STOCK PICK: Powering the Ecommerce Market
Would be business owners can now make their dreams a reality with this software.
What started out as a couple of entrepreneurs building an online snowboard shop turned into the world's largest e-commerce platform. Shopify powers over 29% of the e-commerce market, has a visionary founder, is constantly innovating, and has some of the strongest financial statements I've seen. In addition, their industry motes make for a strong foundation for maintaining market ownership, and their company vision is inspiring to say the least. All of these scream to me that Shopify poses a fantastic investment opportunity, despite their current growth rates and growing valuation.
Shopify Company Overview
Shopify (NASDAQ: SHOP) is a market-leading e-commerce platform for businesses of all sizes. Their platform allows anyone from startups to well-established enterprises to build an e-commerce site without any prior coding experience. They currently operate in Canada, the United States, the United Kingdom, Australia, Latin America, and Internationally.
Shopify was founded by Tobias Lutke. Lutke and his two partners launched an online snowboard shop called Snowdevil in 2004. Upon launching Snowdevil, Lutke built an e-commerce platform for the site. As his network began to see the traction his site was receiving, they asked how they could do the same for their business. What started out as a snowboard shop online turned into a cutting-edge e-commerce platform that all businesses could replicate to sell products online. In 2006 Shopify was born. Tobias Lutke took the company public in 2015 and has since grown more than 20x.1
Shopify's business model is based on a subscription to their digital products, including an online store, point of sale software, built-in email marketing, business chat features, and integrations to thousands of the top online business tools used. Currently, millions of businesses in over 170 countries worldwide have power 10% of total US e-commerce using Shopify’s online business platform!
Mission: Making Commerce Better For Everyone
“We help people achieve independence by making it easier to start, run, and grow a business. We believe the future of commerce has more voices, not fewer, so we’re reducing the barriers to business ownership to make commerce better for everyone.”2
Why Invest In Shopify?
Financials
Given the aftermath of a down economy and global pandemic, Shopify has weathered recent storms pretty well. As of this writing, Shopify has a 25.2% quarterly revenue growth, 2.75B in gross profit, $4.86B in cash, and only $1.4B in debt. Furthermore, they have $238.56M in levered free cash flow. All of which indicate a company in health financial shape, especially given the economic storms we've had in recent years.
Click here to view Shopify's up-to-date financials.
Industry moats
Market leader: When it comes to ecommerce website builders for businesses of all sizes, Shopify is the clear industry leader and most valuable brand name.
First mover advantage: Although there have been website builders out there before Shopify, Shopify has the first mover advantage to create an ecommerce ready, user friendly and streamlined online business shop without the requirement of any coding experience.
Valuable brand name: Their first mover advantage has given them an opportunity to build a huge brand name that is clearly the industry leader. And Shopify has certainly done that. Their brand name now powers millions of small businesses worldwide and is the standard to which other products measure up to.
Major Clients: Shopify has some major brands on it’s platform which brings a whole lot of trust and credibility to their brand name. Some major brands that use Shopify include Fitbit, Hyatt Hotels, Gymshark, Red Bull, Whole Foods Market, and Kraft Heinz Co.3
Market ownership: Shopify currently has the largest share of the ecommerce marketplace with 29% market ownership.4
Competitors to [STOCK]
Wix: Wix is a premium website builder that allows individuals and businesses to easily create a website with no coding experience. Their unique feature is Wix ADI (Artificial Design Intelligence), which takes your unique inputs about your business and custom builds a website for you that you can use and edit as you please thereafter. {{https://www.wix.com/}}
BigCommerce: BigCommerce is probably the most similar product to Shopify. Like Shopify, BigCommerce focuses on helping individuals and businesses create an e-commerce platform relatively easily.
WordPress (WooCommerce): WordPress is the largest website platform powering over 39% of all websites worldwide. {{https://www.searchenginejournal.com/wordpress-powers-39-5-of-all-websites/391647/#:~:text=WordPress%20is%20now%20powering%2039.5,a%20market%20share%20of%2064.1%25.}} The popular plugin, WooCommerce, is used to power the ecommerce side of a website built on WordPress. WooCommerce is the second largest ecommerce platform next to Shopify. {{https://www.oberlo.com/statistics/ecommerce-platform-market-share-in-usa}}
3 Potential Risks of Investing In Shopify
Competition Risk: There are some major players in the website building and ecommerce platform markets. This poses the risk that one of these businesses takes over the market share with better innovation and user-friendly products.
Economic Risk: Because Shopify powers so many businesses worldwide, should a major economy such as the US have a major downturn, this could slow down the sales of the businesses powered on Shopify, which in turn reduces Shopify’s revenue.
Market Risk: Market risk exists when the market as a whole or another investment may perform better than Shopify. Shopify could perform worse than the S&P 500, posing a market risk.