Can Shopify Stock Hit $1 Trillion?

Discover if Shopify stock can reach the $1 trillion milestone, as we analyze its growth potential, market trends, and future prospects.

| More on:
Shopping and e-commerce

Image source: Getty Images

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.

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.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool recommends and Meta Platforms. The Motley Fool has a disclosure policy.

More on Tech Stocks

Credit card, online shopping, retail
Tech Stocks

Should You Buy Lightspeed Stock After Its Q4 Earnings?

Despite its volatility, I expect Lightspeed to outperform in the long run due to its healthy growth prospects and cheaper…

Read more »

Shopping and e-commerce
Tech Stocks

Shopify Stock: Is $100 the Next Stop?

Shopify (TSX:SHOP) stock may be headed to the $100 level over the longer term if things fall into the right…

Read more »

Young woman sat at laptop by a window
Tech Stocks

Open Text’s Cloud Kingdom: A SaaS Stock for the Long Haul?

Here's why Open Text (TSX:OTEX) could indeed be a software-as-a-service stock that long-term investors may want to consider right now.

Read more »

clock time
Tech Stocks

Is Now the Right Time to Buy Shopify Stock?

Amid another dip, Shopify stock might be worth buying right now for investors who missed the post-earnings surge.

Read more »

Tech Stocks

Is BlackBerry Stock a Buy for June 2023?

Given its multiple growth drivers, I expect the uptrend in BlackBerry’s stock price to continue.

Read more »

Index funds
Tech Stocks

1 Canadian Tech Stock I’d Buy Before Shopify Stock

Shopify stock is still a good option, but this other tech stock could be even better, especially as it's up…

Read more »

Redwood trees stretch up to the sunlight.
Tech Stocks

3 Safer Stocks I Expect to Keep Growing for Years

Given their growth prospects, I expect the following three stocks to enjoy long-term growth, thus making them attractive buys.

Read more »

Businessman holding AI cloud
Tech Stocks

AI Hype Is Picking Up Steam: Should You Buy the Bounce?

AI stocks rallied when NVIDIA (NASDAQ:NVDA) beat earnings. Could Canadian AI stock Kinaxis Inc (TSX:KXS) be next?

Read more »