Based on Shopify's (SHOP 1.11%) most recent results, more than $220 billion worth of merchandise will likely be sold on its e-commerce platform this year. That telling metric (along with several others) demonstrates that the software star has cemented its place as the de facto operating system for millions of online businesses around the world.
Shopify reached that level of gross merchandise volume after years of rapid growth, and yet Shopify accounts for just a small fraction of a global online retail market that's projected to top $8 trillion by 2026, according to eMarketer. With so much room for further expansion, this growth story remains in its early innings.
Here are at least three smart reasons why Shopify's stock is a solid buy today.
1. Shopify is bringing the magic of AI to the masses
Shopify wants to make the benefits of artificial intelligence (AI) accessible to more entrepreneurs. To do so, it's offering a free suite of AI tools called Shopify Magic that makes it faster and easier to build and scale e-commerce businesses.
Shopify Magic pairs cutting-edge generative AI technology with Shopify's proprietary data. It can help with a range of tasks, such as marketing and customer support. Merchants can simply enter a few details about an item they want to sell, and Shopify Magic will automatically generate a product description in just a few seconds. The AI can also assist with blog posts, customer emails, and language translations.
Additionally, Shopify created an AI-powered assistant called Sidekick. With simple conversational prompts, merchants can ask questions about their business, economic trends, and Shopify's tech. Sidekick responds immediately with personalized responses. It can also complete tasks like report generation, store design, and promotional campaigns.
These tools are all designed to help entrepreneurs save time, serve more customers, and boost sales. By increasing its merchants' odds of success, Shopify stands to enjoy stronger customer retention and, by extension, higher revenue and profits.
2. Shopify is making a logical shift in logistics
Shopify acquired fulfillment technology provider Deliverr for $2.1 billion in July 2022. The plan was to build an "end-to-end logistics platform to unlock fast and easy fulfillment," according to Shopify's logistics head, Aaron Brown.
Unfortunately, management underestimated the complexity of such an undertaking. It also didn't help that going deeper into fulfillment placed Shopify in more direct competition with e-commerce juggernaut Amazon.com (AMZN 3.43%).
CEO Tobi Lütke moved quickly to correct the error. Less than a year after closing the Deliverr deal, Shopify sold its logistics business to Flexport. Shopify received a 13% equity stake in the supply chain management upstart as part of the sale.
More importantly, the move refocused Shopify on its core e-commerce software operations. That enabled the company to shed costs, which, in turn, improved its profitability.
3. A Shopify rival becomes an ally
Divesting its logistics operations also made it easier for Shopify to partner with Amazon. Shopify's merchants in the U.S. will soon be able to offer Amazon's "Buy with Prime" to their customers as part of their online checkout process. The service will enable these merchants to provide Prime members fast and free delivery options, as well as the ability to easily return the items they purchase if they so choose.
Importantly, Shopify will process these transactions via its fast-growing Shopify Payments service. Moreover, merchants will maintain control over their customer data.
Both companies are likely to benefit from the collaboration. Amazon should see increased usage of its massive fulfillment network and higher logistics revenue. Shopify, meanwhile, is likely to enjoy a sales boost from Amazon's more than 200 million Prime members. Amazon says Buy with Prime can boost shopper conversion rates by an impressive 25% on average.
Better still, the deal could help Shopify claim a larger share of a retail e-commerce market that's set to exceed $1.7 trillion in the U.S. alone by 2027, according to eMarketer.
