Shopify (NYSE:SHOP) went public nearly five years ago at $17 per share. Today, the e-commerce service provider's stock trades at about $520 a share, and initial investors are now sitting on a 30-bagger return.

Shopify dazzled investors with its robust growth in revenue, which consistently surged by high double digits, and merchants, which rose from 162,261 in early 2015 to over a million in 2019. The bears, who warned that Shopify wasn't consistently profitable and that its stock was trading at frothy valuations, were repeatedly proven wrong. But can Shopify's growth streak continue over the next five years? Let's take a look.

A shopping app with a grocery cart in the background.

Image source: Getty Images.

What happened to Shopify over the past five years?

Shopify offers a wide range of e-commerce tools -- including digital storefronts, marketing tools, payment tools, and other services -- to help merchants digitize their offline businesses.

It splits its business into two main segments: merchant solutions, which mainly generates revenue from payment and transaction fees for online orders; and subscription solutions, which generates recurring revenue from its core platform and add-on services.

Demand for Shopify's services surged over the past five years as small and mid-sized merchants scrambled aboard the e-commerce bandwagon. As a result, its revenue nearly doubled in 2015 and 2016, but gradually decelerated over the past three years:

Fiscal year

2015

2016

2017

2018

2019

Revenue

$205 million

$389 million

$673 million

$1.07 billion

$1.58 billion

YOY growth

95%

90%

73%

59%

47%

YOY = Year-over-year. Source: Shopify annual reports.

Wall Street expects that slowdown to continue with 37% revenue growth this year. Meanwhile, Shopify's adjusted (non-GAAP) net income fluctuated as it plowed more cash into its digital ecosystem. Its 2019 earnings were also throttled by its acquisition of 6 River Systems to bolster its logistics capabilities.

Fiscal year

2015

2016

2017

2018

2019

Adjusted net income

($7.7 million)

($10.3 million)

$15.2 million

$44.1 million

$34.3 million

YOY = Year-over-year. Source: Shopify annual reports.

Analysts expect Shopify's adjusted earnings to decline another 17% this year as it ramps up its fulfillment network, integrates 6 River Systems, adds fresh features for its premium merchant tier Shopify Plus, upgrades its core platform, expands overseas, and launches new marketing initiatives.

What will happen to Shopify over the next five years?

Shopify's stock trades at over 650 times forward earnings and nearly 30 times this year's sales. Those nosebleed valuations are much higher than its projected growth rates, and the company could struggle to justify that valuation as its business matures.

Tiny parcels on a laptop keyboard.

Image source: Getty Images.

Over the next five years, Shopify will face tougher competition from Adobe (NASDAQ:ADBE), Square (NYSE:SQ), Microsoft (NASDAQ:MSFT), and other expanding companies.

Adobe acquired Shopify's rival Magento in 2018 and tethered the platform to its cloud services. Square bought Weebly, which designs websites and online stores, and integrated its services into its digital payments ecosystem that same year. Last year, Microsoft hinted that it could bundle Shopify-like e-commerce services into its cloud services in the near future.

Shopify has a first mover's advantage in this market, but its slowing revenue growth and rising expenses suggest that it could struggle to keep pace with those rivals. Shopify started expanding overseas in 2018 to offset its slowdown in the U.S. and Canada, but it could face an uphill battle if Adobe and Microsoft bundle Shopify-like features into their cloud services.

As a result, investors should expect Shopify to expand its ecosystem -- which already includes an internal app store, point-of-sale card readers, a wholesale channel for buyers, bulk label printing services, AR features for mobile apps, and cash advances via Shopify Capital -- to lock in merchants and boost its subscription revenue.

Shopify vs. fundamental gravity

Shopify runs a great business model in a defensible niche, but there's too much irrational exuberance baked into the stock. Investors shouldn't expect Shopify to replicate its post-IPO returns again over the next five years.

In a best-case scenario, the stock should level out as its valuations cool to more reasonable levels. In a worst-case scenario, Shopify could lose ground to rivals like Adobe, Microsoft, and Square -- and its stock could lose its luster and plummet.