E-commerce platform Shopify (SHOP 2.48%) got a major boost in 2020 from the coronavirus pandemic. Its stock has dropped amid the growth-stock sell-off, but this retail giant still has major market share and room for growth.
In this video clip from "The Rank," recorded on Feb. 14, Motley Fool contributors Matthew Frankel, CFP®, Jason Hall, and Tyler Crowe discuss Shopify's massive growth, competitive advantage, and one potential challenge.
Matt Frankel: Shopify is probably the No. 1 stock on my watch list right now. I mean, thanks to talking about it today I can't buy it for a little while, but it's the one that I think I'm eventually going to start a position in. It's the one that I really regretted missing the boat on. I feel like I'm being given a second chance. It's about 50% down from the highest as we're talking. It reports its latest results this Wednesday. Keep an eye out for that. Shopify, they aim to provide all-inclusive solutions to e-commerce companies, specifically smaller businesses. They're not just focused on smaller businesses, but so they provide an online store platform, which is their core business. They also provide some payment processing, they have Shopify Payments; they provide shipping services, Shopify Shipping; they provide a business lending service, Shopify Capital, which pretty much every focus tech company these days has that. You have Square Capital you have all these small-business places. Then there are some other services. They have subscription plans on their core business ranging from $29 a month to upwards of $2,000 depending on what the business needs. The cool feature of that is that Shopify's revenue will grow as the businesses do. If a company goes from small businesses to large business, Shopify's revenue goes from $29 a month to, however much they eventually end up spending. Growth has been pretty impressive lately. Shopify, it's actually the No. 2 e-commerce player, next to Amazon in the United States.
Jason Hall: Bigger than Walmart.
Frankel: Yeah, bigger than Walmart. They have an 8.6% market share of e-commerce. Amazon's is 39, so I don't think they're going to catch them anytime soon. But that's still a pretty impressive statistic.
Hall: I would say 20 years from now, I would say there's a good chance that this could be the largest e-commerce company in the world.
Frankel: I agree with that. They want to build out their capabilities over time. Check out this one slide from their latest investor deck. That left column where it says "core," that's what they offer now, medium-term, they want to expand it internationally. Most of their revenue is still domestic, I believe Shopify is Canadian, so most of the revenue is North America, they retail POS, so a point-of-sale system for actual brick-and-mortar retail, kind of like the hardware that Square sells is what they are thinking of. [NOISE] Sorry.
Hall: Matt you still there? You're muted. Yeah I think there is something that's to me that's just like so core to that slide that you're showing there with a building for the long term so much of it's based on data. With this platform as they add more features for their merchants, which is what they call their customers, they learn more and more about not just the individual customers, but the industry they are in. The profitability of those different industries, like all of those things that it's like creates the virtuous cycle that feeds all the other things. It's data lead about so many different kinds of businesses. Not just their e-commerce, you start doing things to provide tools to handle their physical retail inventory. All of these different things you tie it in with their marketing, it's all of these cool power tools. You learn so much about the business that just kicks off this thing. This is the last thing I want to say about the company. I'm going to steal the screen share here. You go back to midpoint of 2020. This is the middle of COVID madness. Everybody's investing in companies like Shopify. The stock continues to go up from there. But since then, Shopify has doubled its business and grown its cash flows over 300%. The stock's 11% cheaper than it was on a share price than it was then. I'm not going to call it a value stock because that's a bridge too far. But this is an incredible opportunity to buy what I think is going to be continue to be a transformative business.
Frankel: I believe this is the biggest stock that is on our list. Market cap is about $106 billion, and sorry about the dog. The UPS dropped off a package on the porch so the dog had a problem with that. But I like this one. I think it could be a trillion dollar company eventually. Tyler any thoughts?
Tyler Crowe: I just had a question because again, this is the only thing that popped into mind. I don't know if it's for or against what you were saying, their revenue grows as those business grows, as their merchants grow. I guess the question is how sticky is the platform as that business grows like, is there a point when those businesses are or what kind of risks are they getting on sales and how much of their cut is going toward the sale to where a business is going to look at it and go we should bring this in house or manage it ourselves. Is that a real risk for them in the future?
Hall: I don't think so, Matt, because I mean, the bottom line is that most of these merchants, a lot of small and medium sized businesses, they don't have the technical capabilities to build these tools in house. You can't just go find Shopify's biggest competitor and replace it. You probably have to get two, three or more vendors to replace everything that Shopify does. It's like changing your bank. It's become so embedded in the business.
Frankel: But here are some of the big businesses that use Shopify still, so it's not that business reaches a certain size and has to abandon the platform.
