Shopify Inc (NYSE:SHOP) has become the virtual go-to destination for aspiring entrepreneurs and small businesses when they need to set up shop. The company helps merchants of all sizes establish an omnichannel retail presence quickly and affordably, with the primary focus on a branded website and third-party online marketplaces. Even though the company's stock has appreciated over 800% in the last three years, Shopify might still have a long runway of growth ahead of it if its 2018 fourth-quarter results are any indication.

In Q4, revenue grew to $343.9 billion, a 54% increase year over year, and adjusted earnings per share (EPS) rose to $0.26, a 73% increase year over year. The strong top- and bottom-line growth is being driven by the surge of merchandise being sold by merchants on Shopify's platform.

This quarter, gross merchandise volume (GMV) increased 54%, to $14 billion. But make no mistake: Shopify is not a story about pushing products -- it's a story about empowering merchants. That might be a subtle difference, but it's not a case of splitting hairs.

Shopify Metrics 2018 Q4 2017 Q4 Change
Total revenue $343.9 million $222.8 million 54%
GMV $14.0 billion $9.1 billion 54%
Subscription solutions revenue $133.5 million $93.9 million 42%
Merchant solutions revenue $210.3 million $128.9 million 63%

Data source: Shopify Inc.

A sticky ecosystem for merchants

Echoing what Shopify management has said many times, Shopify's COO Harley Finkelstein began the company's quarterly conference call by stating:

We aim for Shopify to be the first thing that merchants open in the morning and the last thing that merchants close at night. In other words, we want Shopify to be the heart and soul of a merchant's business, helping them sell more and work more efficiently so they can focus on the things that really matter to them. The features that our product team shipped this year were geared toward achieving this.

Shopify achieves this lofty goal by releasing more and more products designed to augment its subscription packages to merchants. These tools make it easier for Shopify's clients to process payments, ship packages, secure financing, and reduce fraudulent transactions. These services, which are accounted for in the company's merchant solutions business segment, are now Shopify's largest and fastest-growing revenue stream. In Q4, merchant solutions revenue grew to $210.3 million, an astounding 63% increase over last year's fourth quarter.

Shopify logo with green bag including letter S.

Shopify's ecosystem is widening and deepening, making its platform stickier than ever. Image source: Shopify Inc.

Besides the explosion in sales that Shopify is seeing from this segment, these services also have the added benefit of making the company's platform all the stickier -- meaning they make it awfully hard for Shopify's merchants to leave for a competitor. Once a merchant is using Shopify to list and ship products, accept payments, and finance future growth, it would be extremely difficult to leave the platform! A business owner would have to decide to disrupt their entire business to do so, a scenario that seems extremely unlikely.

The primary contributors to the ecosystem

By all indications, the growth in Shopify's merchant solutions business is not about to slow down any time soon. Indeed, the primary contributors to the division's growth all seem to be ramping up.

Shopify Shipping, launched in late 2015, "allows merchants to select from a variety of shipping partners to buy and print outbound and return shipping labels and track orders directly within the Shopify platform." Finkelstein calls it a "higher-margin solution." Shipping continues to gain traction, as almost 40% of eligible merchants used the platform in the fourth quarter, up from 30% of U.S. and 20% of Canadian merchants in 2017's final quarter.

Shopify Payments enables merchants to accept card and digital payments across its online and offline commerce platforms. In Q4, $5.8 billion was processed on Shopify Payments, a 65% increase year over year, and about 41% of the company's GMV. Interestingly, Shopify also uses payments as a sort of gateway drug, making its lending platform, Shopify Capital, and its fraud prevention program, Fraud Protect, only available to merchants who use Shopify Payments.

More innovative solutions keep coming

While the features listed above are more than enough to make a sticky platform, Shopify is not resting on its laurels. The company continues to release a slew of products and programs at a dizzying pace, making it hard to keep up with at times. For instance, just this quarter, Finkelstein talked about a number of products the company was releasing to broaden its appeal to more sellers and deepen its relationships with its existing subscribers:

We are likewise expanding our product market fit for a greater number of businesses by continuing to develop more advanced enterprise-level features and functionality, such as Launchpad, Scripts and Flow, all tools to help merchants upscale, customize and work more efficiently. Launchpad is a specialized tool that lets plus merchants plan and automate flash sales, product launches and sales campaigns. Scripts enables merchants to optimize their e-commerce checkout in several ways, such as automating discounts and promotions. And Flow is our integration tool that allows merchants to offload repetitive tasks such as reordering inventory, letting merchants focus on growing bigger, faster.

Slowing growth won't stop Shopify

Shopify is attractive to growth investors for its explosive revenue growth. It's not often investors can find companies of Shopify's size growing revenues at a greater than 50% growth rate. In fact, management made it a point to call out the fact that no other SaaS (software-as-a-service) company with annual sales of a billion dollars has ever grown at Shopify's current rate. That's quite an accomplishment.

Yet these growth rates will inevitably start to come down as Shopify continues to grow. The company's sticky ecosystem of products and features will keep merchants on its platform for years to come, which is what makes the company such an enticing investment today. While the stock price has exploded in recent years, I doubt its days of market-beating returns are over.