Unpacking and Quantifying the Shopify, Flexport and Deliverr Deals
There is certainly a lot to unpack with the Shopify, Flexport and Deliverr arrangements but the main takeaways are that Deliverr’s founder had remarkable timing and outcome, Shopify should own all of Flexport - not just 18%, and Dave Clark made the mistake of his career joining Flexport.
Now that the dust has settled on Shopify’s correct decision to divest Deliverr and 6 River Systems, it’s time to discuss the transaction and its implications, constructed strictly from publicly available information and educated guesses.
Timeline
Prior to 2022
Shopify acquired 6 River Systems for $400 million.
Deliverr raised ~$500 million from Tiger Global, Coatue, and others, at a $2 billion valuation.
February 2022
Flexport raised $933 million from a16z, bringing its valuation to $8 billion and total fundraising to $2.4 billion. It’s around this time that Dave Clark must have been sniffing around for a new role and identified the highest-valued tech-enabled logistics provider in the world, Flexport.
Shopify invested $480 million in Flexport; Shopify owned 6% of Flexport at an $8 billion valuation. (This $480 million is a guess as I have yet to see the number released; it is simply based on the math of the 13% percentage – which is public – as an estimate.)
June 2022
Dave Clark announced he was joining Flexport as CEO (since he and Jeff Wilke didn’t get the Amazon CEO job).
Shopify announced that it spent $1.7 billion cash on Deliverr plus an additional $400 million in Shopify stock. (I had this at $2.1 billion in cash earlier and have since corrected the error.)
May 2023
Shopify took a $1.6 billion impairment on the 6 River Systems and Deliverr acquisitions.
Shopify sold 6 River Systems to Ocado (for an undisclosed amount).
Shopify sold Deliverr to Flexport for approximately 13% of Flexport.
Deal Analysis
According to Shopify, the total remaining value of Deliverr and 6 River Systems minus the impairment is $900 million.
At the time of each acquisition, 6 River Systems was 14% of the $2.5 billion combined purchase price, while Deliverr was 86%. Let’s use the same ratio now.
Post-write down, Shopify valued Deliverr at 86% of $900 million equaling $774 million, and 6 River Systems at 14% of $900 million equaling $126 million. This would make it approximately a two-thirds writedown of the original purchase price.
According to public information, Shopify now owns a “high teens” percentage of Flexport, up from the previous 6% it acquired in 2022. Assuming “high teens” to mean 19%, one can estimate that Shopify received an additional 13% stake in Flexport in exchange for Deliverr, worth approximately $1.04 billion.
The Valuation Mismatch - Or Is It?
This is very interesting math. Deliverr valued the asset at $1.04 billion - higher than Shopify's write-down value of $774 million. This might seem like Shopify gets to claim a victory here, but is it really a win?
What’s the real challenge for Shopify in this transaction? Because the deal did not involve cash, we are relying on the current value of Flexport to value the transaction.
As part of this transaction, Flexport did not revalue itself. This fact matters because the math of this transaction is truly not as it seems.
How Much is Flexport Worth?
If Flexport were forced to revalue, what could Shopify have gotten for Deliverr? It seems like a fair question.
Shopify did not have enough leverage in the transaction to force Flexport to change its $8 billion valuation in order to maximize its ownership share in a post-transaction Flexport. I contend that because Shopify was in a hurry to get rid of Deliverr and 6 River Systems, Flexport could afford to wait out Shopify.
Still, it’s useful to estimate the value of Flexport in today’s economic environment, instead of the very different environment that existed in February 2022 when a16z invested $933 million. If we understand the current value of Flexport, we could understand the “ideal” value of Shopify’s divestiture of Deliverr to Flexport.
The exercise is also useful for another reason: many tech-enabled logistics providers and other companies that raised money in 2021 and 2022 will also need to write-down assets. The potential current value of the largest tech-enabled logistics provider will affect other companies in the sector.
In order to answer the question of how much Flexport is actually worth today, let’s review some public statements from the company.
Flexport 2021
Flexport reported $3 billion gross revenue when container prices averaged $20,000.
$3 billion divided by $20,000 equals 150,000 containers that year.
Flexport 2022
Flexport was estimated to have $5 billion gross revenue when container prices averaged $15,000.
$5 billion divided by $15,000 equals 330,000 containers, more than double container growth.
Flexport 2023
What is Flexport worth in 2023? Most public estimates say container volumes are falling 30%. Let’s be extremely generous and say that Flexport acquired 30% additional market share, so its container numbers are flat to 2022 this year.
Containers are now $2,000, not $15,000. Quite a haircut.
330,000 containers multiplied by $2,000 equals $660 million in a gross revenue topline.
That’s right, gross revenue could be down to $660 million from $5 billion the previous year.
Flexport Valuation Math and Profitability Guesses
Assuming a 20% gross margin, gross profit on $660 million is $132 million. That is before SG&A, which is very high. This is not EBIT.
Let's generously assume $10 million EBIT.
3X EBIT valuation equals a conservative valuation of $30 million.
A generous valuation of 1x revenue equals $660 million.
A midpoint valuation of Flexport is $345 million.
Recall, Flexport valued Deliverr at $1.04 billion, Shopify valued Deliverr at $774 million. Flexport's entire business is perhaps valued at $345 million. By any math, Shopify should own 100% of Flexport, not 19%.
Conclusions
Dave Clark fleeced Shopify, mainly because Flexport could afford to wait and Shopify could not.
Shopify has more impairment coming on its investments - including its Flexport investment, but likely others.
Shopify still made the difficult and right move to get out of logistics as quickly as possible.
Flexport is screwed. A $345 million valuation on $2 billion capital raised is unrecoverable.
Harish Abbott is a genius. He enters Michael Rubin territory in the pantheon of entrepreneurial outcomes. Recall that he and his investors walked away with $1.7 billion in cash, plus another $400 million in Shopify stock, which recently popped nicely due to the layoffs and divestiture.
