There are plenty of arguments why you should buy Shopify (TSX: SHOP)(NYSE:SHOP) stock.
Recent examples from Fool contributors include strong earnings momentum, excellent performance since its IPO, the future of e-commerce, etc.; the list is long.
However, there’s one thing about Shopify and its business model that’s not often mentioned by investment pundits that I believe will keep its stock moving higher in the months and years ahead.
The gig economy
In my most recent article about Shopify in December, I’d suggested that it needed to do three things in 2019: make money, gain global reach, and get bigger customers. While I still believe each of these is necessary to go from large cap to mega-cap, I think the gig economy is the company’s ace in the hole.
Here’s why.
Recently, two economists who published a paper in 2016 concluding that there had been a considerable increase in the number of freelance jobs since 2005 have downplayed the extent to which the gig economy is taking over from traditional work. In their original paper, they suggested that as many as 16% of the American workforce was pursuing alternative work, up from 11% in 2005. They’ve since said the growth is more like 1% or 2%, splashing cold water on the gig economy theory.
However, as anyone who writes for the Fool knows, the gig economy, freelancing, alternative work, whatever you want to call it, is alive and well.
There are plenty of other studies from legitimate sources that show the gig economy is big and getting bigger.
According to Forbes contributor Diane Mulcahy, who writes about independent work and the gig economy, 56.7 million Americans or 35% of the workforce are independent workers, up significantly from 2014. This particular stat is from a 2018 survey jointly sponsored by The Freelancers Union and Upwork, a company that brings freelancers together with companies who need work done on a project.
Even the IRS has found a significant increase in secondary and supplemental work.
Why does this matter?
Shopify was purposely set up to enable people with a product or service to sell their wares over the internet using its platform to take care of all the difficult tasks of running an e-commerce business — side gig or otherwise — like managing inventory, payment processing, shipping, social media, etc.
While some people choose to work part-time with a brick-and-mortar retailer whose clothes they like, many others can now decide to do something online, to meet a financial or other unmet need their full-time job doesn’t provide.
The demand for Shopify’s services is only going to increase over the next five to 10 years, as individuals seek greater independence from the traditional workplace.
Yes, Shopify Plus — the platform for larger businesses — generated 24% of the company’s subscription revenue as of this past September and will likely grow its share in the years ahead, but the small independent player is the company’s foundation. Without it, Shopify never could have created Shopify Plus.
The gig economy is alive and well. As more of the workforce transitions to independent work, it will fuel the rise in Shopify stock.
