Shopify (NYSE: Store) It has made phenomenal returns since its public appearance in May 2015. A $10,000 investment in the Canadian e-commerce services company’s initial public offering would be over $820,000 today.
Shopify has also been a great stock to hold during the pandemic. It rose 185% in 2020 as more merchants set up online stores throughout the crisis. The stock price advanced another 29% in 2021 even as skeptics worried about the post-pandemic slowdown and its bubble valuations.
Investors who don’t already own Shopify may push themselves to lose those gains. They may also be wondering if it is too late to invest in this shaky darling of the e-commerce sector. Let’s examine Shopify’s growth rates, future plans, and ratings to make a decision.
Why is Shopify growing like weed?
Shopify’s self-service e-commerce services enable small businesses to quickly create online stores, process payments, fulfill orders, and manage online marketing campaigns. These tools make it a “one-stop shop” for creating an independent online business without joining a crowded third-party marketplace like Amazon (NASDAQ: AMZN).
Many merchants who didn’t want to abide by Amazon’s rules, pay its fees, or compete with other third-party sellers turned to Shopify to establish an online presence. At the time of its initial public offering, Shopify only served 162,261 companies globally. Today, it serves more than 1.7 million companies.
That’s why Shopify’s revenue increased at a compound annual growth rate (CAGR) of 70.2% between 2015 and 2020. During those five years, Amazon’s revenue increased at a compound annual growth rate of 29.3%.
But can Shopify maintain this momentum?
Shopify’s revenue was up 86% in 2020 and grew 66% year-over-year in the first nine months of 2021. Analysts expect its revenue to increase 56% for the full year, likely to rise 33% in 2022.
Shopify divides its business into two main parts: subscriptions (30% of its revenue last quarter), which includes point-of-sale services and Shopify plans for larger businesses; and business solutions (70% of its revenue), which includes payment processing, fulfillment, and financing services.
Shopify’s growth is slowing, but expansion into its steadier subscription business should offset tough year-round comparisons for the solutions business, which has seen extraordinarily strong growth in gross merchandise volume (GMV) during the pandemic.
Last quarter, Shopify president Harley Finkelstein said it took merchants using Shopify 15 years to generate $200 billion in cumulative annual GMV, but that number has doubled to $400 billion annually over the past 16 months. Shopify doesn’t expect the acceleration caused by the pandemic to continue into 2022.
Shopify’s adjusted gross margin contracted in 2020 as it generated a higher mix of revenue from its lower-margin merchant solutions business during the pandemic. But in the first nine months of 2021, adjusted gross margin rose again as the higher-margin subscription business expanded and more merchants locked up.
Meanwhile, Shopify’s strong revenue growth easily offsets temporary fluctuations in gross profit margins. Adjusted net income rose more than 14 times in 2020 and more than doubled year-over-year in the first nine months of 2021. Analysts expect adjusted earnings per share to rise 90% for the full year, but fall 4% thereafter. year as it ramps up its investments again.
What about Shopify reviews?
Shopify’s business model is broken and its growth rates are excellent. However, its shares are also trading at nearly 280 times forward earnings and 28 times next year’s sales. These higher valuations could limit growth potential in the near and medium term, while exposing it to an inflation-driven sell-off.
However, I’ve repeatedly let my concerns about Shopify reviews stop me from buying the stock, and I’ve missed out on some massive gains. So, I think it’s time to change the way I think about Shopify.
If Shopify grows its revenue at a compound annual growth rate of 30% for the rest of the decade, its annual revenue will continue to rise from $2.9 billion in 2020 to more than $40 billion in 2030. Even if its ratings subside along the way, Shopify can still achieve Easily multi-brand more gains – so it’s never too late for long-term investors to accumulate more shares of this popular e-commerce stock.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.