Shopify is an e-commerce platform that allows entrepreneurs and businesses to create and manage online stores. The company has been experiencing tremendous growth in recent years, making Shopify stock an attractive long-term investment. In this article, we’ll explore the reasons why investing in Shopify is a smart decision.
Market Opportunity
The global e-commerce market is growing at a rapid pace, and Shopify is well-positioned to capitalize on this trend. According to Statista, the e-commerce market is expected to reach $6.54 trillion by 2023, up from $3.53 trillion in 2019. This growth is being driven by a shift in consumer behavior towards online shopping, which has been accelerated by the COVID-19 pandemic.
Shopify is uniquely positioned to benefit from this trend because it provides a user-friendly platform that allows businesses of all sizes to quickly and easily set up an online store. The platform includes a range of features such as inventory management, payment processing, and shipping integration, which simplifies the process of running an online business.
Growing User Base
One of the key factors driving Shopify’s growth is its expanding user base. As of Q4 2020, the company had over 1.7 million merchants on its platform, up from 1 million in 2019. This growth has been driven by several factors, including the shift towards online shopping and the platform’s ease of use.
Shopify’s user base is also diverse, with a mix of large and small businesses from around the world. This diversity helps to reduce the company’s dependence on any one customer or market, which is a positive for investors.
Revenue Growth
Shopify’s revenue growth has been nothing short of impressive in recent years. In 2020, the company’s revenue was $2.9 billion, up 86% from the previous year. This growth was driven by an increase in the number of merchants on the platform, as well as higher revenue per merchant.
Shopify’s revenue growth is expected to continue in the coming years as the company expands its user base and introduces new products and services. In addition, the shift towards online shopping is likely to continue, which will benefit the company.
Profitability
Despite Shopify’s impressive revenue growth, the company has not yet turned a profit. In 2020, the company reported a net loss of $125.5 million, up from $31.4 million in the previous year. However, it’s important to note that the company is investing heavily in growth initiatives, such as expanding its product offerings and investing in marketing and research and development.
While Shopify’s lack of profitability may be a concern for some investors, it’s important to remember that the company is still in the early stages of its growth trajectory. As the company continues to expand its user base and introduce new products and services, it’s likely that profitability will follow.
Valuation
Shopify’s current valuation is high, with a price-to-sales (P/S) ratio of around 40. However, this is not uncommon for high-growth companies in the tech sector. It’s important to look at other valuation metrics as well, such as the price-to-earnings (P/E) ratio and the enterprise value-to-revenue (EV/R) ratio.
When compared to other high-growth tech companies, Shopify’s valuation is in line with industry norms. For example, as of April 2021, Shopify’s P/E ratio was 652, while the median P/E ratio for the software industry was 91. Similarly, Shopify’s EV/R ratio was 35.2, while the median EV/R ratio for the software industry was 16.9
