Shopify Stores at Sensible Prices
Note: This post was originally written March 9th, 2020 (so stats are out-of-date — 2020 data is available here). Since then, the Shopify Exchange has been decommissioned. OpenStore has begun providing liquidity to Shopify store owners.
The Exchange
The Shopify Exchange is a marketplace for buying and selling e-commerce businesses built on Shopify’s platform.
There are currently 9,000+ shops listed for sale on the Exchange. But the interface for browsing this inventory is pretty bad. You’re limited to basic filters like list price and revenue, and there is no option to export the full dataset to a CSV.
Is there a better way to spot valuable businesses at sensible prices?
The Data
Shopify conveniently exposes an endpoint that surfaces richer listing data to their frontend. I wrote a script to scrape this information and took a look at the data:
Most shops are cheap and make no money:
Stores are listed between 50 bucks and $15 million, but 75% are selling for less than $500.
70% of listings have $0 in revenue.
Sales are declining for most revenue generating shops:
Monthly revenues in the last year are 58% of the historical monthly average.
Profitable shops sell at a premium:
20% of listings are profitable.
The median list price of a profitable shop is $5.5K (vs. $100 overall).
Wheat & Chaff
Most listings seem like overpriced lemons. What’s a quick way to filter them out? I settled on the following criteria:
List Price / Revenue is in the bottom quartile — i.e. purchasing a dollar of revenue is relatively inexpensive. (This is similar to price-to-earnings (P/E) or price-to-sales (P/S) ratios common in evaluating stocks. I’m using the equivalent of the P/S ratio since store profits are not verified by Shopify, but revenues are.)
Businesses have made a (self-reported) profit.
Revenues haven’t declined in the months leading up to the listing.
Applying the above criteria whittles down the thousands of listings to a much more manageable 40. Below is a closer look at one such shop.
Blacksquale: A Case Study
Blacksquale is a French shop with one product called “Magic Race”, a two-player board game for children that they sell for ~30 euros.
The seller’s listing boasted that they had “very few competitors” and that their “product [was] impossible to find in physical stores”, but 30 seconds of Googling revealed that vendors across the web sell the exact same game but by other names (e.g. "Magic Blocks”, “Rubik’s Race”) for nearly half the price.
Blacksquale’s strategy appears to be: take an existing product, change its name, double its price, and target a niche audience (i.e. French children).
They were listed for sale at $8.5K at the time I scraped their data on 2/20/2020, but they have since sold for an undisclosed amount.
Blacksquale generated an average of $14K per month in revenue, but with highly seasonal swings — they made $60K during the peak of the holiday season last December.
The seller provided a screenshot of their OrderMetrics dashboard breaking down their costs and profits over a period of about 9 months running from May 2019 to February 2020. They made €56K of net profit on €284K of revenue, which is roughly a 20% profit margin, with the majority of costs going towards advertising.
For the sake of discussion, let’s assume that Blacksquale’s future profits will mirror the performance we see in their dashboard and everything that the seller has told us is true. Is it a good idea to buy this shop for $8.5K given expected profits of ~$6K per month and, as the seller claims, ~20 hours of work per week?
That doesn’t seem unreasonable. Maybe that’s why Blacksquale sold in short order.
Wishing the new owners many more happy years selling board games to French kids for twice the market rate.
Thanks to Nathan W. and Jeff Y. for the feedback.