SHOP shows in their previous Quarterly release that they have grown free cash flow (good stuff!) but when I look at cash balances, I see they have a reduction in cash and equivalents with a simultaneous increase in "Loans and merchant advances, net."
I am trying to decipher if SHOP is:
1. Actually adding cash (key indicator of health)
2. Vendor financing their customers heavily which ended very badly for the likes of GE.
Is the quality of SHOP's financials showing some cracks here? It seems like this vendor financing theme is taking off in the "tech" stocks.
Full year numbers are now out; for the year, cash did decline $236M. However, SHOP bought $191M (net) in more marketable securities, and increased equity and other investments by $1.6B. Long term liabilities also declined by $327M. Loans to merchants rose $246M. The company has done this for some time but we would not consider it an issue. SHOP is the gatekeeper to its merchants, and there is little risk of non-payment as SHOP could hold back receivables if needed to merchants. It is a risk, but a small one, considering the companies growth and balance sheet strength. An important metric is the very big swing in operating cash flow, at $944M vs negative $136M in the prior year. We would not consider the balance sheet to be a negative in any way.