10 Cap Valuation on SHOP 2025
I’ve been reading InvestEd. It’s not my first value investing book I’ve read, but for some reason I appreciate the learning journey Daniella is going on. I’m also reading the book in the worst way - through an audiobook as I walk my dog. It’s just when I have time and can take in ideas.
Whenever I hear something new or worth noting, I pull out my phone, take note and look it up later. The 10 Cap Valuation was a new idea for me. In the book, they reference a farm being purchased and the math was pretty clear. I decided to give it a shot.
I recommend reading Phil Town’s website for more.
Why Shopify?
Good management team, good product, space I know. This isn’t the right valuation method for a high-growth tech stock, but it’s a learning exercise.
Timeframe
I’m going to do this from start of Q4 2024 to end of Q3 2025.
Background
The basics is:
value = owner's earnings / 0.10
Owner’s earnings is the take home earnings the owner of an asset gets after all the expenses have been paid. It’s the profit.
The formula for owner’s earnings is:
Owner Earnings = Net Income + Depreciation & Amortization - Maintenance Cap Ex +/- Change in Working Capital
Shopify Numbers
Please if you see something off, email me. This is a learning exercise.
| Net Income | D&A | Cap Ex | |
|---|---|---|---|
| Q4 2024 | 2,019 | 36 | (1586) |
| Q1 2025 | (682) | 8 | (619) |
| Q2 2025 | 906 | 8 | (252) |
| Q3 2025 | 264 | 8 | 335 |
| Total | 1,691 M | 60M | (2,122)M |
Then working capital is:
Working Capital = Current Assets - Current Liabilities
| Current Assets | Previous Assets | Cur Liabilities | Prev Liab | Cur WC | Prev WC | Change in WC | |
|---|---|---|---|---|---|---|---|
| Q4 2024 | 13,924 | 11,299 | 1,956 | 898 | 11,968 | 10,401 | 1,567 |
| Q1 2025 | 13,400 | 13,924 | 2,009 | 1,956 | 11,391 | 11,968 | -577 |
| Q2 2025 | 14,561 | 13,924 | 2,078 | 1,956 | 12,483 | 11,968 | 514 |
| Q3 | 15,039 | 13,924 | 2,213 | 1,956 | 12,826 | 11,968 | 858 |
| Total: | 2,362 |
As I type this out (originally did this by hand), the 1956 and 11968 repeated looks off. But that’s fine for now.
The owners earnings is:
OE = 1691 + 60 - (-2122) - 2362 = 1,511M
Some thoughts:
- The
-2362was a mistake I made because I originally used + 2362. My change in working capital is a positive number. But according to ChatGPT, this is money being tied up in assets has increased and therefore, you subtract it. - Took me some time to find the right value in the balance sheet or cash flow statement. Again, ChatGPT helped.
Taking these owner’s earnings, the 10 Cap Valuation is:
Value = 1,511 M / 0.1 = 15,110,000,000
Shopify is worth 15B based on this valuation method. Current market cap is $271B so slight difference.