3 Reasons Why Shopify Will Be the First TSX Company to Be Valued at $1 Trillion!

Here’s why Shopify might be the first TSX company to be valued at a trillion dollars!

| More on:

In the last three years, a few tech giants south of the border have surged beyond a market cap of $1 trillion. Today, Apple is valued at a market cap of US$2.1 trillion, followed by Microsoft at US$1.8 trillion, Amazon at US$1.6 trillion, and Alphabet at US$1.4 trillion.

Comparatively, Shopify (TSX:SHOP)(NYSE:SHOP) which is Canada’s largest company in terms of market cap is valued at US$145 billion. There is a good chance for the e-commerce heavyweight to be the first Canadian company to touch the trillion-dollar valuation. Here’s why.

Shopify continues to grow at a rapid pace

While several industries were hit hard amid COVID-19, the pandemic served as a tailwind for e-commerce companies including Shopify. The shift to online shopping accelerated as retail stores were closed, allowing Shopify to grow revenue and earnings at a rapid pace.

In Q4, Shopify’s sales were up 94% year over year at $978 million. Comparatively, adjusted income almost tripled to $199 million or $1.58 per share. Comparatively, Wall Street forecast the company to post revenue of $910 million and adjusted earnings of $1.25 in the December quarter.

In 2020, sales were up 86% at $2.93 billion while earnings soared by a massive 1,227% to $3.98.

Shopify is firing on all cylinders

Shopify’s subscription sales rose 53% year over year to $279 million as monthly recurring revenue soared to $83 million. Its merchant solutions segment performed even better as revenue was up 117% at $698 million.

The company’s gross merchandise volume (GMV) almost doubled to $41 billion in Q4. For 2020, the company’s GMV doubled as well to $119.6 billion.

Shopify ended 2020 with a merchant base of 1.7 million. Now, over 10,000 merchants are Shopify Plus merchants that pay a maximum subscription fee of $2,000/month. The company’s shipping sales rose by 52% in Q4, which means the merchants using the shipping network, fulfillment network and shipping solutions have grown at a rapid pace.

Part of an expanding addressable market

During its earnings call, Shopify claimed its total addressable market expanded from $70 billion to $130 billion. This rise in the forecast was backed by the number of global businesses that have shifted toward e-commerce. Shopify is also capturing $2,200 per merchant per year, up from the prior-year figure of $1,600.

The Foolish takeaway

Shopify has taken advantage of its high stock valuation and raised $1.5 billion recently, which means the company now has close to $8 billion of cash on its balance sheet and total debt of just $913 million.

Shopify’s improving liquidity gives it enough room to focus on acquisitions as well as to allocate capital for product development and improving the overall customer experience.

Shopify stock is trading at a steep forward price to sales multiple of 35.6. Its price-to-earnings ratio of 295 is also sky-high. However, the company’s healthy balance sheet, secular tailwinds, and growing addressable market make it a top stock to place your bets on.

Analysts tracking Shopify have a 12-month average target price of $1,453 for the stock, indicating its trading at a discount of 24% to estimates.

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.

More on Tech Stocks

investment research
Tech Stocks

Is OpenText Stock a Buy, Sell, or Hold for 2025?

Is OpenText stock poised for a 2025 comeback? AI ambitions, a 3.8% yield, and cash flow power make it a…

Read more »

The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor.
Tech Stocks

Emerging Canadian AI Companies With Big Potential

These tech stocks are paving the way to an AI-filled future, but still offer enough growth ahead for a strong…

Read more »

Young Boy with Jet Pack Dreams of Flying
Tech Stocks

Is Constellation Software Stock a Buy, Sell, or Hold for 2025?

CSU stock has long been a strong option for high growth, high value stocks. But are there now too many…

Read more »

An investor uses a tablet
Tech Stocks

Canadian Tech Stocks to Buy Now for Future Gains

Not all tech stocks are created equal. In fact, these three are valuable options every investor should consider.

Read more »

dividend growth for passive income
Tech Stocks

2 Rapidly Growing Canadian Tech Stocks With Lots More Potential

Celestica (TSX:CLS) and Constellation Software (TSX:CSU) are Canadian tech darlings worth watching in the new year.

Read more »

BCE stock
Tech Stocks

10% Yield: Is BCE Stock a Good Buy?

The yield is bigger than it's ever been in the company's history. That might not be a good thing.

Read more »

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 »