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5 Reasons Shopify Could Be the Biggest Winner from E-Commerce's Surging Growth

By Danny Vena – Updated May 19, 2020 at 12:46PM

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More businesses than ever are in need of what this e-commerce service provider has to offer.

One of the consequences of the COVID-19 pandemic has been the accelerated adoption of e-commerce by consumers. With stay-at-home orders and remote work becoming the new normal, even merchants that had long resisted the growing trend have been forced to transition to online sales.

A company well-positioned to benefit from the trend is Shopify (SHOP 13.58%). The e-commerce solutions specialist helps entrepreneurs and merchants big and small set up and maintain their online stores -- with monthly plans starting at just $29. Once those e-commerce sites up and running, Shopify helps their operators scale them as they grow, providing access to a host of services including digital advertising, payment processing, inventory management, and shipping and logistics services.

Here are five good reasons to believe that the road ahead could be long and lucrative for Shopify.

An illuminated Shopify logo above a cafeteria table.

Image source: Shopify.

1. E-commerce is just getting started

While you might feel like most people shop via e-commerce already, digital transactions still represent just a fraction of retail sales. E-commerce in the U.S. accounted for 11.4% of total retail in the fourth quarter of 2019, according to the Department of Commerce. That was up from just 4% in early 2010, and the trend is still gaining steam.

More than 1 million merchants rely on Shopify to provide their e-commerce tools, and as the ongoing shift to online sales continues, that number could easily double or triple.

2. The shift accelerated

The pandemic's impact on brick-and-mortar retail was swift and harsh, and businesses without digital sales portals took it on the chin. Merchants who needed to pivot rapidly to online sales naturally flocked to Shopify, while those whose e-commerce sites were already operational saw a massive surge in business.

In mid-April, Chief Technology Officer Jean-Michel Lemieux announced on Twitter that Shopify was "handling Black Friday level traffic every day!" This illustrates the massive opportunity that still remains for the e-commerce service provider.

3. Traffic translates to greenbacks

Just three weeks after Lemieux's pronouncement, Shopify reported first-quarter results that backed up his assertion. Revenue grew 47% year over year (similar to its fourth-quarter growth), while subscription revenue increased 34%.  Even more importantly, monthly recurring revenue -- which assures a certain level of continuing business -- increased 25% year over year, and now accounts for about 12% of total revenue.

At the same time, adjusted net income tripled, as the increase in both merchants and transactions helped shift more profit to the bottom line.

4. A stay-at-home induced bump

Other Shopify metrics were equally astounding.

Between March 13 and April 24, the number of new stores created on the platform grew 62% compared to the prior six weeks, while the number of new customers completing purchases from any merchant on the platform increased by 8%. Additionally, the number of customers purchasing from merchants they had never shopped with online before climbed 45%.

Shopify was quick to point out that it was unclear how many of those new online stores -- which were created both by established merchants and new businesses -- would generate sustainable sales. However, those merchants that are able to increase sales due to the addition of an online channel will likely stick around for the long term.

A family huddled around a laptop smiling while making an online purchase.

Image source: Getty Images.

5. The platform grew stickier

Merchants continued to expand their use of Shopify's other products and services, making it less likely that they will ever leave the platform. More new merchants signed up for the Shopify Fulfillment Network than in any quarter on record. At the same time, the adoption of Shopify Shipping shifted into high gear -- it's now used by 46% of eligible merchants in North America, up from 40% in the prior-year quarter.

Shopify Capital was also there to help its merchants through the tough times, with cash advances increasing 85% year over year.

A clear winner

Each of these pieces is part of a larger picture. Taken together they illustrate that Shopify could be the biggest winner in the growing adoption of e-commerce, a strong trend that was further accelerated by the COVID-19 pandemic.

Danny Vena owns shares of Shopify. The Motley Fool owns shares of and recommends Shopify and Twitter. The Motley Fool has a disclosure policy.

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