Are you looking for a new growth stock? Put Shopify (SHOP -1.06%) on your watchlist if not in your portfolio. It's a far more promising prospect than plenty of other tickers at this time, especially while it's down as much as it is from its February high.
What's Shopify?
Shopify helps companies establish and manage an e-commerce presence. Online shopping carts, payment processing, marketing, inventory management, and more are in its wheelhouse. Although the company itself no longer reports how many online stores rely on its technological solutions, estimates put the figure in the ballpark of 5 million.
NASDAQ: SHOP
Key Data Points
The company does still disclose the amount of online sales its tech facilitates, though. Gross merchandise volume (GMV) reached $94.5 billion, capping off a full-year tally of $292.3 billion, up 24% from the prior year's GMV.
As for its own revenue, Shopify reported a top-line $2.8 billion for the final quarter of last year and nearly $9 billion for the whole year, up 26% from 2023 sales. Net income exploded from nearly nothing to more than $2.0 billion in 2024.
What's driving this kind of growth (which is expected again this year and next, by the way)?
Data source: StockAnalysis.com.
Simply put, online sellers are finding they're better served by taking control of their own e-commerce presence rather than continuing to rely solely on third-party platforms like Amazon, eBay, and even Walmart.
However, there are four very specific reasons why you might want to take your shot on this stock sooner rather than later.
Four reasons to buy Shopify stock
This isn't an exhaustive list, nor is any of this meant to suggest Shopify has no downside. Every investment has its risks. This one is no exception. This stock is a bit expensive, for example, recently priced at more than 50 times next year's expected per-share earnings of $1.90.
Still, the bullish arguments are collectively better than the bearish ones. Here's a closer look at the top four.
1. This is a key part of e-commerce's future
In the early days of e-commerce, it appeared that the only way a brand or seller could build a meaningful scale online was through a third-party platform like Amazon. Sellers didn't like competing with the growing number of rival sellers, just as they weren't fans of competing with Amazon's own products. They also didn't want to help Amazon build its online business rather than building one of their own. Even consumers were a bit overwhelmed by all their choices. But what choice was there?
As the e-commerce market has matured, though, more and more companies found they're more capable of selling directly to consumers than they initially thought possible. They just needed the right tools. That's why brands like FragranceNet, Skullcandy, Carrier, Untuckit, Sodastream, and Mac Tools, just to name a few, are all utilizing Shopify's solutions.
Look for more of this same migration for the foreseeable future, too, as brands better integrate their online and offline stores with their web presences that turn consumers into customers. What wasn't possible 20 years ago is certainly possible now.
2. E-commerce still has plenty of room to grow
If you think the e-commerce industry is going to be hitting a wall in the near future, think again. As of its most recent look at the data, the U.S. Census Bureau reports that only about 16% of the nation's retail spending is currently done online. The other 84% is still handled by brick-and-mortar stores.
Obviously, some of that spending will never move online. Plenty of consumers are picky about the fruit they buy, for instance, while the logistics of delivering ice cream to peoples' homes is simply too complicated and expensive.
With 84% of the country's retailing business up for grabs, though, there's still plenty of room for the entire e-commerce industry -- here and abroad -- to keep growing. To this end, market research outfit Precedence Research believes the global e-commerce market is set to grow at an average annual pace of nearly 15% through 2034.
This tailwind, of course, bodes well for Shopify's business.
3. Shopify's revenue is largely recurring, regardless of economic conditions
Do current economic headwinds pose a near-term threat to this growth? It would be unwise to ignore any prospective risk. Shopify's business may be more resilient than you realize, though.
Sure, consumerism can slow down during a recession. It typically doesn't implode. Even during the prolonged period of economic weakness in the wake of 2008's subprime mortgage meltdown, the United States' total retail spending only fell on the order of 10% year over year at its worst and only lost ground for about a year. Moreover, given the number of Shopify's stores that are categorized as consumer staples stores rather than consumer discretionary businesses, Shopify may see little impact from economic headwinds at all.
It's also worth highlighting that Shopify's tech and e-commerce solutions are the types of tools that continue to generate revenue regardless of the economic backdrop. Its revenue consists of a combination of contractual subscription fees as well as per-transaction fees, and all of these fees are affordable enough for sellers to stick with the company's tech even when business may be a bit slow.
4. The stock's recent pullback is a fantastic buying opportunity
Finally (and perhaps most importantly), buy Shopify stock like there's no tomorrow because it's on sale at a sizable discount.
Credit the marketwide correction since mid-February, mostly. The pullback swept most stocks lower, whether they deserved it or not. Shopify was one of those victims, sliding 30% from peak to trough before starting to climb again just a few days ago.
Analysts never flinched, though. The vast majority of them still consider Shopify a strong buy, with a consensus target of $133.27, which is nearly 30% above the stock's present price. That's not a bad tailwind to start out a new trade with.
