Better Buy: Shopify vs. Constellation Software

Constellation Software (TSX:CSU) may be a better bet in 2023.

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Would you rather have an innovative tech company like Shopify (TSX:SHOP) or a boring enterprise software conglomerate like Constellation Software (TSX:CSU) in your portfolio? The answer to that question probably depends on the growth rate and level of risk you’re comfortable with. 

With that in mind, here’s a closer look at the risk profile and growth outlook for two of the most well-known, blue-chip tech stocks in Canada.

Growth outlook

I expect Shopify’s growth to decelerate while Constellation’s growth accelerates in the near term. 

Shopify pulled forward several years of hyper growth during the pandemic. That phase is now over as reflected in their recent growth numbers. In the fourth quarter of 2022, Shopify delivered revenue growth of 26% — significantly lower than the previous year. With consumer confidence declining and a potential recession on the horizon, Shopify could see slower growth in the months ahead. 

Meanwhile, Constellation has ramped up its key growth engine: acquisitions. The company has deployed $1.05 billion in acquisitions in the first quarter of 2023. That’s more than the first half of last year. The company’s targets are getting larger too. Six recent deals were worth over $20 million each. Constellation saw 30% growth in revenue and 65% growth in net income last year.  


Shopify’s model hinges on consumers. The average online shopper has been hard hit by inflation and rising interest rates last year. This year families could face a recession or potential job losses. Put simply, the risks to Shopify’s growth are immense. 

Meanwhile, Constellation’s model hinges on sticky, mission critical software subscriptions. Companies may lay off staff in a recession, but are somewhat likely to boost their software spending, because it adds efficiency. Also, at least half of Constellation’s customer base is government agencies which makes the company’s portfolio somewhat recession resistant. 


There’s a huge gap in valuation between Shopify and Constellation. Shopify trades at 9.4 times forward revenue, which is similar to most consumer software firms. However, it is cash flow negative, which makes it difficult to apply profit-based valuation metrics. 

In contrast, Constellation is profitable and cash flow positive. Last year, the company generated US$512 million in net income — US$24.18 per share. That means the stock is trading at a price-to-earnings ratio of 77. Constellation also generated US$853 million in free cash flow (FCF) last year, which means the stock trades at 46.6 times FCF per share. 

Constellation isn’t cheap, but it’s certainly cheaper than Shopify based on these metrics. 

Bottom line

Whether you’re a growth investor or a conservative risk-averse investor, Constellation looks significantly more attractive than Shopify right now. Keep an eye on this opportunity. 

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.

Fool contributor Vishesh Raisinghani has positions in Constellation Software and Shopify. The Motley Fool has positions in and recommends Shopify. The Motley Fool recommends Constellation Software. The Motley Fool has a disclosure policy.

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