E-commerce is gaining popularity around the world. Digital sales represented nearly 18% of total retail last year, up from 14% in 2019, according to eMarketer. That trend has translated into strong growth for Shopify (NYSE:SHOP), which is now a $185 billion business.

Even so, I think the future looks bright for this Canadian tech company. After all, e-commerce is still far from ubiquitous, and Shopify is executing on a strong growth strategy. Here's why this business could be worth $1 trillion by 2030.

Seller packaging an item for shipment.

Image source: Getty Images

Big market opportunity

Shopify democratizes commerce. Its software helps merchants manage their businesses across physical and digital locations, including online marketplaces, social media sites, and mobile storefronts. Merchants can also access tools for inventory tracking, analytics, and buyer retention, as well as an array of third-party applications.

Shopify also provides services like payment processing, discounted shipping, and financing. These offerings supplement its subscription business, making its platform an end-to-end solution for small- and medium-size businesses.

Management currently puts the company's total addressable market at $153 billion. That's roughly 45 times Shopify's $3.4 billion in sales over the last 12 months. In other words, this company is looking at a massive market opportunity, and it should only get bigger as e-commerce becomes more popular.

Strong growth strategy

Shopify's growth strategy comprises three objectives: create value for sellers, improve the experience for buyers, and expand internationally. To accomplish the first two, the company has focused on building its ecosystem of services.

For instance, Shopify launched Shop Pay in 2017, an accelerated checkout solution that drives better conversion rates than regular checkouts. Put another way, it's more convenient for buyers, and more profitable for sellers. And since its debut, Shopify has seen strong adoption of its payment processing services, with merchant use climbing from 39% to 46%.

And the future looks even brighter. In June, management made a game-changing announcement: Shop Pay is moving off-platform. Later this year, businesses on Facebook, Instagram, and Google will be able to use the service, even if they aren't Shopify merchants. This move is brilliant, as it expands Shopify's ability to monetize the massive digital payments market.

Boxes in a mini shopping cart, set atop a laptop keyboard.

Image source: Getty Images

Additionally, to compete with titans like Amazon, the company is building the Shopify Fulfillment Network (SFN) across the U.S., a system of automated warehouses. Shopify will use its scale to provide demand forecasting and smart inventory allocation, helping merchants deliver orders more quickly and efficiently. The SFN will also incorporate intelligent mobile robots that optimize warehouse workflow by helping human employees work more productively.

This $1 billion project started in 2019, and will take 5 years to complete. But once the SFN is fully operational, it should be a key differentiator for Shopify, greatly enhancing its ability to serve both buyers and sellers.

Last but not least, management sees opportunity for international growth. As of Dec. 31, 2020, 56% of Shopify's merchants were in North America, but this region comprised 73% of its total sales. However, the company is making progress towards greater geographical diversity. Last year, Shopify Capital launched in the U.K. and Canada, bringing the total to three countries, and Shopify Payments launched in Austria and Belgium, bringing the total to 17 countries. As the company continues to expand its offering globally, investors should look for international sales to soar.

Pricey valuation

Shopify has benefited from strong demand as e-commerce has gained traction around the world. The company now powers 1.7 million merchants, more than double what it had at the end of 2018. Likewise, merchants are adopting more services. In Q4 2020, 52% of merchants in the U.S. and Canada used Shopify Shipping, up from 40% in Q4 2018.

Those growth drivers have powered impressive financial performance.

Metric

Q1 2018 (TTM)

Q1 2021 (TTM)

CAGR

Revenue

$760.2 million

$3.4 billion

66%

Free cash flow

($29.5 million)

$615.4 million

N/A

Data source: Ycharts. TTM = trailing-12-months. CAGR = compound annual growth rate.

Despite this strong growth, Shopify currently trades at 53.8 times trailing sales, an outrageously expensive multiple compared to many other businesses in the space. For instance, Amazon and MercadoLibre trade at 4.3 times sales and 15.9 times sales, respectively.

In other words, Wall Street expects big things from Shopify, and if the company fails to deliver, the stock will likely take a big hit. That being said, I'm a Shopify shareholder, and I have no plans to sell. This company has a lot going for it -- a big market opportunity, a solid growth strategy, and a history of strong financial results -- and I think Shopify will be a $1 trillion business by 2030 or 2035.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.