Alphabet Inc. Is Shopping and May Turn to Shopify Inc.

Shopify Inc. (TSX:SH)(NYSE:SHOP) has reportedly become a target of Internet giant Alphabet Inc. (NASDAQ:GOOGL) (NASDAQ:GOOG).

The Motley Fool

When Alphabet Inc. (NASDAQ:GOOGL)(NASDAQ:GOOG) is interested in acquiring a company, that company has proudly hit a level of distinction in the tech industry.

This may be the case for Shopify Inc. (TSX:SH)(NYSE:SHOP). The cloud-based, multi-channel platform has been making waves recently, both in terms its recent quarterly results and news about interest from Alphabet.

Here’s a look at the company, why it is becoming an M&A target, and what this means for investors.

How is Shopify doing?

Shopify currently trades at just over $36. Looking back over the past month, the stock is up by a very impressive 28%, largely erasing a dip in price from the start of the year and giving the stock a year-to-date improvement of just 2%.

In the most recent quarter, Shopify smashed year-over-year totals for revenue, but still posted a small earnings-per-share loss ($0.08). Revenues came in at over $70 million for the quarter, largely fueled by subscription revenues that gained 70% year over year, coming in at $34.6 million.

Growth in actual merchants using the platform was equally as exciting for investors. As of the most recent quarter, there are 243,000 merchants using the platform, an increase of 43,000 since the last quarter, and 68,000 more than there were two quarters back.

Recurring revenue from those merchants in the form of the average subscription fee was up by 72% for the quarter over the previous year, coming in at $11.3 million. Finally, the volume of orders being processed on Shopify’s platform continues to increase, hitting $2.8 billion last quarter and representing 109% improvement over the same quarter last year.

Why is Alphabet shopping?

Alphabet is apparently looking to strengthen its grasp in the cloud and apps market as an alternative to Amazon Inc. and Microsoft Co.’s competing platforms in AWS and Azure.

Shopify isn’t the only company that’s apparently on the shopping list; Metavine, Xactly and Namely were also mentioned. Metavine is a cloud app server, whereas Namely handles payroll and health benefits as an all-in-one HR platform. Xactly is a sales performance management solution.

Alphabet is right to want to shore up on the enterprise front, and an acquisition (or several) would give the company a near-complete suite to offer prospective business clients. Alphabet’s focus has been on small- to medium-sized businesses and offers very attractive pricing–in some cases, as low as $25 per user.

That’s not to say that the company doesn’t already have large clients; it does, after all, serve Spotify, Sony and Apple Inc., to name just a few. And it was recently revealed that a huge chunk of Apple’s iCloud photos and documents may already be on servers owned by Alphabet.

Irrespective of whether or not Alphabet actually purchases Shopify, the company remains, in my opinion, a great addition to any portfolio. Shopify is in a period of sustained growth that includes both new business and renewal subscription fees.

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 Demetris Afxentiou has no position in any stocks mentioned. David Gardner owns shares of Alphabet (A shares), Alphabet (C shares), Amazon.com, and Apple. Tom Gardner owns shares of Alphabet (A shares) and Alphabet (C shares). The Motley Fool owns shares of Alphabet (A shares), Alphabet (C shares), Amazon.com, and Apple.

More on Tech Stocks

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »

Business man on stock market financial trade indicator background.
Tech Stocks

1 Growth Stock Down 50 Percent to Buy Right Now

There are plenty of growth stocks in the market worth considering, but Shopify (TSX:SHOP) looks like one of the best…

Read more »

Woman has an idea
Tech Stocks

Prediction: 1 Stock That Could Trounce the Market 

The TSX has been favouring tech stocks, but not this one. However, it has the potential to trounce the market…

Read more »

clock time
Tech Stocks

Long-Term Investing: 3 Top Canadian Stocks You Can Buy for Under $20 a Share

These three under-$20 stocks offer excellent buying opportunities for long-term investors.

Read more »

Businessman holding AI cloud
Tech Stocks

AI Will Transform Everything: Investors, Be Early Adopters and Buy These 3 Stocks

Investors looking to invest in companies doing big things in AI should consider these three stocks for their portfolios.

Read more »

stock research, analyze data
Tech Stocks

Forget Shopify: These Unstoppable Stocks Are Better Buys Today 

Should you consider buying Shopify stock while rivals consider a buyout or should you go for stocks with a stronger…

Read more »

A colourful firework display
Tech Stocks

2 Potentially Explosive Stocks to Buy in March

These two growth stocks are destined for many more years of market-crushing returns.

Read more »

edit CRA taxes
Tech Stocks

TFSA Millionaires Are Learning They Can Still Be Taxed

If you day trade stocks like Shopify (TSX:SHOP) in a TFSA, you may be taxed.

Read more »