Every Canadian investor will have heard of Shopify (TSX: SHOP)(NYSE:SHOP). In fact, by this point, you may not even need to be an investor to have heard of the company. Among Canadian computer science students, Shopify has surpassed Google as the dream workplace. Indeed, Shopify has made a lasting impression on a wide range of individuals in the past few months. However, I believe we are still closer to the beginning of its growth story than the end.
e-commerce is still growing globally
Although we have seen a large influx of consumers shift to online retail this year, e-commerce penetration still has a ton of potential. In 2019, global e-commerce sales totalled US$3.53 trillion. By 2022, it is projected that online sales will grow to US$6.54 trillion.
Regarding penetration, we still have a long way to go in Canada. In April 2019, retail e-commerce sales accounted for 3.8% of all Canadian retail sales. In April 2020, e-commerce sales saw a peak of 11.4% of all retail sales in Canada. This pales in comparison to other countries. In the United Kingdom, e-commerce sales saw a peak of 32.8% of all retail sales. In fact, in the U.K., e-commerce has seen at least an 11% share of retail sales since October 2014.
Shopify is the leader among retail website builders among English-speaking countries, and it’s therefore not unreasonable to assume that the company will continue to grow as e-commerce penetration increases worldwide.
The company is set up for success
Shopify appears set for success from its foundation to its business model. The company is founder-led. CEO Tobi Lütke, who wrote the very first line of code that eventually became Shopify’s platform, takes employee approval very seriously.
He has stated previously that he has annual performance reviews with Shopify’s management team to discuss whether he is still the right person to lead the company. The moment team members stop believing in his vision, Tobi has stated that he will gladly step aside and turn the reins over to a more appropriate individual.
Shopify also has a very impressive history of increasing its recurring revenue stream. It is always great for growth companies to demand greater amounts of recurring revenue instead of relying on one-time payments. The former gives the company a reliable source of revenue for the foreseeable future.
In Q2 2014, Shopify reported $5.10 million of recurring revenue. In Q2 2020, the company’s recurring revenue totaled $57 million. Over the past six years, Shopify’s quarterly recurring revenue has never seen a decline.
Perhaps even more impressive is the number of merchants using its services. In Q4 2012, Shopify announced that its platform was being used by 41,000 merchants. As of Q4 2019, 1,000,000 merchants were using Shopify to power their online businesses. In addition to the small- and medium-sized businesses, Shopify Plus customers consist of Gymshark, Staples, and Heinz, a division of Kraft Heinz.
Foolish takeaway
Shopify stock has seen an incredible run over the past few years. However, I believe the company will continue to grow along with the global ecommerce market over the next few years. The company is well set up for success and should continue to beat the broader market for the foreseeable future.
