Several popular companies have announced stock splits this year, including search giant Alphabet, retail titan Amazon, and electric car pioneer Tesla. Earlier this week Shopify (SHOP -0.35%) joined the club with a proposed 10-for-1 split set to take effect on Jun. 28, pending shareholder approval. Of course, splitting a stock does not change the value of a business, but it can energize investors by make shares more accessible, especially for those that lack access to fractional shares.
Building on that idea, all four companies could be market-beating investments over the next decade. But I think Shopify's smaller size leaves more upside for shareholders, and with shares down 65% from their high, the stock looks like a bargain.
Here's what you should know.
Shopify in the present
Starting a business is complicated, especially if you lack IT support, and running that business can be even more difficult. Fortunately, Shopify makes commerce easier. Its core software helps entrepreneurs manage sales across brick-and-mortar locations and digital storefronts. That includes custom websites, online marketplaces like Amazon, and social media like Meta Platforms' Facebook.
Shopify also provides services like payment processing, discounted shipping, and financing, as well as solutions for marketing and money management. Merchants can also access thousands of other applications through the Shopify App Store, including solutions for bookkeeping, employee payroll, and customer service.
Thanks to that comprehensive approach, Shopify now powers 2.1 million businesses -- double what it had two years ago -- and it has become the gold standard in e-commerce software. It outranks all rivals in terms of market presence and user satisfaction, according to a recent G2 Grid report. Better yet, Shopify accounted for 10.3% of U.S. e-commerce sales last year, up from 8.6% in 2020, making it the second-largest player in the market behind Amazon.
Not surprisingly, that competitive edge has translated into impressive financial results. Last year, revenue grew 57% to $4.6 billion and free cash flow climbed 18% to $454 million. But the future looks even brighter for Shopify. With an addressable market of $160 billion (and growing), it has plenty of room to run.
Shopify in the future
Shopify has outlined several growth initiatives. Of particular note, the Shopify Fulfillment Network (SFN) -- a system of warehouses currently under construction across the U.S -- will simplify logistics for sellers and accelerate delivery for buyers. Shopify will use collaborative mobile robots to accelerate fulfillment workflows, and it will leverage artificial intelligence to forecast demand and allocate inventory. At scale, the SFN will allow Shopify to offer two day deliver (or better) to more than 90% of U.S. consumers. Better yet, as volume ramps in late 2023 or early 2024, the SNF will further distinguish Shopify from other e-commerce software vendors.
Next, the company is working to boost buyer engagement and drive repeat purchases with the Shop mobile app. How does that work? In addition to accelerated checkout and order tracking features, the Shop app notifies consumers of trending items and new arrivals, and it suggests relevant products based on purchase history and the brands a person follows.
Finally, Shopify is taking its business global. In 2021, the company introduced its retail point-of-sale hardware in Australia and several European countries, and it debuted Shopify Shipping in the U.K. It also added a new sales channel that allows merchants to list products on JD.com, the second-largest online retailer in China, which itself is the largest e-commerce market in the world.
A 10x opportunity
Here's the bottom line: Shopify simplifies omnichannel commerce, and if it executes on its robust growth strategy, the company should continue to gain market share. Over the next decade, if Shopify can grow sales at 27% per year, its business -- valued at $74 billion today -- could deliver 10x returns for investors, assuming a price-to-sales ratio of 12 in 2032. At that multiple, the stock would be less expensive than it is today (16 times sales) and significantly cheaper than its three-year average (40 times sales). That's why this growth stock is a smart buy right now.