While there are a few companies valued at a market cap of more than US$1 trillion in the U.S., the largest TSX company is Royal Bank of Canada, which trades at a market cap of around $180 billion.
However, back in 2021, Shopify (TSX:SHOP) was the largest TSX company valued at $275 billion. Currently, down 70% from all-time highs, let’s see if Shopify stock has the potential to be the first Canadian company to be valued at $1 trillion.
The bull case for Shopify stock
Shopify increased its sales at an accelerated pace, as it provided online sellers to set up a digital presence by offering them a suite of e-commerce products and services. Now, small and medium businesses could easily set up an online store, process payments, and even launch marketing campaigns on Shopify.
Its top-line growth accelerated amid COVID-19, as lockdown restrictions forced retailers to create an online platform. In 2020, Shopify also launched a Facebook Shops Channel, where merchants could easily customize storefronts on Meta’s social media platforms. These storefronts were integrated with Shopify allowing merchants to manage inventories and customer orders easily.
In recent quarters, Shopify has spent significant resources to build a network of fulfillment centres, streamlining the supply chain of its merchant base in the process. Due to its widening portfolio of products and services, Shopify has managed to onboard more than two million merchants on its platform.
Shopify increased its gross merchandise volume, or GMV, by 16% year over year in 2022, despite a sluggish macro economy. Comparatively, its GMV was up an impressive 47% in 2021.
The Canadian tech giant accounted for 10% of all e-commerce sales in the U.S. last year, processing cross-border transactions worth US$28 billion. It is now the second-largest e-commerce platform in the U.S. after Amazon (NASDAQ:AMZN).
The bear case for Shopify stock
There is a good chance for consumer shopping trends to shift towards in-store spending in a post-pandemic world. Further, if global economies enter a recession, consumer spending on discretionary goods will move lower in the near term.
The threat of Amazon continues to loom large over Shopify and its peers. In 2021, Amazon acquired Selz, a direct competitor to Shopify. Further, Amazon also launched a product last year that easily allows third-party merchants to merge with the Prime ecosystem.
A slowdown in sales and macro headwinds meant Shopify ended 2022 with a net loss of US$822 million or 15% of sales. In 2021, it posted a net profit of US$269 million, indicating a margin of 6%. SHOP stock is currently priced at nine times sales, which is expensive for a loss-making company.
The Foolish takeaway
According to a report from ecommerceDB, the online market in the U.S. is forecast to grow by 11.5% annually through 2027. Shopify ended 2022 with sales of $7.5 billion. So, if the company can increase sales by 19% annually in the next eight years, its revenue would be closer to $30 billion in 2030.
For Shopify to command a $1 trillion valuation, it would then trade at 33 times sales, which is very expensive. Even if Shopify can double its growth rates and end 2030 with $60 billion in sales, the stock would be priced at a steep multiple of 16.6 times.
While Shopify is a compelling growth stock, it is unlikely for the company to be valued at $1 trillion by 2030.
