The Next Amazon?

E-commerce is a huge growth sector in the stock market, reaching $365 billion last year and expected to grow to $600 billion by 2024. The leader, of course, is Amazon (NASDAQ: AMZN), Jeff Bezos’ seller of everything, with nearly 50% of the U.S. e-commerce market share.

Other leaders in this sector include eBay (NASDAQ: EBAY), Walmart (NYSE: WMT), and Etsy (NASDAQ: ETSY). Then there’s Shopify (NYSE: SHOP), which is different from your typical e-commerce site as it doesn’t have a centralized marketplace. Instead, it offers solutions for business owners to set up their own web stores and manage them via desktop or their portable devices. 

In 2004, Tobias Lutke, Daniel Weinand, and Scott Lake wanted to open SnowDevil, an online snowboarding shop. After unsuccessfully looking around for a decent e-commerce solutions product, they gave up and decided to build their own. Hence, Shopify was born and launched in 2006. 

The company went public in 2015 and today, Shopify is responsible for over one million businesses in 175 countries (including Budweiser (NYSE: BUD) and Tesla (NASDAQ: TSLA)) and holds a 31% market share in the e-commerce software platform sector. It has seen steady revenue growth from $205 million in 2015 to $1.6 billion in 2019 (670%).

Can Shopify Compete With Amazon?

Shopify isn’t quite a competitor to Amazon. In fact, some of its more successful stock price run-ups in the past can be attributed to partnerships with the e-commerce giant. In September, 2015, Amazon selected Shopify as its preferred migration provider after announcing the end of its Webstore service for merchants, sending Shopify stock up 23%. In January, 2017, Shopify announced integration with Amazon that would allow merchants to easily make sales on Amazon via their Shopify stores, boosting its stock price 8%.

Growth

Shopify’s year-over-year revenue growth has been much faster than Amazon’s in the last five years (47% on average). Shopify has also been outperforming its sector in growth, increasing sales by 49%, while overall e-commerce sales grew 15% from 2018 to 2019. In 2019, Shopify dethroned eBay as the number two e-commerce site in the U.S. with its market cap of $50.11 billion, compared to eBay’s of $24.83 billion.

Shopify has made 10 acquisitions, its most recent being 6 River Systems in October, 2019 for $450 million, which provides warehouse fulfillment solutions. This purchase boosts the company’s Shopify Fulfillment Network, a geographically interspersed network of fulfillment centers, with intelligent demand forecasting, that ensures faster order delivery.   

Shopify has also branched out into brick-and-mortar retail with its highly rated point-of-sale solution. The product, another source of revenue, has gotten stellar reviews from Capterra, Ecommerce Platforms Reviews, and Techradar, scoring top marks for ease of use, installation, and navigation. It also added 11 new languages to its platform.

Future

Although e-commerce has been growing at an incredible pace, it still only represents 11% of all retail sales in the U.S. alone. Shopify’s most recent revenue breakdown by country indicates that 90% comes from the U.S., Canada, Australia, and the U.K. In 2019, Shopify began to expand into China, the world’s leading e-commerce market.

Shopify makes money with subscriptions and merchant solutions (payment, shipping, cash advances to merchants). Merchant solutions revenue for 2019 was $936 million, or 58.5% of the total revenue. This grew 54% from the year prior and although these services offer less profit margins than subscriptions, they support subscriptions by locking merchants into the platform’s ecosystem.

Shopify is considered overvalued by some analysts and will not see profitability until 2022, a projection made before the recent pandemic. Consumer spending habits have drastically shifted towards food and essentials, with apparels and accessories taking a hit. However, Shopify has outperformed the S&P 500 (NYSEARCA: VOO) (5% increase versus 19% decrease since the beginning of 2020).

With surprises like that and continued subscription growth, as well as global expansion, there’s no telling how resilient Shopify’s growth will be.

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.