Canadian e-commerce star Shopify (NYSE:SHOP) has been on a rapid growth trajectory in 2019, with SHOP stock gaining over 134% so far this year — nearly 1,000% since its 2015 initial public offering (IPO). The company currently has a market capitalization of $35 billion.
The question is, can SHOP sustain this pace? If so, even with Shopify stock at about $313, it might be a buy. Here are the key reasons why investors have been so bullish on Shopify in 2019.
Shopify’s Q1 Earnings
While the company still isn’t profitable, Shopify delivered a first-quarter earnings report in April that kept investors happy. With international expansion, revenue was $320.5 million for the quarter, a 50% year-over-year gain …
This beat the $310 million that analysts had been expecting. Shopify has now beaten earnings several quarters in a row, a track record that has helped boost SHOP stock.
Taking on Square in Brick & Mortar Retail
One of the big moves Shopify announced in April was to extend its presence beyond online retail into physical stores. The company is taking on Square (NYSE:SQ) by releasing its own line of retail payment payment processing hardware. The hardware will include a tap and chip reader, dock and retail stand.
This opens up a new avenue for revenue growth and has significant upside for Shopify stock. It also ties into the company’s primary business, with connectivity to a retailer’s online store — assuming it is also powered by Shopify. When SHOP reports its Q2 earnings, we should have an idea of what the reception is like for that new retail hardware.
Shopify Unite Announcements
In June, SHOP held its annual Shopify Unite conference and made a series of announcements that impressed investors enough for a pop in Shopify stock. The company is introducing a wide range of improvements to its e-commerce platform, including support for video and 3D models and a continued push into a global market.
The company is also introducing its own machine learning-powered fulfillment centers, enabling its customers to ship products faster and at a low cost.
Concerns About SHOP From Its Hometown
Shopify is based in the Canadian capital of Ottawa. Approximately 1,000 of its employees are located there. The Ottawa Citizen recently published a detailed feature on the rapid pace of Shopify stock growth and noted there is nothing that guarantees this will continue.
There are a number of risks that could derail the success of Shopify stock. Chief among them are the following: a more competitive online merchant space, increasingly complex technology that exposes the company to software glitches and security breaches, and an economic downturn cutting into consumer spending. All of these could impact SHOP stock.
Worries that Shopify stock price is too high led to a big drop at the end of June, but SHOP has been climbing back since then.
SHOP Stock Value Based on Growth Expectations
In its Q1 earnings report, Shopify’s CEO Tobi Lütke said:
“Shopify is meeting a need that is not only global and growing, but that is likely to continue growing for the foreseeable future.”
That’s the key to the SHOP stock growth trajectory. At its current numbers, Shopify stock is expensive. But investors are buying into the narrative that the company will continue to grow its revenue at dizzying pace and make the move from operating at a loss to profitability. The global e-commerce market was valued at $2.86 trillion in 2018, and Shopify captured just $41 billion of that on its platform. That leaves a vast amount of space for SHOP to grow.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
