Since the initial public offering of Shopify (SHOP 0.80%) in 2015, its shares have been a stunning success -- gaining 2,100% in value. The S&P 500 added just 200% over that time. Is it too late to invest in this e-commerce platform? Perhaps not.
Recent volatility has provided a rare buying opportunity. Over the past 90 days, shares have lost around 25% of their value after management delivered weak guidance for the quarter ahead. If you're looking for a high-quality, high-growth business at a discount, this could be your chance.
A competitive advantage that should grow stronger
Shopify is a terrific business. At its core, it's an e-commerce platform. But instead of operating its own marketplace like Amazon, it empowers others to build their own digital stores. By using Shopify, entrepreneurs and existing brands can begin selling online in minutes. Shopify's platform comes with everything you need to get started: design templates, inventory tools, payment processing, advertising integrations, analytics dashboards, and much more.
Shopify's platform has a heavy lead over the competition when it comes to usability and functionality. The latest market share figures demonstrate this well. According to data compiled by Statista, Shopify currently has a 28% market share of e-commerce software platforms in United States. WooCommerce comes in at second place with 17%, while Wix takes third with 16%.
When it comes to platform businesses like Shopify, the strong typically grow stronger. Platform businesses essentially allow other people to build on top of them. Meta Platforms, for instance, owns several platform businesses, including Instagram and Facebook. These companies simply produce basic software and functionality. It is the users themselves, however, that build out the vast majority of the content.
The same is true for Shopify. The company has an impressive software offering, but it is outside developers that have built much of the functionality. These developers earn money whenever a Shopify customer installs and uses its features. And Shopify gains significantly more functionality far faster than what it could build on its own.
With the biggest market share in the industry, Shopify garners the most attention from outside developers. After all, they want to build things that can reach the greatest number of people, and thus earn them the most money. Additionally, Shopify has more storefronts than any competing platform -- more than 1 million.
All of these users provide Shopify with tons of data, giving insights into how they use the platform and what they value, and highlighting areas where they'd like to see the software improve. One of those areas is AI-enabled tools, and Shopify is investing in this area arguably more than any of its competition. Shopify simply has more capital, clout, and reach to do so.
Shopify is targeting a truly huge market. E-commerce spending topped $1 trillion in 2023, and is expected to approach $2 trillion by 2029. The company has the tech and resources to keep growing its market share in an otherwise growing market. And as we'll soon see, right now is a great time to invest in this long term winner.
Why it's not too late to buy Shopify stock
Shopify stock has been a great long term winner, but it hasn't always been smooth sailing. From 2016 to 2022, shares rose 5,200% in value. Since those highs, however, the shares have fallen by more than 50%.
There have been many sudden ups and downs along the way for Shopify stock. At times, the stock traded as high as 60 times sales. At their lowest, shares traded at just 9 times sales. After the recent pullback, the stock is valued at only 10.2 times sales -- a historic bargain.
Right now, Shopify is a terrific growth stock priced at a very reasonable valuation, especially relative to its history. Goldman Sachs even upgraded the stock recently to "buy" from "neutral," citing its "significant technology moat." This is a company you want to buy and hold for the long term, and today's bargain valuation gives new investors a great chance at catching Shopify's second wave.
