For better or for worse, Shopify (TSX:SHOP)(NYSE:SHOP) is one of the most popular stocks in the market. From its IPO to mid-November 2021, the stock had gained more than 6,000%! That represents a CAGR of more than 88%.
Throughout that period, Shopify made headlines on numerous occasions for its amazing market outperformance. Notably, the stock ranked in first place in the 2020 edition of the TSX30. This is a list of the 30 best-performing TSX stocks over a running three-year period. Shopify’s performance at that time was so strong that it nearly totaled the combined performance of the next three stocks combined!
However, since hitting those all-time highs, Shopify stock has fallen significantly. It currently trades about 80% lower than its all-time high. With interest rates continuing to rise, growth stocks could continue to suffer. In addition, inflation seems to be hurting consumers in a big way. With that in mind, where is Shopify stock going? In this article, I’ll discuss where this stock could be in three years.
Growth within the e-commerce industry
Shopify’s saving grace will be the growth of the e-commerce industry. It has managed to establish a significant leadership position in that space. Currently, Shopify and Amazon appear to be dominating that space, and it doesn’t seem like either company will let up anytime soon. If Shopify can keep this position within its industry, it should be able to grow alongside the e-commerce industry.
Currently, e-commerce sales represent nearly 14% of the American retail industry. However, this figure changes quite a bit depending on which region of the world you’re looking at. For example, in the United Kingdom, e-commerce sales account for nearly a third of all retail sales. On the other end of the spectrum, e-commerce sales only represent less than 5% of all retail sales in Africa.
The COVID-19 pandemic has shown that consumers are willing to shop online. This has caused many merchants around the world to begin optimizing their online sales platforms. As merchants continue to shift towards online marketplaces, consumers should follow. This creates opportunities for Shopify. For example, in 2021, Netflix announced that it would be opening an online store and that it had chosen Shopify as its e-commerce provider.
Shopify as a company
In terms of its business, Shopify is very attractive. It relies on recurring payments from its customers. This provides the company with a stable and predictable source of revenue. In addition, customers tend to purchase more expensive plans as they achieve success with their marketplaces. In Shopify’s latest earnings presentation, the company showed that annual cohorts are continuing to increase their annual generated revenue. Finally, Shopify’s platform is very sticky. This means that merchants are unlikely to leave Shopify for another e-commerce provider.
Shopify is also led by its founder-CEO. In fact, Tobi Lütke wrote the very first line of code in what would later become Shopify’s platform. Historically, founder-led companies tend to outperform companies led by non-founders. This is because founder-led companies tend to keep the startup mindset, allowing them to keep pushing forward through the difficult times.
Foolish takeaway
Shopify is a tremendous company. It holds a leading position in the emerging e-commerce industry. The company could continue to see difficulties in the short term, as interest rates continue to rise and consumer spending decreases. However, it could grow alongside the rapidly emerging e-commerce industry. I think Shopify could rebound nicely over the next three years.
