Video-sharing platform TikTok has been soaring in popularity this year. And in 2021, analysts are projecting that monthly active users will top 1.2 billion. The growth potential that TikTok possesses makes it a hot business to invest in. The problem is that TikTok isn’t publicly traded, and so it’s not easy to tap into that growth, at least, not directly. However, there is a way for Canadian investors to benefit from the company’s potential, and that’s by investing in e-commerce giant Shopify (TSX:SHOP)(NYSE:SHOP).
Shopify is partnering with TikTok
Earlier this year, Shopify announced that its merchants will now also be able to advertise their products on TikTok. Through the use of video ads, TikTok users can quickly and easily click on an ad and proceed to make a purchase through the Shopify platform.
The move is a great one for Shopify, as it unlocks another way for its merchants to reach more shoppers. And as TikTok’s user base continues to grow, there is the potential that more transactions will take place on Shopify’s platform.
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This year has already been a great one for Shopify — but can it continue?
Through the first nine months of 2020, Shopify has generated US$1.95 billion in sales, which is an 82% increase from the prior-year period. In 2019, the company’s top line was growing at a more modest rate of 47%, and the year before that its revenue rose by 59%.
Next year could still be a strong one for Shopify, as people will likely remain in their homes (and shopping online rather than in-store) for the bulk of 2021, as COVID-19 vaccines will take months to administer, and the pandemic will continue to be an issue for the foreseeable future. And throw in the boost Shopify’s platform gets from TikTok and more eyeballs on its merchants’ products, and it’s possible that next year could be another record-setting one for the company.
At a price tag of around $1,500, shares of Shopify are already fairly expensive, trading at an expensive 60 times sales. The stock is up 200% this year, and for it to replicate that performance next year will be a tall task. Maintaining this explosive level of sales growth will be crucial to ensure investors remain bullish on the stock and keep buying it.
Should you invest in Shopify?
There are factors that could certainly propel Shopify to new heights next year, including the TikTok partnership and online shopping trends remaining strong. However, the looming risk is that the markets could be ready to pop, especially since the Canadian and U.S. economies aren’t doing all that well with unemployment numbers high and stimulus/emergency benefit payments helping people stay afloat. Investors shouldn’t forget that during the last crash in March, Shopify shares fell below even $450. As quickly as the stock has risen, it can fall just as fast.
And so, while buying shares of Shopify can be a good way to invest in the TikTok hype, it may be wise to wait for the stock to fall in price before investing in the e-commerce company. Given Shopify’s sky-high valuation, investors would be taking a big chance on the stock buying it right now, even if the company’s growth continues to be strong next year.
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.