The e-commerce provider Shopify (SHOP 1.85%) has a $180 billion market cap and is down around 18% from its all-time high. To be a $1 trillion company, it must return 455% over the next seven years. However, it has more than doubled that return, increasing by 1,080% over the last three years. Could it accomplish this trillion-dollar feat earlier or even at all?
Tools to grow businesses from small to large
Shopify is creating an ecosystem that can take a new business from its first sale to a booming business.
Shopify gets new businesses up and running quickly with its branding tools and free logo creation. Capital is at a premium with start-ups, and Shopify's base plan recognizes that by only charging $29 per month for its basic tools. As the business grows, Shopify has multiple pricing tiers that unlock different features and give more favorable transaction terms. With Shopify, a business doesn't have a reason to quit using the software at any point during its lifetime.
An exciting long-term initiative for Shopify is its fulfillment network. Businesses can send their products to Shopify's warehouses across the nation, and Shopify handles order processing and shipping. This reduces the space needed for inventory, letting businesses focus on using their limited space for creating more goods. Shopify accelerated its fulfillment capabilities in 2019 by acquiring 6 River Systems for its robotic warehouse technology. While fledgling businesses won't find this vertical as useful, it's excellent for medium and even large businesses.
Shopify is also working on international solutions. When a business decides to sell across borders, it must deal with different currencies, taxes, languages, and even payment methods. Shopify Markets is in a testing phase but should be a success when it launches for all businesses. Once again, this segment may not be useful for a newer business but would be perfect for one growing its presence.
With an expansive and useful platform, it's no surprise Shopify's quarterly results are exceptional. During its third quarter, Shopify grew its gross merchandise volume (GMV) 35% to $41.8 billion. Revenue grew faster at 46% to $1.1 billion. Because revenue increased faster than GMV, it shows Shopify's subscription solutions are still growing healthily.
Shopify isn't organically profitable -- its $9.18 earnings per share during the third quarter is mostly attributed to its investment in Affirm's (AFRM 2.36%) IPO. Instead, it is focusing on capturing as much market share as possible. Although some investors may be disappointed in the lack of profits, long-term investors should be excited as Shopify is capturing every available opportunity.
Future valuation projection
While Shopify's management did not give fourth-quarter guidance, applying the same Q3 growth rate of 45% results in full-year revenue of $4.6 billion. Extrapolating different growth rates provides a picture of how much future revenue Shopify generates.
|Revenue Growth Rate||2025 Projected Revenue||2027 Projected Revenue||2030 Projected Revenue|
Shopify's lowest quarterly revenue growth as a public company was 45%, but it would be difficult to grow at that rate as it gets larger. Still, as the merchants using Shopify sell more items, Shopify generates more revenue. Shopify's new segments also cater to larger businesses with more volume. So it isn't unreasonable to think it can provide excellent revenue growth. Applying different price-to-sales ratios to a 35% revenue growth rate results in different valuations.
|P/S Ratio||2025 Market Cap||2027 Market Cap||2030 Market Cap|
|15 (lowest valuation as a public company)||$196||$391||$780|
|45 (current valuation)||$589||$1,174||$2,341|
This table demonstrates a couple of points. First, Shopify could join the trillion-dollar market cap club before 2030 with a lower valuation and a 35% growth rate. Another artifact is how valuation matters less over the long run. If Shopify's valuation would crash to record lows, it would provide almost flat returns over three years. Beyond that, growth takes over and provides meaningful returns.
While this is a pretty simple valuation model, it serves its purpose to understand how growth and valuation can determine what a company's future market cap will be. Using a 35% growth rate may seem aggressive, but Shopify has many verticals it is developing. Shopify also benefits as GMV increases through merchants selling more. I believe Shopify will cross the trillion-dollar threshold before 2030. Even if it takes seven years, a 28% annual stock return is a fantastic investment and would easily outpace market growth.
Valuations will rise and fall throughout the holding period, so investors must hold on to realize Shopify's potential. If they can, I believe Shopify can join the trillion-dollar market cap by 2030.