Shopify Inc. Is Poised to Benefit From 11% Growth in U.S. Online Retail Sales

As growth in online retail continues to outpace traditional brick-and-mortar sales, businesses such as Shopify Inc. (TSX:SH)(NYSE:SHOP) are poised to benefit from this trend.

| More on:
The Motley Fool

Consumer spending has been the primary driver of growth in the U.S., expanding at more than double the pace of the overall economy during the first half of 2016. While traditional brick-and-mortar retail sales have seen modest gains, the growth of online retail has increased almost 11% year over year.

This growth is continuing to attract the likes of some of the oldest brick-and-mortar businesses in the U.S. Most of these business already have an online presence, but are either looking to increase their market share or tap into new customer bases. For example, two leading online-only retailers, and Dollar Shave Club, were purchased by brick-and-mortar businesses.

An alternative method to purchasing a multi-million dollar online retail business is to use a company like Shopify Inc. (TSX:SH)(NYSE:SHOP). The company’s platform allows businesses of any size to design a website and access numerous sales channels and e-commerce tools the company has developed through its partnerships.

As a result of the migration to online retail, the company has seen its customer base grow by almost 25% year-to-date and its share price soar by over 100% from its 52-week low in February. As of Q2 2016, it reported an astounding 93% increase in revenues year over year; its subscription solutions revenue rose 72%, and merchant solutions revenue jumped 121%.

The company attributed growth in its subscription solutions to its improved ability to customize its platform, user support, and pricing for larger retailers. The company branded this service as Shopify Plus, which caters to over 1,000 merchants, including the likes of Nestle, Boeing, Budweiser, Kanye and Red Bull. Shopify also made a key acquisition of Kit CRM Inc., a digital marketing assistant tool that its merchants can download to help promote their business.

The company’s merchant solutions are generated from processing fees from Shopify Payments. Shopify Payments is a fully integrated payment processing service that allows merchants to accept and process payment cards online and offline. The company is taking further steps to improve this business, announcing plans to integrate both Apple Pay and Android Pay into its platform.

Later this year, it will also offer the option for merchants to sync shipping and billing information from their, Inc. accounts. This is a pivotal move considering Amazon’s dominance in the market and its latest moves to drastically reduce shipping costs and delivery times for its U.S. customers.

Shopify is constantly improving or adopting new technologies to create a more seamless experience for its merchants. It’s most recent development is the expansion of its free workspace program, the Shopify Partner Accelerator. It will enable creative professionals from the e-commerce industry to collaborate on company projects and grow their technical and entrepreneurial skills. A new location added to this program in London should help attract some more business in the U.K., which currently represents about 10% of its business.

Its business model is still driven by its ability to attract new merchants, and with 59% of its customer located in the U.S., the company should be a direct beneficiary of growing U.S. consumer confidence in the economy and increasing spending habits.

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 Scott Brandt has no position in any stocks mentioned. David Gardner owns shares of and Apple. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of, Apple, Shopify, and SHOPIFY INC and has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Shopify is a recommendation of Stock Advisor Canada.

More on Tech Stocks

healthcare pharma
Tech Stocks

Well Health Stock Is Up 7% After Earnings: What Investors Need to Know

Well Health is benefiting from strong demand as it digitizes healthcare and strives to improve patient outcomes.

Read more »

Circuit board with a microchips
Tech Stocks

1 AI Stock That Can Help Turbocharge Your TFSA

Docebo is a high-flying growth stock that operates in the AI space and is a top investment in May 2024.

Read more »

Businessman holding AI cloud
Tech Stocks

This Canadian AI Stock Is Growing at a Breakneck Pace

Canadian AI stock Kinaxis Inc (TSX:KXS) is giving U.S. giants a run for their money.

Read more »

grow dividends
Tech Stocks

Why Hut Stock Surged 11% on Wednesday

Hut 8 (TSX:HUT) stock surged by as much as 11% on Wednesday after strong earnings that delivered on finances and…

Read more »

sad concerned deep in thought
Tech Stocks

The Potential TikTok Ban in the U.S. Is Real: Here’s What it Means for Facebook’s Stock

Meta Platforms (NASDAQ:META) could gain market share from TikTok being banned. That might leave BCE Inc (TSX:BCE) in a bad…

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Tech Stocks

Lightspeed Stock Jumps 15% on Founder Dasilva’s Return, Earnings Beat

Dax DaSilva is back as Lightspeed stock (TSX:LSPD) CEO, and investors were thrilled with the news, along with a 25%…

Read more »

A gamer uses goggles to play an augmented reality game. tech
Tech Stocks

Why ‘Roaring Kitty’ Sent Meme Stocks Soaring Like It’s 2021

Roaring Kitty came back, leading to another rally in meme stocks that could be over before it even gets started.

Read more »

value for money
Tech Stocks

3 Bargains I’d Snatch Up as They Approach 52-Week Lows

Despite their near-term weakness, these three bargain stocks are excellent buys at these levels.

Read more »