Shopify (SHOP 0.26%) stock has been in fine form in 2023 with an impressive gain of 77% as of this writing. And a significant chunk of that gain arrived following the release of the company's third-quarter results on Nov. 2.
Shares of the Canada-based e-commerce platform provider lost steam in October as investors were concerned about how the company's Q3 results may look.
However, Shopify's performance last week boosted investors' sentiments, as the stock is up almost 24% since releasing its results. Let's see why that was the case before focusing on a key catalyst that could help Shopify sustain its hot stock market run in the future as well.
NASDAQ: SHOP
Key Data Points
The e-commerce rebound has been a tailwind for Shopify this year
Last year was a difficult one for the e-commerce market, as global sales increased only 6.5%. This was the slowest pace at which annual e-commerce sales increased since eMarketer started tracking this space in 2011. In 2023, however, global e-commerce sales are forecast to increase by 8.9%. The market is expected to grow at an even faster pace of 9.4% next year.
This explains why Shopify is on track to deliver faster growth in 2023. The company's revenue increased 21% in 2022 to $5.6 billion. The company has already generated $4.9 billion in revenue in the first nine months of 2023, an increase of 27% over the same period last year. Shopify is anticipating full-year revenue to increase in the mid-20s percentage, which would be better than its 2022 performance.
Given that the e-commerce market is set to enjoy stronger growth in 2024, it wouldn't be surprising to see Shopify maintain its healthy growth momentum. After all, the company has been aggressively releasing new tools and features that could drive stronger adoption of its e-commerce platform and drive greater gross merchandise volume (GMV), which refers to the total value of orders facilitated through its platform.
For instance, Shopify is offering a retail plan to brick-and-mortar stores that will give them access to premium features of its point-of-sale (POS) solutions, while also allowing them to build their presence online. This is one of the many features that Shopify has brought to its users.
Meanwhile, one of the cutting-edge solutions that could help drive greater adoption of the company's platform is Shopify Magic, an artificial intelligence (AI) platform. According to the company, Shopify Magic "is a suite of free AI-enabled features that are integrated across Shopify's products and workflows to make it easier for you to start, run, and grow your business." Using this platform, Shopify customers can automatically generate text for product descriptions, headings, and blog posts for their online stores.
Additionally, Shopify is providing an AI-powered assistant known as Sidekick for helping customers start, run, and grow their businesses on the platform by answering queries, giving them insights about their products, and providing suggestions on how to improve the performance of online stores. Integrating such features should ideally help Shopify maintain its impressive growth over the long run, as the AI-powered e-commerce market is expected to grow at an annual pace of almost 16% through 2030, generating nearly $17 billion in annual revenue at the end of the decade.
How much more growth can investors expect?
The above discussion tells us why analysts are anticipating Shopify to deliver healthy revenue growth going forward.
SHOP Revenue Estimates for Next Fiscal Year data by YCharts
The stock is trading at a relatively attractive level despite its terrific surge in 2023. Shopify sports a price-to-sales ratio of almost 12. While that seems expensive on an absolute basis, it is worth noting that its sales multiple is well below the five-year average sales multiple of 29.
Assuming Shopify does hit $10 billion in annual revenue in 2025 (as the chart above indicates) and maintains its current sales multiple, the company's market cap could jump to $120 billion. That points toward a 50% jump from current levels, which Shopify should be able to deliver thanks to the integration of cutting-edge features such as AI.
So investors looking for a growth stock are getting a relatively good entry point into Shopify now, especially considering that it seems built for more upside.
