A massive increase in online shopping has been one of the key effects of the novel coronavirus pandemic. That has been a big boost to Amazon (NASDAQ:AMZN), propelling the stock to 33% growth so far in 2020. However, there’s an A-rated Canadian e-commerce company that’s making even Amazon’s performance look lackluster in comparison. Shopify (NYSE:SHOP) is on fire, up 79% in 2020. With a surge in new customers that are likely to remain on its platform even after the pandemic fades, SHOP stock is a good bet to continue its impressive growth in the future.
Before getting to the coronavirus, let’s have a quick look at Shopify’s performance before the crisis started.
Shopify’s story was one of slow, but consistent growth. As its platform matured and added features, it grew in popularity. That resulted in steady growth for Shopify. By the end of 2018 — nearly four years after its IPO at $17 per share — SHOP stock was trading above $120.
In 2019, that growth accelerated. Shopify wasn’t sitting still, but instead added features to attract new merchants. In 2019, that included spending $1 billion to open a network of fulfillment centers. In December, Shopify announced its merchants had sold over $2.9 billion in merchandise during 2019 Black Friday.Cyber Monday sales. Shopify’s stock increased in value nearly 198% in 2019. It posted a further 33% increase during the first month and a half of 2020, before the coronavirus shook markets.
Small Retailers Scrambled to Move Online
While SHOP stock sunk during the March selloff, it recovered much more quickly than most. And then, it defied 2020 trends by not just recovering, but returning to strong growth. Now trading near $750, SHOP stock is up more than 130% from its March low, and 83% for the year so far.
Why? The coronavirus pandemic had two big effects that played into Shopify’s strengths. First, it dramatically increased online shopping. Second, coronavirus lockdowns left small retailers scrambling to sell their products online. With their shops forced to close, these stores had to pivot online quickly to survive. Given the choice of being buried among Amazon’s marketplace sellers, or quickly and easily setting up their own branded online storefront with Shopify, many chose Shopify.
Shopify reported first quarter sales up 47%, while the value of merchandise sold on its platform increased by 46%.
Now That They’re Online, Many Will Stay
I’m not worried that the coronavirus boost to Shopify’s network — through consumer spending and adding new merchants — is temporary. For one thing, despite a race to develop a vaccine and the beginnings of a re-opening of the economy, there’s no guarantee we’re out of the coronavirus woods just yet. Expect consumers to keep shopping online more than they did before. It limits their potential exposure, and more people are simply hooked on the convenience of the experience.
The other thing is that many of the small retailers who were forced to pivot to offering online shopping will continue to do so. Even if their store is able to re-open. They may have avoided e-commerce in the past, but with their Shopify storefront already up and online sales coming in, why would they walk away from the revenue? Sure, some of it will be replacing local shoppers who go online instead, but some of that is from distant customers who would have never stepped foot in their store.
Speaking to the Washington Post, MIT Initiative on the Digital Economy director Erik Brynjolfsson says: “It’s amazing how slowly habits change, where people get stuck in the ruts of doing things, and then you have a shock like this that can change everything … It forces people to overcome the switching costs, figure out something new and say, ‘Hey, this is way better.’”
The Bottom Line on SHOP Stock
In May, Shopify surged past Royal Bank of Canada (NYSE:RY) to become Canada’s most valuable publicly traded company. It didn’t hold the crown for long — and given the fate of previous title holders like BlackBerry (NYSE:BB) maybe that’s not a bad thing — but it does put the Shopify story in some perspective. This is no startup, it’s an e-commerce giant.
Only a few years ago, Shopify was looked at as a potential acquisition target for Walmart (NYSE:WMT) or eBay (NASDAQ:EBAY). The thought was Shopify could be folded into their e-commerce platforms, helping them to compete with Amazon.
With a market capitalization of $78.5 billion (more than double eBay’s) that idea now seems quaint.
Shopify has proven that appealing to small retailers is a winning formula. All those small merchants add up to big sales. SHOP stock has put together an amazing run so far in 2020. Where the coronavirus has damaged so many other companies, the pandemic and store lockdowns have played to Shopify’s strength. With many of those small retailers likely to remain onboard and online shopping becoming more popular, Shopify’s momentum is only gaining steam. That bodes very well indeed for this Canadian e-commerce stock’s future.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.