Please ensure Javascript is enabled for purposes of website accessibility

Here’s Why Investors Rang Up Shopify Shares This Week

By Motley Fool Staff – May 3, 2019 at 2:50PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

With revenue up 50% in the first quarter, the e-commerce platform provider is cruising ahead.

Seems like every week, we do a little bit more of our shopping online, and not just through giants like Amazon and Walmart. And a growing number of the smaller players are relying on Shopify (SHOP 0.39%) to provide the underpinnings for their e-commerce operations.

In this segment of the Market Foolery podcast, host Chris Hill and senior analyst Aaron Bush talk about Shopify's latest quarterly report, the twin drivers of growth for merchant solutions business, and the one trend line that may bode ill for its longer-term profitability.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

10 stocks we like better than Shopify
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Shopify wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of March 1, 2019

This video was recorded on May 1, 2019.

Chris Hill: Let's move on to Shopify. Shares are up more than 10% this week. Their first-quarter revenue grew 50%. I get that they're not profitable, but that is a really impressive number.

Aaron Bush: It is. That definitely is what pops out. Let's break that apart a little bit. The majority of that growth, the revenue growth, came from their merchants solution segment, which is driven by a ton of different things, like Shopify Capital, which provides loans; Shopify Shipping. A lot of that segment is driven by gross merchandise volume, or the total dollar amount of orders placed. It shows that not only are consumers buying through Shopify sites more than ever, but the business owners running them are investing more heavily into their solutions to support these businesses more than ever before. If you look at the company's press release, literally half of it is just saying, "Shopify launched this, Shopify launched that, Shopify launched this list of a dozen things." So their pace of innovation isn't slowing. And I think what they're building is really cool.

I will say, though, those numbers sound great. Unsurprisingly, it is decelerating. But what I think investors should keep in the back of their head is that the growth is great, but it's decelerating at an accelerating rate. That doesn't really matter if the company is making money and is scaling that, but since Shopify doesn't make money, if that growth continues to decelerate at an accelerated rate, then it puts more pressure on the bottom line, which they don't have a lot to show for right now. So there is some risk there. But it's such an enormous market, literally hundreds of billions of dollars in online commerce. They're the biggest and best at what they do. I think if you're looking 10 years out, they're well positioned. But there could be some bumps along the road.

Hill: As you were saying about Apple, when your company is $1 trillion, it's hard to move the needle. Shopify is a $27 billion company. They've got a lot of room to run.

Bush: Yeah, they definitely do have a ton of room to run. But they also are priced as if they're going to be running super fast.

Hill: You strike me as someone who would be unconcerned by something like that.

Bush: I think it depends on your time horizon. If I were to close my eyes and wake up in 10 years, I'd be totally fine owning Shopify. And I own shares right now, and that's essentially what I plan to keep on doing. But I do think it's important to look at the growth rates, especially when I see things accelerate in a direction that you don't like. Acceleration is great when it works for you. It's terrible when it works against you. It's worth paying attention, that's all I'm really saying.

Aaron Bush owns shares of Apple and Shopify. Chris Hill has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple and Shopify. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

Stocks Mentioned

Shopify Stock Quote
$38.64 (0.39%) $0.15

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.