3 Reasons Why Shopify Will Be the First TSX Company to Be Valued at $1 Trillion!

Here’s why Shopify might be the first TSX company to be valued at a trillion dollars!

| More on:
Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept

Image source: Getty Images

In the last three years, a few tech giants south of the border have surged beyond a market cap of $1 trillion. Today, Apple is valued at a market cap of US$2.1 trillion, followed by Microsoft at US$1.8 trillion, Amazon at US$1.6 trillion, and Alphabet at US$1.4 trillion.

Comparatively, Shopify (TSX:SHOP)(NYSE:SHOP) which is Canada’s largest company in terms of market cap is valued at US$145 billion. There is a good chance for the e-commerce heavyweight to be the first Canadian company to touch the trillion-dollar valuation. Here’s why.

Shopify continues to grow at a rapid pace

While several industries were hit hard amid COVID-19, the pandemic served as a tailwind for e-commerce companies including Shopify. The shift to online shopping accelerated as retail stores were closed, allowing Shopify to grow revenue and earnings at a rapid pace.

In Q4, Shopify’s sales were up 94% year over year at $978 million. Comparatively, adjusted income almost tripled to $199 million or $1.58 per share. Comparatively, Wall Street forecast the company to post revenue of $910 million and adjusted earnings of $1.25 in the December quarter.

In 2020, sales were up 86% at $2.93 billion while earnings soared by a massive 1,227% to $3.98.

Shopify is firing on all cylinders

Shopify’s subscription sales rose 53% year over year to $279 million as monthly recurring revenue soared to $83 million. Its merchant solutions segment performed even better as revenue was up 117% at $698 million.

The company’s gross merchandise volume (GMV) almost doubled to $41 billion in Q4. For 2020, the company’s GMV doubled as well to $119.6 billion.

Shopify ended 2020 with a merchant base of 1.7 million. Now, over 10,000 merchants are Shopify Plus merchants that pay a maximum subscription fee of $2,000/month. The company’s shipping sales rose by 52% in Q4, which means the merchants using the shipping network, fulfillment network and shipping solutions have grown at a rapid pace.

Part of an expanding addressable market

During its earnings call, Shopify claimed its total addressable market expanded from $70 billion to $130 billion. This rise in the forecast was backed by the number of global businesses that have shifted toward e-commerce. Shopify is also capturing $2,200 per merchant per year, up from the prior-year figure of $1,600.

The Foolish takeaway

Shopify has taken advantage of its high stock valuation and raised $1.5 billion recently, which means the company now has close to $8 billion of cash on its balance sheet and total debt of just $913 million.

Shopify’s improving liquidity gives it enough room to focus on acquisitions as well as to allocate capital for product development and improving the overall customer experience.

Shopify stock is trading at a steep forward price to sales multiple of 35.6. Its price-to-earnings ratio of 295 is also sky-high. However, the company’s healthy balance sheet, secular tailwinds, and growing addressable market make it a top stock to place your bets on.

Analysts tracking Shopify have a 12-month average target price of $1,453 for the stock, indicating its trading at a discount of 24% to estimates.

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.

More on Tech Stocks

Lady holding mobile phone and shopping bags
Tech Stocks

The Ultimate Growth Stock to Buy With $1,000 Right Now 

Here's why Shopify (TSX:SHOP) could be the ultimate growth stock long-term investors want to consider at this current point in…

Read more »

Hands shaking over a business deal
Tech Stocks

Meet the Growth Stock I Can’t Stop Buying This Year

Topicus stock (TSXV:TOI) has been a top growth stock this year, with strong finances, a stable acquisition strategy, and more…

Read more »

grow dividends
Tech Stocks

Celestica Stock Is up 44% Since Earnings: What Investors Need to Know

Celestica continues to benefit from strong demand and production efficiencies, yet the stock remains undervalued.

Read more »

healthcare pharma
Tech Stocks

What’s Going on With WELL Health Stock?

WELL stock (TSX:WELL) made strong moves once again, with record earnings and even higher guidance for 2024.

Read more »

A shopper makes purchases from an online store.
Tech Stocks

3 Reasons to Buy Shopify Stock Right Now

Based on these three top reasons, Shopify (TSX:SHOP) stock appears undervalued to buy right now.

Read more »

stock research, analyze data
Tech Stocks

What’s Going on With Lightspeed Stock?

Lightspeed (TSX:LSPD) stock has been climbing once more but is still far from its three-digit share price. So, is it…

Read more »

Target. Stand out from the crowd
Tech Stocks

Missed Out on Nvidia Stock (Again)? Buy Descartes Instead

Nvidia (NASDAQ:NVDA) stock soared yet again after earnings, passing the four-digit mark. But with shares so high, maybe this option…

Read more »

Group of people network together with connected devices
Tech Stocks

This Is the Best Overlooked AI Stock on the TSX Today

This AI stock has been a top growing in the last while, but remains overlooked despite its strong portfolio and…

Read more »