Shopify (SHOP 0.82%) is an incredible company and an even more amazing stock. Over the last five years, shareholders have pocketed over 3,000% returns. If you are feeling left out, don't despair; this e-commerce platform is just getting started. Here are 12 reasons you should make this growth stock part of your portfolio, with an intent to hold forever.
1. It puts merchants first
Over 1 million merchants have signed to the Shopify platform as paying customers, and more importantly, they trust the e-commerce platform to ensure their businesses run smoothly. Starting with its first online store, Shopify has always put merchants first. The platform is designed to make it easy to start an e-commerce store, but it is also incredibly robust and scalable to grow with its merchants.
2. Its innovation roadmap is driven by customers
One of the major advantages of being a cloud platform is the company can "see" where merchants get stuck. It uses this information to power its merchant-focused development roadmap to make it ever easier for business owners to manage their online stores. Recent product improvements have been influenced by the coronavirus pandemic, and include a buy-now-pay-later option and expansion of delivery choices including customer pickup.
3. Its business incentives are aligned with its customers
Last quarter, 68% of Shopify's top line came from its merchant solutions segment, which is made up from transactional fees for merchant services when they make a sale. This segment is growing faster than the overall business, at 132% last quarter. Whether its shipping and fulfillment services, capital funding, or payments, these value-added services save merchants time so they can focus on their business. As its customers sell more, Shopify shares in their success.
4. Its founder has a really long-term view
Co-founder and CEO Tobi Lutke isn't just focused on next year or the next decade, he's focused on the next century. This long-term thinking is reflected in the company's mission "to make commerce better for everyone." The idea of humans trading one thing of value for another is as old as humanity itself, and Shopify wants to continue working on its mission for at least the next several generations of consumers.
5. It has a history of incredible growth
Using just about any measure, the company has had extraordinary growth. Over the last five years, monthly recurring revenue has grown at a solid 47% compound annual growth rate (CAGR). Adding in its even faster-growing merchant solutions business, Shopify has grown overall revenue at an incredible 71% CAGR. One reason for this incredible achievement is Shopify's ability to serve all sizes of customers.
6. It serves single entrepreneurs to global enterprises
For as little as $9 per month, business owners can display their products for sale on existing websites, capture orders, and collect payments. As merchants grow bigger, they can upgrade to higher feature-rich subscription plans to help manage increased complexity and a larger volume of sales. There's even a high-end subscription plan called Shopify Plus for large organizations, costing $2,000 per month. This range of offerings gives the company a huge market opportunity.
7. It's got a massive market
In its earnings presentations, the company states its addressable market to be $78 billion, based on the number of small businesses around the world. But this underestimates the ultimate potential. It leaves out new services that the company is constantly releasing, the opportunity for large enterprises, and new businesses that start because of its easy-to-get-going features.
8. It's building a valuable partner ecosystem
One of Shopify's strengths is its partner ecosystem of app developers, website designers, marketers, and other professionals who are available to help merchants succeed. It takes a small cut of each app download on its app store and a cut of partner services that merchants use through the partner marketplace platform. Last year, this partner network referred 24,500 customers to the platform, which helps fuel its flywheel.
9. Its flywheel creates a network effect
Merchant growth gives the company more resources to improve the platform's capabilities. Additionally, it helps attract more partners and sales channels. This gives merchants more avenues to sell their products and more features and tools to be more efficient. This should help merchants attract more buyers and sell more products. With more buyers, this in turn attracts more merchants, and the flywheel of growth spins even faster from this network effect.
10. It's got a great culture
In addition to being a great resource for its customers, Shopify has created a great place to work that attracts top talent. In 2017, it won Glassdoor's annual Best Place to Work in Canada award with an employee rating of 4.5 stars out of 5. The scores have dipped slightly since then, but almost 80% of employees who rated the company on Glassdoor would recommend it to a friend as a place to work. Happy employees make for a productive workplace.
11. It has the scale to do big things
As the company has grown, it now has the scale to tackle large and impactful projects. A little over a year ago, it introduced the Shopify Fulfillment Network, a $1 billion investment giving merchants an easy way to get their fulfillment operation going. This year, the company opened up Shopify Capital and has provided over $1.4 billion in loans to merchants since the inception of the program.
12. It will eventually be consistently profitable
Profits have been scarce as the company has been pouring its earnings into growth initiatives. But with the incredible record sales on the platform from the last two quarters, Shopify has recorded a positive bottom line result twice in a row. This may not be a consistent trend yet, but with the cost scaling over the last few years, it's no longer a question of if the company will be consistently profitable, but when.
The bottom line for investors
I like to use these "never sell" articles to feature my highest conviction stocks. In addition to this e-commerce platform, I wrote a never sell piece on MercadoLibre last month and Zoom in April. Together these three stocks make up almost 30% of my stock portfolio. I wouldn't suggest you immediately make Shopify a massive position if you don't yet own the stock. But buying in over time (think years) and letting the stock gain increase your position size may even help you pass down riches to your grandkids.