As brick-and-mortar stores shuttered throughout the country, millions of people turned to online shopping to meet their needs. E-commerce platform Shopify (NYSE:SHOP) saw SHOP stock increase by 140% from April to May and surpass Q1 estimates by a large margin.

The surge in online demand continued to increase through waves of panic buying and again when people received their stimulus checks. While the demand was induced by the pandemic, it provided a glimpse into the changing consumer habits in a post-COVID world.

As e-commerce soars, Shopify stock is definitely worth chasing.

Brick and Mortar Go Online: A Boon For SHOP Stock

Prior to the pandemic, companies adopted an e-commerce business model in an effort to eliminate the expenses associated with a brick-and-mortar store. The lock down, which restricted in-store access, gave e-commerce a whole new meaning. For many businesses, it became a means for survival.

As many small businesses were forced to shut down, Shopify’s unique model provided an outlet for companies to earn revenue and remain afloat. The e-commerce platform saw a 62% increase in the number of accounts created between March and April 2020.

With an increase in subscription growth, Shopify beat Q1 industry estimates and earned a revenue of $470 million, which was 47% higher than the previous year. This value is attributable to the novel coronavirus, which drove the demand for essentials in the first quarter of 2020.

The rapid growth of Shopify is unmatched by its other e-commerce platforms. Between April and May, the mobile payment app Square (NYSE:SQ) saw a 25% rise in the value of its stock, while SHOP stock rose by a massive 98% for the same period.

This growth is justified by the increase in Shopify’s subscription revenue, which hit $187.6 million in Q1, coupled with the flexibility of their business model. Anyone with an email address and a credit card can create an account on the platform.

Adapting to a New Environment

Companies like Amazon (NASDAQ:AMZN), Walmart (NYSE:WMT) and Target (NYSE:TGT) are giants in the e-commerce industry. These companies have the means to convert to an online business model with short notice. The same cannot be said for small businesses that struggled to adapt to a new environment.

Shopify’s CEO, Tobi Lutke, says that the goal of the platform is to provide small businesses with the resources to succeed in a digital world.

When news of the pandemic emerged, the company was quick to restructure the business and adapt to their new reality. In order to support businesses during the difficult period, Shopify offered a 90-day free trial to new merchants on their platform. This, in addition to gift cards and resources for government funding.

As of May, the company raised $1.5 billion and sold $2.1 million shares, priced at $700 per share. This funding strengthened the company’s balance sheet, giving them the ability to focus on the needs of their customers during a tumultuous period.

“Our strong balance sheet provides us with the flexibility to continue investing in the right merchant-first initiatives, supporting merchants’ success now and well into the future,” said Shopify’s Chief Financial Officer, Amy Shapero.

New Product Offering

Shopify was well-positioned to benefit from the shift to a digital environment and introduced a slew of new products to help small businesses. On May 20, the company launched Shopify Balance.

Through the system, business owners can streamline their expenses, cash flow, and bills. The platform would bring the speed of in-store spending online and allow customers to benefit from rewards programs.

This was launched alongside several other products like Shopify Installments, where customers can make payments through installments on the platform. New features were added to the Shopify Capital app to include tipping, gift cards, and international sales. The crown jewel of the product launch was the Shop app. The app gives customers access to a world of retailers with personalized recommendations at their fingertips.

The new products will allow Shopify to increase its market reach while giving merchants the resources they need to succeed in a digital-first world.

The Way Forward for Shopify

Shopify was making waves in the e-commerce world long before the pandemic, but their timely response to merchant needs put them at the forefront of disruption. Their Q1 adjusted earnings increased by 216.7% in a year over year comparison. This led to a massive increase in valuation, earning them the title of Canada’s most valuable company.

The company’s first-quarter numbers were largely driven by companies who were forced to go online. As businesses return to normal operations, only time will tell if SHOP stock can keep up its current momentum. However, industry analysts remain optimistic about the company’s future.

Total revenue in 2020 is expected to increase by 37% compared to the previous year and should remain at 35% in 2021. With the new product offerings on Shopify’s platform, the company is expected to attract new merchants in the upcoming year. Large companies like Heinz (NASDAQ:KHC) and Lindt are already Shopify customers.

However, the company does have its pain points. There has been a decrease in the revenue growth rate and a downgrade in subscriptions in the past year. The former can be attributed to the poor performance of Shopify Fulfillment and Shopify Capital due to Covid-19, while the latter may be a response to businesses cutting costs during a difficult period.

Nevertheless, Shopify’s unique offering and strong liquidity position point towards a bright future for the company.

The Bottom Line

In a world where big companies stand to benefit the most from changes in the economy, Shopify provides a voice for small and medium-sized businesses. This puts them in a unique position to benefit from large revenues while creating a model for sustainable growth. A report by The Future of Commerce states that buying behavior in a post-Covid world will rely heavily on e-commerce.

As Shopify continues to expand its e-commerce offerings and reach new growth targets, it’s worth staying invested in SHOP stock for the long haul.

As of this writing, Divya Premkumar did not own any of the aforementioned stocks.