Shopify (NYSE: SHOP) - Sell or Short Recommendation - $27 PT

November 23, 2015 concludes the 180-day lockup period on Shopify Inc. .

We previously covered this event on our IPO Insights platform.

At this point, its pre-IPO shareholders, directors and executives will have the chance to sell their >50 million shares. The potential for a sudden increase in stock available in the open market may cause a significant decrease in the price Shopify shares, opening a short opportunity for experienced investors.

Business Summary: Cloud-based Commerce Platform for SMEs

Shopify provides a cloud-based commerce platforms specifically for small to medium-sized businesses. Its platform gives its clients a single view of their business and customers from a variety of sales channels, including tablet, Web and mobile storefronts, social media storefronts, pop-up shops, and brick-and-mortar storefronts. Their software gives merchants the capability to manage products and inventory, build customer relationships, process orders and payments, and utilize analytics and reporting.

The company went public on May 21, and the market valued it at $1.27 billion. The interface gives SMEs the capability to easily and quickly launch a fully functional, branded e-commerce site, usually in days rather than weeks or months. Its pro-edition costs only $79 per month.

In June, Shopify announced deals that would allow its merchants to sell products on Facebook (NASDAQ:FB) and Pinterest through their new buy button features. In addition, Shopify announced in September that it had been selected as the preferred migration provider for Amazon (NASDAQ:AMZN) Webstore merchants. Adding to its prospects, Shopify also reported apartnership with Twitter (NYSE:TWTR), giving its merchants the opportunity to sell products across the popular social media site.

Shopify makes approximately $600 in gross profit annually from each merchant account. The company notes that the cost of acquiring a new merchant through sales and marketing averages around $1,000, making the break-even point over 12 months.

As of March 2015, the company had 162,261 merchants from approximately150 countries subscribed to their cloud services. The represents a 68.2 percent increase over the same period in 2014. Last year, Shopify processed $3.8 billion in gross merchandise volume, and its platform can handle 10,000 requests per second.

The company used the net proceeds of the IPO for general corporate purposes.

Formerly known as Jaded Pixel Technologies, Shopify changed its name in November 2011. It has approximately 630 employees, and it is headquartered in Ottawa, Canada.

Management Team With Strong Track Records

CEO Tobias Lutke co-founded Shopify in September 2004. Mr. Lutke worked on the core team of the Ruby on Rails framework and has created many open source libraries such as Active Merchant.

CFO Russell Jones has served in his position since March 2011. His previous experience comes from senior financial positions at BDNA Corporation, Xambala Inc., and CFO4Results. Mr. Jones holds a Bachelor of Commerce (Honors) degree from Carleton University and is a CPA, CA.

Chief Platform Officer Harley Finkelstein has served in his position since 2010. Prior to joining Shopify, Mr. Finkelstein founded a number of e-commerce companies and startups. Mr. Finkelstein holds a B.A. degree in Economics from Concordia University and a J.D./M.B.A. joint degree in Law and Business from the University of Ottawa.

Competition: Magento, BigCommerce, Wordpress and Others

Shopify faces competition from sites that offer similar online storefront services such as Magento, BigCommerce, Woo Commerce, Web, and adCart. In addition, merchants can implement storefronts through hosting companies like Host Gator and Bluehost utilizing content management systems (NYSE:CMS) such as Wordpress, Joomla and Drupal.

Early Market Performance: Strong Start

SHOP's IPO priced at $17 per share, higher than its expected price range of $14 to $16. The stock opened on the first day of trading at $28 and closed at $25.68, for an increase of 51 percent. Since then the stock has held remained relatively strong while climbing to reach a high on August 3 of $40.36. Currently, the stock trades at $30.23 (11.10.2015)

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Conclusion: Short SHOP Prior To Lockup Expiration

Given SHOP's impressive IPO and solid early market performance, insiders could be ready to take initial profits. As only 7.7 million shares are currently available for public sale, if even a few pre-IPO shareholders decide to sell, it could send the stock tumbling down in price.

Our new research shows abnormal negative returns of over 4% in an approximate two-week window, surrounding many firms' IPO lockup expiration dates.

We suggest shorting SHOP ahead of November 23rd to reap the full decline.