Shopify (SHOP -3.65%) stock gained 37% in 2024 according to data provided by S&P Global Market Intelligence. The market is getting more excited about the e-commerce platform as it continues to report robust growth and improving profitability while the e-commerce market grows, and moderating inflation could boost consumer spending.
The platform for every e-commerce retailer
Shopify is the infrastructure behind millions of e-commerce retailers. Its core client is a small or medium-sized business that signs up for a complete package that includes a website and e-commerce functionality, but it has expanded to offer multiple kinds of packages and single services that are drawing business from large clients as well.
It's had a bumpy road over the past few years as it managed through accelerated pandemic acceptance, built too much to meet waning demand, and then got rid of unnecessary infrastructure. It's landed in an excellent spot, becoming profitable again as it scales on a more linear path.
Revenue increased 26% year over year in the third quarter and beat expectations, and operating income more than doubled to $283 million. It has expanded its free cash flow margin each quarter this year, and management is guiding for similar performance in the fourth quarter.
Shopify is growing profitably, but its growth story is far from over. It has identified multiple areas to focus on expansion, such as international, where it's only the fourth-largest e-commerce sales platform. International gross merchandise volume (GMV) increased more than 30% in the third quarter, higher than the company total of 23.6%, and international merchants are gaining value from joining the platform; merchants who joined the Managed Markets program, which offers a complete international setup, sold to 83 countries on average and saw international sales increase more than 40% on average. Shopify is also expanding its product assortment in international locations all over the world.
It's also embracing the omnichannel model and offering more complete solutions for retailers both online and offline, and offline GMV outpaced the company total in the quarter as well.
A high valuation isn't stopping this winner
The only real drawback here is the stock's valuation. Shopify stock trades at a rich forward 1-year P/E ratio of 54. If Shopify has years of growth ahead, which it does, that shouldn't bother long-term investors too much. Some of the growth is built into that, but it will eventually surpass it, and the stock is likely to reward patient investors.
