While receiving a package this week, the Amazon deliveryman mentioned that our house was the seventh on the block with a delivery that day -- and no, there aren't any apartment buildings. Rewind 20 years, and such a scene would have been absurd.
It's understandable if you feel like you've missed the boat on e-commerce. Amazon's stock alone is up over 55,000% since going public in 1997. But it isn't the only player set to benefit, and the runway for growth is actually just getting started.
One thing to realize about e-commerce is that the biggest manufacturers were the first to enter the scene. Small and medium-sized businesses are just starting to enter the fray.
That's why Shopify (NYSE:SHOP) is in such a sweet spot. The company provides a platform for small and medium-sized businesses to create an online presence and manage all of the logistics of e-commerce. Even larger players like Tesla, Budweiser, and Red Bull count themselves as Shopify customers.
But if you need just one chart to convince you that there's still tons of room for e-commerce growth globally, it is this -- which shows the percentage of all retail in America taking place via e-commerce.
While I don't think we'll ever approach 100%, I wouldn't be surprised to see us reach 50% in the next two decades. To put that in perspective, if the overall retail industry grows at just 3% per year over those 20 years, the amount of cash spent on e-commerce would increase more than tenfold!
Locking in customers now
Of course, a large trend alone is not enough to make a company a good investment. If there was no sustainable competitive advantage -- or moat -- protecting Shopify's businesses, then it would be a lousy stock to buy.
Luckily for current and future shareholders, there is. It's called "high switching costs," and I think the moat it provides is enormous. Think about it: You open up a shop to sell vintage artwork. Over the years, you store tons of data -- addresses, invoices, customer buying patters, logistic solutions -- and design your entire website on one platform.
Not only would switching be incredibly expensive, it would create massive headaches for you. Will your new website function as well? What will happen to all of that data? Will you lose customers during the migration?
Small and medium-sized businesses need to stay focused on the product or service that puts food on the table, not the company that provides website solutions. Switching would be a massive headache for any Shopify subscriber, and that's why the company has been able to increase its revenue and gross profit so steadily.
Without a doubt, the stock is definitely expensive. It hasn't turned a profit yet -- though I think that's a good thing -- and it isn't free-cash-flow positive. After advancing over 350% since early 2016, now is definitely not the time to "back up the truck."
But it would also be (small-f) foolish to avoid it altogether. The long-term trends are distinctly in the company's advantage. Opening a position now and adding shares along the way could give you exposure to the e-commerce trend that could help you achieve financial independence sooner rather than later.