E-commerce platform builder Shopify (SHOP 1.37%) may have been all the bullish rage in 2020 and 2021, when the COVID-19 pandemic was forcing the world to do most of its shopping online. Once the contagion started easing in 2022, however, Shopify shares fell all the way back to Earth in a hurry. After all, consumers were heading outdoors again.
The funny thing is, this stock's wild past two-and-a-half years may have been the best thing for it. Such volatility not only shakes out all the bullish and bearish speculators that often crowd around a young stock, but it also gives the company in question time to prove its staying power. Shopify passed the test. It's even bigger now (as measured by revenue) than it was at the height of the pandemic.
That's what makes it a well-suited name to own at the onset of the next bull market, which may already be underway. Three reasons stand out among all of the bullish arguments.
1. Shopify is still growing...
The online shopping frenzy prompted by the pandemic was a tough act to follow. But Shopify did so with flying colors. Last year's revenue was up 26% year over year, and that growth rate reaccelerated to 25% in the first quarter of the current fiscal year.
SHOP Revenue (Quarterly) data by YCharts
A good portion is sustainable revenue, too. One-fourth of last quarter's top line was subscription-based, while nearly a tenth of it is monthly recurring revenue. The company is forecasting comparable growth rates for the quarter ending in June.
2. ...And it can continue growing
Stocks are mostly valued based on where the underlying company is going rather than where it's been. So, where is Shopify going? There's plenty of room and reason to expect more of this same sort of growth into the distant future.
It's tough to believe given the prevalence of online shopping. But most retail spending is still happening within brick-and-mortar stores. The Census Bureau reports that only 15.1% of the first quarter's retail sales were done online. The other 84.9% is up for grabs by clever businesses willing to expand their e-commerce efforts or embrace e-commerce for the first time.
Yes, it's tough to compete with dominant names in the business like Amazon. It's also tough to use Amazon as a third-party sales platform. Not only does the site promote other merchants' similar goods, but Amazon is the ultimate owner of any customer created by a particular sale of a product. Never even mind Marketplace Pulse's estimate that Amazon has raised its fulfillment fees by 30% just since 2020.
NASDAQ: SHOP
Key Data Points
Technology and frustration are dialing back this challenge, though. While no other shopping platform has the reach Amazon.com does, Shopify's customization and promotional tools are making it more than possible to build an online business outside of Amazon's digital ecosphere.
To this end, Marketplace Pulse reports that 99% of merchants solely using Amazon as a sales channel intend to add other e-commerce platforms to their mix sometime this year. Shopify is a great in-house option for many of these sellers. Analysts see it too. Next year's top line is projected to grow another 18% from this year's likely sales.
3. This is a pivotal year for the business
Last and perhaps most importantly, Shopify's profits look headed for an explosion.
While the pandemic pushed the company out of the red and into the black, it proved only temporary, and Shopify -- like so many other e-commerce platforms -- slipped back into the red last year and continues to clean up much of its pandemic-prompted bloat. In May, for instance, it laid off around 20% of its entire workforce.
But the fiscal benefits of all this streamlining are now starting to show up on the bottom line. Last year's adjusted/non-GAAP earnings of $0.04 per share are expected to roll in at $0.33 this year en route to $0.56 per share next year. Meanwhile, last year's reported/GAAP loss of $2.73 per share is likely to turn slightly positive this year and continue growing to $1.52 per share by 2027 -- when the company's top line should be nearly triple what it is now.
Data source: StockAnalysis.com. Chart by author.
Shopify shares are still expensive relative to its nearer-term earnings outlook. This is a case, however, where Shopify's story paired with its fiscal trajectory in the midst of a bull market could be enough to drive the stock even higher.
