Shopify (TSX:SHOP) has long been one of the most popular Canadian stocks. Since its initial public offering (IPO), very few Canadian companies have been in the spotlight as much as Shopify. In 2020, the company made major headlines when it became Canada’s largest company by market cap. Unfortunately for Shopify shareholders, it was unable to retain its position atop the Canadian economy and saw a tremendous decline in value.
With that said, many are asking whether Shopify’s time in the sun has come to an end or if there are still bright days ahead.
In this article, I’ll discuss why I think Shopify could be an excellent investment for the long term.
How has Shopify done lately?
During its first-quarter (Q1) 2023 earnings presentation, Shopify reported US$1.5 billion in revenue. That represents a 25% year-over-year increase in that metric. To put this growth into perspective, consider that Shopify reported US$45 million in quarterly revenue after its IPO in 2015. That represents a compound annual growth rate (CAGR) of about 55%. That’s a very difficult feat to achieve over such a long period. Despite that, some investors are starting to think that Shopify’s best days are long gone.
I believe that Shopify’s revenue numbers could be even more impressive in the future. Currently, the company holds a 10% share of the e-commerce industry in the United States. That’s a massive space where Shopify dominates the competition. If the company could continue to grow its market share, then additional revenues could come easily.
One thing that Shopify can do in order to continue increasing its share of the e-commerce industry is by attracting big-name customers. It has done so by onboarding the likes of Netflix and many other large enterprises onto its platform. As other merchants continue to see the onboarding of familiar names onto Shopify’s platform, it’ll become much easier for them to make the switch themselves.
In terms of its stock, shareholders have been very happy as of late. Year to date, Shopify stock has gained nearly 78%. Since October 2022, the stock has generated more than 145% in gains. Clearly, investors are seeing something special here. Let’s discuss what that may be.
Why is this an appealing investment opportunity?
First and foremost, I think the most appealing thing about Shopify is that it operates in the e-commerce industry. Although many consumers have begun to shop online more often, there is still so much room for growth here. I believe future generations of consumers will become even more comfortable with the idea, since their lives will be surrounded by technology from day one.
It’s estimated that the American e-commerce industry could see US$1.5 trillion in revenue in 2027. If Shopify can maintain its 10% share of the market, then investors should see a massive increase in the company’s top line. This doesn’t even account for potential e-commerce sales that would occur in other countries around the world.
In addition, Shopify continues to be led by its founder Tobi Lütke. For those that are unaware, Shopify’s chief executive officer was responsible for writing the very first line of code in what would eventually become the company’s platform. With a dedicated leader in charge, Shopify shareholders can remain assured that the company’s intentions are aligned with theirs. Historically, founder-led companies have managed to outperform companies led by non-founders.
Foolish takeaway
Shopify is a massive stock with even bigger potential. The company has continued to show outstanding growth over the past few years and is well positioned to continue doing so over the coming years. As the global e-commerce industry continues to grow, I expect Shopify to grow strongly alongside it.
