When the company went public in 2015, shares were priced at $35. Today, they’re above $1,400. That means $25,000 would have become $1 million in just five years.
Everyone is looking for opportunities like this. The challenge is that you need foresight. You must see what others don’t see long before it becomes obvious.
Can you still make $1 million with Shopify stock? Or do you need to look elsewhere?
This run isn’t finished
Shopify has a business model that will continue to pay off for at least another decade. The secret is that is operates a platform business with clear and rapid traction.
“At first glance, Shopify isn’t an Amazon competitor at all: after all, there is nothing to buy on Shopify.com. And yet, there were 218 million people that bought products from Shopify without even knowing the company existed,” wrote Stratechery founder Ben Thompson. “The difference is that Shopify is a platform: instead of interfacing with customers directly, 820,000 3rd-party merchants sit on top of Shopify and are responsible for acquiring all of those customers on their own.”
This really is a giant feat. Hundreds of millions of people have purchased something through Shopify, yet very few of those shoppers have even heard of the company. That’s because it’s mastered the art of platforming.
Microsoft (NASDAQ:MSFT) is perhaps the most famous platform business. When it launched its Windows operating system, it didn’t try to create every app that was built on top of it. To be sure, Microsoft shipped some basic tools like Word, Excel, and Internet Explorer, but the vast majority of applications were built by third parties.
Shopify took the same approach with e-commerce. While Amazon completely controls the selling experience, Shopify allows any developer in the world to create new tools and capabilities. It’s a crowdsourced platform.
As we’ll see, this platform approach will continue to generate big gains.
Should you bet on Shopify stock?
When a platform business takes off, it’s always a winner-takes-all game. Microsoft, for example, controlled 89% of the market at its peak. It still holds a 77% share.
This is due to positive feedback loops. The more developers Shopify has, the better its platform becomes. This attracts more customers, which in turn increases the value of developing on the platform. If you can get this feedback loop started, the sky is the limit.
Despite immense growth, Shopify is still in the early days of platforming e-commerce. It controls a tiny share of the overall market. This business looks like it will eventually be worth $1 trillion or more. It’s simply the law of platforms with momentum.
To be sure, its best days of growth are behind it. SHOP stock now trades at a ridiculous valuation of 61 times sales.
The company has proven that it’s worth a steep premium, but if you want to turn $25,000 into $1 million, you’ll need to discover the next Shopify. To do this, you need to look at stocks with much less exposure.
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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.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. David Gardner owns shares of Amazon. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Amazon, Microsoft, Shopify, and Shopify and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. Fool contributor Ryan Vanzo has no position in any stocks mentioned.