Please ensure Javascript is enabled for purposes of website accessibility

Even if the Stock Market Crashes, I'm Not Selling Shopify

By Trevor Jennewine - Jun 26, 2021 at 6:40AM

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

The last bear market accelerated the adoption of e-commerce.

Market crashes are an unavoidable part of investing. Since 1968, the S&P 500 has dropped more than 20% on nine different occasions. That means bear markets happen fairly frequently, about once every four years. But here's the secret: Bull markets tend to rise higher and run longer.

That being said, it's impossible to predict the next market crash -- not even the smartest analyst knows the future. That's why it's best to buy high-quality stocks you can hold for the long term, whether the market is going up or going down. I think Shopify (SHOP -7.59%) fits that bill. Here's why.

Person lounging on couch at home holds a credit card in one hand while browsing on a laptop.

Image source: Getty Images

Big market opportunity

Shopify's mission is to make commerce better for everyone. To that end, its platform helps merchants manage their businesses across multiple sales channels, including digital storefronts, online marketplaces, and physical retail locations. It also allows them to process orders, track inventory, and access analytics. In short, Shopify democratizes commerce.

This business model fits perfectly with the global push toward digitization. Each year, as more consumers shop online, e-commerce becomes a larger percentage of total retail sales. And no market crash is going to change that trend. In fact, the last bear market (sparked by the pandemic) actually accelerated the shift toward e-commerce.

According to management, this puts Shopify in front of a $153 billion market opportunity. And that figure should only get bigger in the years ahead.

Smart growth strategy

Shopify ranks third on Fast Company's list of the world's most innovative businesses. The Canadian commerce giant earned this recognition for its quick reaction to the pandemic. Specifically, it provided a lifeline for sellers during a difficult time, helping them "launch online operations overnight." But this wasn't a new development -- Shopify has consistently executed on a merchant-first growth strategy.

Most notably, Shopify helps sellers differentiate their brands. Rather than taking a marketplace approach like Amazon, Shopify's software allows sellers to build stand-alone storefronts, integrate with social platforms, and develop lasting relationships with buyers.

Shopify also provides a range of merchant services, like payment processing, discounted shipping, and financing. And it's currently building a robot-powered network of warehouses across the United States. Once complete, Shopify's fulfillment services will simplify delivery and supply chain management for sellers, while improving the experience for buyers.

To summarize, Shopify's merchant-first approached has helped its business grow quickly. Case in point: Between 2016 and 2020, the number of Shopify-powered businesses surged from 377,500 to 1.7 million -- that's a 47% compound annual growth rate.

Strong past performance

Broadly speaking, Shopify generates revenue in two different ways: software subscriptions and merchant solutions (e.g. payment processing and shipping). Notably, both segments have grown at an impressive pace.

Last year, subscription sales jumped 41% to $909 million, as sellers flocked to Shopify's platform during the pandemic. That influx of sellers also drove strong growth in merchant solutions -- but in this case, that growth was compound by increasing adoption of Shopify Payments, Shopify Shipping, and Shopify Capital. That caused merchant solutions revenue to surge 116% to $2.0 billion.

But Shopify's track record of outperformance started long before last year. The company has consistently delivered strong top-line growth.

Metric

2016

Q1 2021 (TTM)

CAGR

Revenue

$389.3 million

$3.4 billion

67%

Data source: Shopify SEC filings. TTM = trailing-12-months. CAGR = compound annual growth rate.

Looking ahead, tailwinds from the digital transformation should keep the e-commerce industry growing. And Shopify's merchant-first philosophy should help the company maintain its momentum. That's why I plan to own this stock for the long term, whether the market is rising or falling.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Trevor Jennewine owns shares of Amazon and Shopify. The Motley Fool owns shares of and recommends Amazon and Shopify. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon, long January 2023 $1,140 calls on Shopify, short January 2022 $1,940 calls on Amazon, and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy.

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
$36.75 (-7.59%) $-3.02

*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
379%
 
S&P 500 Returns
123%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/09/2022.

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.