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Why I Just Bought Shopify (TSX:SHOP)

Published 2019-08-22, 11:00 a/m
© Reuters.

You might be one of many investors who have been watching Shopify (TSX:SHOP)(NYSE:SHOP) like a hawk recently. Analysts everywhere have been telling you, “Wait! Hold on! This stock is going to drop, and when it does it’ll be terrible!”

That could be true. After all, a recession doesn’t look like it might come; it’s more when it will come and how bad it will be. Shopify has never had to go through a recession, so who knows how it’ll manage when the time comes?

But here’s the thing: I don’t care.

After setting alerts on my watch list for months and selling my stake in Shopify during the first round of analyst warnings, I decided enough was enough after reading and researching and hearing about the potential this stock has over and over again.

So, I bought it at about $465 per share. And I don’t regret it at all.

The stock then went on shortly to hit that $500-per-share mark (though that was definitely nice), but even with a market downturn, I’m confident in Shopify’s future potential. Even if the stock plummets to half of what I bought it for (and, to be fair, analysts give it a fair value of about $225 per share), I don’t believe it will stay there for long.

That’s because even during a hard year for the economy, in an industry that is usually one of the first to be dropped during an economic downturn, Shopify has managed to grow exponentially. In its most recent quarter, Shopify’s revenue rose 48% year over year to $362 million. Also, Shopify’s gross merchandise volume rose a whopping 51% to $13.8 billion. That means even while people are tightening their purse strings, merchandise is still increasing at a rapid rate.

Then there’s one of Shopify’s recent introductions of Shopify Plus — a platform designed for large businesses. In the past, Shopify has focused on small- and medium-sized businesses, but this has changed recently. The company famously was given the nod to provide the platform for purchasing marijuana in Canada in several provinces, and this has opened the door for other countries and large companies to use Shopify as a platform.

In fact, Shopify Plus has become the company’s fastest-growing subscription plan, which will continue to provide a huge boost in recurring revenue. During its second quarter, Shopify Plus subscriptions rose an incredible 53%, representing 26% of monthly recurring revenue. One large bonus is that while you can renew or cancel a small- or medium-sized contract on a monthly basis, Shopify Plus is annual or multiyear. Yet according to Chief Operating Officer Harley Finkelstein, things are just getting started.

“Shopify Plus is set to become an even more compelling solution for complex and large-scale businesses when we release our new Shopify Plus product later this year … Shopify Plus will give merchants an overview of the performance at every single one of their stores with the ability to manage all stores, staff accounts, user permissions, and automation tools … in a single place.”

Beyond Shopify Plus, there’s Shopify’s Fulfillment Network, which is setting out to take on the big boys. Despite its quick growth, Shopify is well behind companies like FAANG and still has a long way to go. Its Fulfillment Network in the United States is the first step to becoming a global powerhouse, with the ability for merchants to sell and ship merchandise around the world all through Shopify.

According to Chief Executive Officer Tobi Lütke, the main goal for Shopify is to just keep things simple for both merchants and customers, as this has been the company’s recipe for success.

“We are going to find, hopefully, very innovative ways and novel ways to further simplify the process, but every time we do, our market expands, especially now that we have more of a global reach, and this is what we’re going to be doing now and [were] doing five years ago and will be doing five years from now.”

So, while this stock still sells for a premium price tag, for me it’s worth it. Like me, do your own research before buying this stock, but personally, I believe its past is a fair representation of this stock’s incredible future.

Fool contributor Amy Legate-Wolfe owns shares of Shopify. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of Shopify and Shopify. Shopifyis a recommendation of Stock Advisor Canada.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Motley Fool Canada 2019

This Article Was First Published on The Motley Fool

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