have a $299K business in the travel space, with a 12 year track record and strong rankings for over c.36,000 keywords. Also listed is a $225K sports and recreation affiliate business, with $6.3K in monthly gross revenues and consistent CAGR of c.35%. Finally, we have listed a $50K well-established affiliate site in the wedding registry space with over $6M in transactions processed to-date.New in e-commerce listings this week is a highly profitable business in the home accessories niche, with nearly $1M in yearly revenues and a strong CAGR of c.50% for the 2014 to (e)2017 period. If you are interested in learning more about these businesses, be sure to request a prospectus through the links today, as they have already received significant buyer interest.In entrepreneurial news this week, Founder Thomas Smale was featured in an interview with Pierre Lechelle along with 6 other entrepreneurs who attended SaaStock 2017 in Dublin, in which he discusses the journey of founding and growing the most highly respected M&A advisory firm for online businesses in the industry.
In event news, the upcoming month will have the FE team attending DCBKK in Bangkok from October 18-22, Rhodium Weekend in Las Vegas from October 26-29 and Digital Footprint in Los Angeles from October 26-29. We will also be hosting our monthly Boston E-Commerce meetup on October 25th at Watermark Apartments in Seaport, where our panel will share their wisdom on funding your e-commerce business. Click here to register! If you will be attending these events, or in those areas around that time, let us know so we can set up one-on-one meetings.
Continue reading below for more on Citron’s accusations against Shopify, Microsoft’s movement to reduce SaaS fees, and the EU Commission ordering Ireland and Luxembourg to collect hundreds of millions in taxes owed from Apple and Amazon, respectively.
Deal Highlights
New:
E-Commerce – Home Therapy Accessories – $77K gross/mo
- Strong revenue growth with a CAGR of 50% for the period 2014 to projected 2017
- Revenues diversified across B2B and B2C storefronts and dozens of SKUs
- Authoritative brand with over 10 years of operations
- High gross margins of c.38%
- Strong traffic with over 500,000 unique visitors in the last 12 months
Yearly net profit: $267,000
Asking price: $800,000
Affiliate – Travel – $8K gross/mo
- Strong and stable traffic with c.2.6 million sessions over the trailing 12 months
- Keyword rankings for c.36,000 keywords
- Strong and consistent revenue growth with a CAGR of c.146% between 2014 to projected 2017
- Authoritative brand with 12 years of operations
- Low owner involvement
Yearly net profit: $93,000
Asking price: $299,000
Affiliate – Sports & Recreation – $6.3K gross/mo
- Strong and consistent revenue growth with a CAGR of c.35% between September 2016 and August 2017
- Strong and stable traffic with c.512,000 sessions over the trailing 12 months
- Diversified revenues across three interconnected businesses
- Keyword rankings for c.5,800 keywords
- Low owner involvement
Yearly net profit: $72,000
Asking price: $225,000
Affiliate – Wedding Registry – $2.1K gross/mo
- Over $6M in transactions processed to-date
- Established brand with over a decade of operations
- High and stable traffic with over 275,000 page views in the last 12 months
- Team willing to transition with the business post-sale
- Low owner involvement
Yearly net profit: $18,000
Asking price: $50,000
Sold:
SaaS – B2B E-Commerce Wholesale & Inventory Management – $9K MRR
In the News…
Shopify Faces Scrutiny from Industry Report
Shopify’s shares fell c.15.6% between Monday’s close and the end of trading yesterday. The heavy fall comes off the back of the research note released by Citron, which claims the company is in violation of the FTC Business Opportunities Act. The report argues that Shopify makes too many bold claims that entrepreneurs can become millionaires in an incredibly short period of time, and that it doesn’t disclose when they pay affiliate marketers and influencers who refer others to Shopify. Additionally, Citron argues that the company only generates c.50% of its revenues from subscriptions when other SaaS companies typically generate c.85% or more from subscriptions, yet trades at a significant premium compared to companies like Salesforce. When adjusting on a like-for-like basis (based on the percentage of revenues generated from subscription revenues), Citron claim the shares should be trading at half the price at the time of publishing. Whether the allegations and analysis are proven correct is an unknown, but the market certainly listened with c.$1.83bn wiped off the company’s market cap by Thursday’s close.
With increased scrutiny on the FTC issue, members of the Shopify partner program might want to ensure that they disclose payments they receive from Shopify, per existing FTC regulations.
Microsoft Raises the Lower-Price Bar
This week, Microsoft announced that they will be pairing Cloudyn’s services with Microsoft Azure to allow customers to “optimize their cloud service usage and costs via automated monitoring, analytics, and cost allocation.”
Microsoft acquired Cloudyn, a company that helps businesses manage their cloud services costs, earlier this year for $50 million. At their Ignite conference this week, Microsoft announced that they are seeking to change the issue that users of SaaS services run into so often of being incorrectly charged for fees. Customers of Microsoft Azure will be able to automatically monitor and control the costs of their SaaS subscriptions with this new integration, which is targeted to help reduce unnecessary costs associated with using the service.
Microsoft has not announced plans to allow Cloudyn to be used for other companies, but this announcement should prompt SaaS businesses to reflect on whether they are consistently accurately charging their customers, or whether there is room for improvement when it comes to the number of refunds they need to grant per month.
Amazon and Apple in a European Pickle
This week, the European Commission has ordered Amazon to pay €250M ($293M USD) to make up for the tax reprieve it has received for its operations in Luxembourg. This is on the grounds that Luxembourg granted an illegal tax deal to Amazon which allowed them to be exempt from €250M in taxes from 2006 to 2014. Amazon had been paying an effective tax rate of 7.25%, compared to the 29% country average, due to their moving of profits to the Amazon EU holding company.
The Commission similarly announced that they will be taking Ireland to the highest court in the EU to appeal for the enforcement of Apple paying back €13bn ($15bn USD) in taxes for which they had been previously exempt. Ireland had struck a deal with Apple saying that said they didn’t have to pay full taxes. The commission has accused Dublin of making a poor decision in this regard, and while Dublin disagrees with this accusation, has nonetheless vowed to collect the money.
Apple has appealed the decision, and Amazon has announced their plans to “study the commission’s ruling and consider our legal options, including an appeal.”