Will Shopify (TSX:SHOP) Stock Double Again in 2020?

Shopify Inc. (TSX:SHOP)(NASDAQ:SHOP) remains one of the most successful companies in Canadian history. Can shares double yet again next year?

| More on:

Shopify Inc. (TSX:SHOP)(NASDAQ:SHOP) stock has been on an incredible run. After going public in 2015, shares doubled in just 18 months. Then shares doubled again. And again.

In total, shares have risen 1,340% in less than five years. Over the same period, the S&P/TSX Composite Index rose by just 14%.

This begs the question: will Shopify shares double yet again in 2020? Let’s dive in.

Platforming is misunderstood

The market hasn’t figured out how to value platforms. Why else would platform stocks continue doubling and tripling on a regular basis? If these businesses were valued correctly, these astronomical returns wouldn’t be possible.

The tech platform is a relatively new phenomenon, at least at the scale it’s currently operating at. At its core, a platform is exactly what you’d expect: a basic piece of infrastructure that other things can be built on top of.

The most popular tech platform in history may be the Windows operating system from Microsoft Corporation (NASDAQ:MSFT).

When Microsoft first designed Windows, it specifically didn’t include everything the user would ever need. Instead, it opened up the software to outside developers that were able to build on top of Windows to create and monetize third-party applications.

If you’re using a Windows computer now, most of what you do on a daily basis likely isn’t using anything that Microsoft has developed internally. It simply built the platform for other developers to take advantage of. This scaled Windows’ capabilities significantly faster than if Microsoft had to build everything itself.

Here’s the critical part: if Windows goes away, so does everything else. After all, a Windows application only works using Windows software, creating incredible staying power. Users can’t switch to another system without ditching everything they’ve built. That’s a tough sell for consumers, but especially for businesses.

Even the iPhone by Apple Inc. (NASDAQ:AAPL) was made possible through platforming. At the start, Steve Jobs wanted to create the phone’s apps internally.

Eventually, better minds prevailed, and Apple opened the App Store to outside developers. The rise of the iPhone couldn’t have been possible without the App Store, one of the most valuable platforms ever to exist.

Why Shopify is special

Shopify aims to be the platform for e-commerce. By many metrics—mainly its $60 billion market cap—it’s already succeeded.

In 2004, when Shopify was founded, it quickly realized that a platform model was the most valuable choice. After all, digital businesses require hundreds if not thousands of capabilities, all custom fit for their specific needs. No single company could satisfy every e-commerce business worldwide, but a single platform could.

With Shopify’s platform, users get some instant capabilities, including a website builder, payment processing, and inventory management. I’ve personally used Shopify’s software and can verify how simple it is to use.

From there, users can add literally thousands of plugins mostly developed by third-parties. Some involve marketing or aesthetics, while others integrate outside software or enhance Shopify’s basic tools.

Here’s where things get really special. By nailing the platform model, Shopify can now take advantage of a virtuous cycle known as the network effect. Having a respected platform with broad capabilities attracts new users.

New users make it more valuable to develop on the platform, which attracts more developers, further increasing the value of the platform and attracting even more users. And on, and on, and on.

Such is the power of a platform. Once the virtuous cycle begins, it’s hard to compete with. At this point, it would be surprising if a single competitor ever caught up to Shopify’s leading position.

Investors often look to Shopify’s sky-high multiples and rightfully question their validity. Stopping there, however, is what has caused platforms to consistently be undervalued.

Last year, global e-commerce sales surpassed $30 trillion. How much of this market could Shopify eventually take? The exact figure is uncertain, but it’s likely much larger than its current valuation.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. David Gardner owns shares of Apple. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Apple, Microsoft, Shopify, and Shopify and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft.Fool contributor Ryan Vanzo has no position in any stocks mentioned. Shopify is a recommendation of Stock Advisor Canada. 

More on Tech Stocks

Happy shoppers look at a cellphone.
Tech Stocks

So You Own Shopify Stock: Is it Still a Good Investment?

Shopify (TSX:SHOP) stock has had a run, but there's still room to the upside.

Read more »

A person uses and AI chat bot
Tech Stocks

AI Where No One’s Looking: Seize Growth in These Canadian Stocks Before the Market Catches Up

Beyond flashy headlines about generative AI, these two Canadian AI stocks could deliver strong returns for investors who are willing…

Read more »

Data center servers IT workers
Tech Stocks

Better Buy: Shopify Stock or Constellation Software?

Let's dive into whether Shopify (TSX:SHOP) or Constellation Software (TSX:CSU) are the better options for growth investors in this current…

Read more »

nvidia headquarters with nvidia sign in front
Tech Stocks

Nvidia Just Delivered a Beat-and-Raise Quarter. There’s 1 Red Flag Investors Shouldn’t Ignore.

The chipmaker continued to benefit from robust demand for artificial intelligence (AI). But can it last?

Read more »

GettyImages-1473086836
Tech Stocks

Why Super Micro Computer Stock Is Soaring Today

The volatile stock is getting a boost from Nvidia.

Read more »

Snowflake logo in snowflake office on wall_snowflake-1
Tech Stocks

Here’s Why Snowflake Stock Skyrocketed Today

Shares of the data company are up 32% for the day.

Read more »

man touching magnifying glass button on floating search bar internet google search engine
Tech Stocks

Why Alphabet Stock Was Sliding Today

The parent company of Google is facing heat from U.S. regulators.

Read more »

chart reflected in eyeglass lenses
Tech Stocks

Top Canadian AI Stocks to Watch in 2025

Celestica (TSX:CLS) stock and another Canadian AI stock are worth watching closely this holiday season.

Read more »