Did you know that there are companies in the world that are worth over $1 trillion?
There aren’t very many of them, but they do exist. They include Amazon (NASDAQ:AMZN), NVIDIA, and Google.
Apple is currently worth over $3 trillion!
Currently, there are no Canadian companies that are worth a trillion dollars or more. But there is one that some think could get there. Sharing some similarities with Amazon in its early days, it is on an impressive trajectory. And it’s already doing over $7 billion in revenue each and every year.
Shopify
Shopify (TSX:SHOP) is a Canadian technology company. It is involved in the e-commerce sub-sector of technology, a niche it shares with Amazon. Shopify is often compared to Amazon: there are similarities between the two companies, but there are differences, too. Amazon is best known for operating a website that sells products directly. It holds much of the inventory that is sold on its site. Shopify, however, sells a website and payments platform for companies that sell their own inventory. So, it does not have as many costs as Amazon, but it doesn’t have the benefit of a “one-stop shop.” Shopify vendors have to come up with their own website traffic.
How much growth it would need
Currently, Shopify is doing $7.9 billion in annual revenue. Amazon is doing US$524 billion, which is about $696 billion. Shopify would need to grow its revenue 8,700% to hit Amazon’s current level. Its revenue growth rate is currently 25%. It takes about 21 years of 25% compounded growth to hit 8,700% cumulative growth. So, it will take a very long time for Shopify to hit Amazon’s revenue level.
As for earnings, that’s a different question. Amazon has razor-thin margins, because it holds a vast amount of inventory. Shopify’s asset-light business model should theoretically give it higher margins. It doesn’t have as many costs eating up its returns. Historically, this hasn’t been observed: Shopify was only briefly profitable in 2020 and 2021, and it has lost money for most of its history. However, the theoretical case for it becoming more profitable than Amazon someday is fairly sound. So, perhaps it could catch up with Amazon’s market capitalization in less than the 20 years it would take to catch up with its revenue.
Can it achieve this?
Having established that Shopify could theoretically catch up with Amazon and join the $1 trillion club, it’s time to answer the key question:
Will it?
This is a very difficult question to answer, but I feel confident in saying that if SHOP will someday become a trillion-dollar company, it will be a very long time into the future. 8,700% revenue growth doesn’t happen overnight. Shopify’s low-cost business model notwithstanding, we’d expect Shopify to get at least somewhere near the ballpark of Amazon’s sales level before it’s worth $1 trillion. Perhaps investors will bet on Shopify’s growth and send it to $1 trillion sooner than I anticipate. But if the stock price follows the company’s fundamentals, it will take decades.
