Is Shopify Inc. a Long-Term Tech Hold?

Because of its strong business model and incredible growth, I believe investors should look to Shopify Inc. (TSX:SH)(NYSE:SHOP) as a core tech holding.

| More on:
The Motley Fool

Many investors have been hesitant to invest in the technology sector because the “FANG” stocks–Facebook Inc.,, Inc., Alphabet Inc., and Netflix, Inc.–had been hit so hard when the markets started to drop. While these companies may be hurting some, there are other companies that are attractively priced that could become nice additions to any technology-focused portfolio.

One company that I have had my eyes on for some time is Shopify Inc. (TSX:SH)(NYSE:SHOP). It’s an e-commerce provider that allows small businesses to have online shops with relative ease. In the past a merchant would have to hire a developer to create a custom website, deal with the advanced payment APIs, and then hope that the site was running. This would costs thousands, if not tens of thousands.

With Shopify, merchants can pay anywhere from US$9 to US$179 per month to have their website up and running much faster. Shopify also has a built-in payment mechanism called Shopify Payments, from which it is able to generate revenue from fees. As its merchants do better, Shopify does better. This business model is actually one of the reasons why I am such a fan of the company.

There are many ways to make money as a tech company, but there are three predominant ways that excel. The first is to build such a powerful brand that people just immediately go to you for specific actions: Facebook for social contact, Amazon for buying, and Google for searching.

The second way is by selling incredibly large software/hardware packages, making it difficult for the client to leave because they’re completely integrated. The third is the subscription business.

Shopify is a subscription business. Because it charges by the month, it is able to predict what its revenue will be, allowing it to operate a much more efficient business. What makes Shopify so unique is that its subscription business allows it to become integrated in its customer’s business, resulting in low churn. If you have a Shopify e-commerce site up and running, you are not likely to switch.

The business model is working. In its most recent quarterly report, the company revealed that it had 243,000 merchants on the platform. In and of itself, that’s impressive. However, what really makes me excited about this company is that it only had 200,000 in the previous quarter, showing tremendous growth.

Further, it used to cost Shopify about $1,000 in sales/marketing to sign a new merchant up. Due to increased efficiency and the number of merchants that signed up compared to the amount spent on sales and marketing, it only spent $500 in the most recent quarter to sign up a new merchant.

All told, Shopify has built a business that keeps customers around for a long time, generates consistent revenue on a monthly basis, and sees its revenue grow when its merchants do well. I believe that all of this makes Shopify a long-term tech hold for any investor looking to get in early.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Jacob Donnelly has no position in any stocks mentioned. David Gardner owns shares of Alphabet (A shares), Alphabet (C shares),, Facebook, and Netflix. Tom Gardner owns shares of Alphabet (A shares), Alphabet (C shares), Facebook, and Netflix. The Motley Fool owns shares of Alphabet (A shares), Alphabet (C shares),, Facebook, and Netflix.

More on Tech Stocks

Coronavirus written newspaper close up shot to the text.
Tech Stocks

The 2 Best Tech Stocks to Buy Today for Low-Risk Investors

Overvalued tech stocks are undergoing a major correction after inflating on the back of high liquidity from fiscal stimulus packages. …

Read more »

Choose a path
Tech Stocks

Is Ripple Primed for 100% Growth in 2022?

From an investment perspective, most cryptocurrencies seem similar. Almost all of them seem volatile, and while some get more limelight …

Read more »

Tech Stocks

Tech Crash: 2 Tech Stocks Analysts Have Sliced in Half

The TSX has continued to wax and wane over the past week. After a huge fall on Monday, shares started …

Read more »

Hand holding smart phone with online shop concept on screen
Tech Stocks

Shopify Stock Selloff: Could it Turn Around in February?

Shopify (TSX:SHOP)(NYSE:SHOP) continues to be one of the worst-affected stocks amid the ongoing market selloff. After posting its worst weekly …

Read more »

analyze data
Tech Stocks

TFSA Investors: Is the Tech Crash Over?

It’s been a hard time for Tax-Free Savings Account (TFSA) investors already in 2022. Almost immediately after ringing in the …

Read more »

value for money
Tech Stocks

4 Cheap TSX Stocks to Buy Under $50

The recent selloff in equities has led to a sharp pullback in high-quality TSX stocks. Many of these Canadian stocks …

Read more »

edit U-turn
Tech Stocks

2 Canadian Growth Stocks That Could Rebound Nicely From Here

Finding top growth stocks has been a winning strategy over the past decade. Many have posted life-changing returns over a …

Read more »

edit Sale sign, value, discount
Tech Stocks

Tech Stock Crash: Time to Buy 2 Stocks at Bargain Prices

After an incredibly strong year in 2021, the Canadian market is off to a rocky start this year. The S&P/TSX …

Read more »