Shopify: Canadian E-Commerce Growth Story Proving Better Bet Than Amazon


Canadian e-commerce platform provider Shopify (NYSE:SHOP) has persistently proved its critics wrong. Ottawa-based Shopify, which makes tools that enable mainly small businesses to create websites and engage in commerce across multiple channels, has been the target of short-sellers over the past 15 months, but a recent rally in its share price shows that it’s hard to derail the company from its growth path.

After every correction over the past 12 months, Shopify stock has emerged stronger, defying many calls of growth stagnation. Trading at $189.76 at Friday’s close, its shares have surged 38% this year, far outperforming those of its much bigger rival, Amazon (NASDAQ:AMZN), which have gained 5.3%. Shopify stock has rocketed 570% since its IPO in 2015.

Shopify: Canadian E-Commerce Growth Story Proving Better Bet Than Amazon

Shopify weekly chart

Shopify’s Strength

One of the main strengths of Shopify is that it offers small businesses a very effective and cost-efficient way of building a secure online store. The platform handles all the hardware security, data backup, and payment processing aspects of the business, freeing up merchants to just focus on their core businesses.

However, Citron Research founder Andrew Left, a well-known short seller, believes that Shopify’s rapid user growth relies on small merchants, the majority of which would never become sustainable businesses. Eventually the company will hit a saturation point and its growth will stall, Left says.

Left’s short call, which he made in October 2017, remained a big drag on Shopify’s stock last year. But the price action this year shows that investors are ignoring the doomsday scenario he envisaged when he predicted the stock would plunge to $100.

Instead, investors are becoming optimistic about Shopify’s future, mainly because the company’s earnings momentum isn’t showing any signs of a slowdown. During its fourth-quarter earnings report last month, Shopify said its sales have surpassed the one-billion-dollar mark for the first time. For fiscal 2019, it expects revenue to expand another 36%.

In contrast to Citron’s prediction, the number of Shopify’s merchants continues to grow. Those who use Shopify’s online platform to run their web-based and physical store operations exceeded 800,000 last year, with 24% of them now outside its core English-speaking markets of North America, Britain and Australia.

The utility of Shopify’s platform is no longer restricted to small and medium-sized operators. Some of the world’s largest brands, including Johnson & Johnson (NYSE:JNJ), Unilever (NYSE:UN) and fashion brand Jones New York now use Shopify for their digital needs, along with more than 5,000 Shopify Plus customers who use this version of the platform for large customers. The company is also increasing revenues from new services in recent years, including merchant financing, shipping and fraud protection.

Bottom Line

After a remarkable run in 2019, Shopify stock is trading close to the 52-week high. Previous trading patterns suggests a short-term pullback might be coming soon. But that correction should be an opportunity to take a long-term position in this great growth story.

Shopify stock has continued to outperform during the past year against the general market perception. The company is starting 2019 in a much stronger position, with $1.5 billion in cash and one million customers within reach. Analysts, on average, expect more than 50% growth in sales per year over the next five years. With this positive backdrop, we believe Shopify will prove to be a good long-term bet.


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