It is no doubt that Shopify (TSX:SHOP)(NYSE:SHOP) has been on an impressive run over the past year. Many investors are hesitant to buy shares of companies that have gone on amazing runs up and instead look to add to companies trading far from recent highs. In this article, I will give two reasons to keep buying shares of Shopify at these levels.
E-commerce is a rapidly growing industry
After the mainstream success of companies such as Amazon, Alibaba, and Shopify, many would be surprised to discover that e-commerce is still very much in its infancy. In 2019, U.S. e-commerce sales totaled $601 billion compared to the $3,763 billion of total retail sales. This accounts for just under 16% of all retail sales in the United States for that year.
In terms of growth, e-commerce has shown very impressive numbers. In 2009, e-commerce totaled 5.6% of all retail sales in the United States. Taking the 2019 numbers, we can see a 2.6 times increase in market share over the past decade. With the COVID-19 pandemic causing a shift to online shopping, we may see an acceleration in consumer adoption.
This trend in increasing penetration of e-commerce in retail sales can be observed in other countries. In Canada, e-commerce accounted for 4.5% of all retail sales in 2013. By 2016, it had grown to 6.5% and is expected to reach 10% by 2020 (estimates not accounting for the effects of the pandemic). In the United Kingdom, internet sales accounted for 2.8% of retail sales in November 2006. In November 2019, its share of retail sales had grown to 21.5%.
Retail sales have skyrocketed since February in the United Kingdom, and this is a trend that should be expected in many other developed countries. If even half of those new adopters maintain the habit, then the e-commerce industry should be in exceptional condition moving forward.
Shopify is quickly gaining market share
Not only is the e-commerce industry growing at a rapid clip, but Shopify is quickly gaining market share among its competitors. Excluding Shopify’s enterprise-grade plan, the company claims 2.76% of the world’s 1,000,000 most visited websites.
Among other online store builders, Shopify is by far the fastest growing. In 2014, Shopify usage accounted for 0.1% of all content-management systems. By 2019, that number had grown to 1.7%, as staggering 17 times in usage over the past five years. No other company in this space has shown growth rates anywhere close to this.
Shopify is also the most searched website builder, as used by e-commerce merchants. When examining the total number of Google searches for website builder companies, Shopify accounted for 19% in 2015. By July 2020, its share in total searches had grown to 61%. This indicates that an increasing number of online merchants are turning to Shopify for its e-commerce solutions.
When looking at the company’s popularity in a geographic sense, Shopify is the top choice in 75 countries worldwide, including all primarily English-speaking countries. This speaks to its amazing grasp within the industry.
What is causing the increased attention that Shopify has been getting? It is no secret that the company continues to innovate as it grows. CEO Tobi Lütke has stated previously that the plan right now is to keep re-investing into the company and gain as much market share as possible.
With offerings such as Shopify Capital (the company’s solution to loans for small- and medium-sized businesses, as banks are hesitant to provide capital during the pandemic), innovations like enabling cryptocurrency payments, and partnerships with the likes of Amazon, Facebook, and Walmart, you can be assured that Shopify can only get bigger in the future.
Foolish takeaway
Shopify is now a leading company in Canada. Many investors may think that they have missed the boat when it comes to this company, but the e-commerce industry still has a long way to go before it lays claim to a significant portion of total retail sales. Shopify is also gaining an incredible amount of market share at impressive rates. Because of these reasons, I believe it is still reasonable to purchase shares in this company.
