Shopify's (SHOP +1.24%) stock closed at its all-time high of $169.06 on Nov. 19, 2021. That 9,845% gain from its initial public offering (IPO) on May 21, 2015 would have turned a $1,000 investment into $99,447 in six and a half years. At the time, the e-commerce services provider dazzled the bulls with its accelerating growth throughout the pandemic, and the buying frenzy in meme stocks amplified its gains.
Over the following three years, however, Shopify's stock declined nearly 30%. It lost its luster as it lapped its pandemic-driven growth spurt, inflation curbed consumer spending, and rising interest rates popped its bubbly valuations. Let's see if that pullback represents a buying opportunity -- and if Shopify stock can head even higher over the next three years.
Image source: Getty Images.
What happened to Shopify over the past few years?
Shopify's e-commerce platform helps merchants quickly set up online stores, manage their marketing campaigns, process payments, and fulfill orders. That approach makes it an appealing option for a merchant that wants to build its online presence but doesn't want to lock itself into a third-party marketplace like Amazon.
NASDAQ: SHOP
Key Data Points
Shopify's initial growth was driven by smaller businesses, especially those that operated storefronts on social media networks. But the company is also locking in larger merchants with its Shopify Plus platform (which supports growing businesses), its Shopify Capital lending platform, and its consumer-facing Shop app. It drives those digital payments through its own Shop Pay platform.
Shopify's growth in gross merchandise volume (GMV), gross payment volume (GPV), and total revenue cooled off in 2022 as the pandemic-driven tailwinds dissipated, inflation worsened, and many of its retailers grappled with Apple's privacy-oriented changes on iOS. But in 2023, all three growth metrics accelerated again as the macro environment stabilized. It also launched new ad tools to counter Apple's iOS changes and make it easier for merchants to market their products.
|
Metric |
2019 |
2020 |
2021 |
2022 |
2023 |
|---|---|---|---|---|---|
|
GMV Growth |
49% |
96% |
47% |
12% |
20% |
|
GPV Growth |
55% |
110% |
59% |
24% |
29% |
|
Revenue Growth |
47% |
86% |
57% |
21% |
26% |
Data source: Shopify. Chart buy author.
In the first nine months of 2024, Shopify's GMV and revenue both grew 23% year over year. It stopped disclosing its GPV growth on a quarterly basis in the third quarter. Analysts expect its total revenue to grow 25% to $8.8 billion for the full year.
After posting a steep net loss in 2022, Shopify turned profitable again on a generally accepted accounting principles (GAAP) basis in 2023. It achieved that turnaround by divesting its capital-intensive logistics division, laying off thousands of employees, and trimming its other costs. Analysts expect its GAAP net income to rise nearly sevenfold to $1.3 billion this year.
What will happen to Shopify over the next three years?
From 2024 to 2026, analysts expect Shopify's revenue to grow at a compound annual growth rate (CAGR) of 22% as its GAAP earnings per share (EPS) rises at a CAGR of 30%. That growth should be driven by the expansion of its ecosystem with Shop Pay, its Shop Cash rewards program, and the increased adoption of its new Magic and Sidekick generative artificial intelligence (AI) tools. Shop Plus, which accounted for 31% of the company's monthly recurring revenue (MRR) in its latest quarter, should continue to lock more growing businesses into its sticky subscriptions.
Shopify could also boost is MRR by rolling out more point-of-sale hardware devices, credit and expense management tools, and cross-border e-commerce services. Its integration of Amazon's "Buy with Prime" buttons in its stores -- which allow Prime members to make one-click purchases on Shopify and access free delivery options via Amazon's fulfillment network -- could further expand its reach. That partnership counters the notion that Amazon will snuff out Shopify with its own merchant services.
Yet Shopify's stock isn't cheap at 13 times next year's sales. That valuation was likely inflated by the recent buying frenzy in AI stocks, and expectations for lower interest rates and a warmer macro environment -- but it could limit its near-term gains.
Assuming Shopify matches Wall Street's expectations, grows its revenue at a robust CAGR of 20% from 2026 and 2028, and trades at a more reasonable 10 times sales, its stock price could rise about 30% to the low $160s by 2027. That would be a decent three-year return but might not impress the investors who had expected it to replicate its gains from 2015 to 2021.
