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Why Shares of Shopify Inc. Skyrocketed 135% Last Year

By Chris Neiger – Jan 11, 2018 at 12:19PM

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Investors began believing in the company's e-commerce growth story.

What happened

Shares of Shopify Inc. (SHOP -3.38%) shot up 135.6% in 2017, according to data provided by S&P Global Market Intelligence, as the e-commerce platform company reported strong top line and customer growth throughout the year.

So what

Shopify, which sells online services to companies of all sizes, started off the year strong by announcing that merchants would be able to use Shopify's platform to manage their product sales on Amazon. The news excited investors and Shopify's shares soared 18.5% following the announcement.

Blue stock chart on white background.

Image source: Getty Images.

The company's share price continued trending up after Shopify reported an 86% increase in sales and a 94% increase in gross merchandise volume in the fourth quarter 2016 (reported in February).

The company's shares then popped 19% in May after the company released its first-quarter 2017 results, in which total revenue increased by 75% and sales from Shopify's merchant solutions segment grew 92% year over year.

Investors were finished though. After the release of the company's second quarter 2017 results the company's share price jumped an additional 20%. This time, investors were pleased to see gross profit spike by 83% year over year, sales growth of 75%, as well as the fact that Shopify grew its total number of merchants to more than 500,000.

The company's share price retreated a bit in October after a Citron Research report by short-seller Andrew Left claimed the company doesn't properly report its compensation to affiliate partners and inflates its overall customer numbers. Shopify's management responded by saying that "we vigorously defend our business model."

Now what

Shopify's shares have already gained about 10% since the beginning of this year and investors are likely looking ahead to more positive news from the company.

Management raised its fourth quarter forecasts after the company's strong third-quarter performance, and expects sales in the upcoming quarter to be between $206 million and $208 million. Management also believes Shopify's full-year 2017 top line will be $657 million at the midpoint, which would represent a nearly 69% increase year-over-year. If the company meets or exceeds its goals, then it's likely that Shopify investors will continue their optimism into this year.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Shopify. The Motley Fool has a disclosure policy.

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