Please ensure Javascript is enabled for purposes of website accessibility

Here's Why Everyone Should Be Rooting for Shopify

By Nicholas Rossolillo - Updated Feb 14, 2020 at 7:13AM

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

Shareholder or not, a new e-commerce movement is great for small businesses around the globe.

E-commerce software and support company Shopify (SHOP 5.88%) had another blockbuster year. Total revenue for 2019 grew 47% to $1.58 billion, and adjusted net income was $34.3 million -- including a surprise $50.0 million adjusted net profit during the busy holiday shopping period in the fourth quarter. 

Of course, the bottom line is of little consequence right now as Shopify remains in spend-happy mode to maximize its revenue potential. And there was plenty for shareholders to like regarding the top line, as management said that 2020 revenues should increase by at least another 35%. Of course, a high-growth stock that barely turns a profit and trades for a steep premium (currently 29.5 times 2020 expected sales at the midpoint of guidance) isn't for every investor. Owner of the stock or not, though, everyone should be rooting for Shopify as it increases its global reach and e-commerce continues its relentless rise.

A shopping cart full of boxes sitting on top of a laptop, illustrating e-commerce.

Image source: Getty Images.

An enabler of new digital business

First, a recap of what Shopify is. The company sells nothing itself online, save for cloud-based software and digital tools to help businesses set up and grow a website and digital store. It has also grown into physical point-of-sale systems for those companies that also maintain a brick-and-mortar storefront. Shopify and its peers offer an important counterpoint to megaretailers (that sell merchandise themselves, like Walmart), and online marketplaces (like Amazon, which allows third-party sales but retains the relationship with customers and also directly competes with third-party partners by also selling directly to shoppers). Shopify is an e-commerce enabler, not a retailer itself. 

This is evident in Shopify's mission statement: 

We help people achieve independence by making it easier to start, run, and grow a business. We believe the future of commerce has more voices, not fewer, so we're reducing the barriers to business ownership to make commerce better for everyone.

Granted, Shopify helps large enterprises too, especially through its Shopify Plus subscription (starting at $2,000 a month) geared toward high-volume sellers that need logistical support. But it's the small-business and entrepreneur network that originally attracted me to Shopify as an investment, and that thesis remains intact. CEO Tobi Lütke said the Shopify platform now supports more than one million merchants. Sellers using Shopify for at least a year grew the value of merchandise sold on Shopify by an average of 22%, and the number of merchants that sold more than $1 million in annual sales grew 44%. Consumers buying from a Shopify merchant also grew 37% year over year and topped 300 million worldwide. 

Keeping the global opportunity fair

Shopify is just getting started helping small businesses carve out a niche on the internet. According to the company's own numbers, its merchants represented just 5.9% of the U.S. retail e-commerce industry, compared with 37.3% for Amazon. Sales on the Shopify platform are just a drop in the global bucket too, with 2019 worldwide retail spending at about $25 trillion -- a number expected to increase to $30 trillion in the next few years. Still, early on in expanding internationally, the e-commerce software outfit grew its native language-support count up to 20 (from seven before) in 2019.

Global retail is dominated by small businesses and entrepreneurs, and megaretailers and online marketplaces like Amazon and Walmart are expanding to try and consolidate market share as economies develop and make the move online. Pair Shopify's software capabilities with its investment into fulfillment centers and business-to-business selling tools and the sky-high pricing begins to make a little more sense as it starts to tap into the worldwide market. Shareholder or not, though, Shopify will be an important part of leveling the playing field in the years ahead -- enabling even small players with the same digital tools that the largest retail enterprises possess.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Shopify Inc. Stock Quote
Shopify Inc.
SHOP
$385.23 (5.88%) $21.40

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

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