For better or for worse, Shopify (TSX:SHOP) is consistently one of the most talked about stocks on the TSX. In 2020, this growth stock was flying high, and investors were very pleased with having this stock in their portfolios. If you don’t remember, it was around that time that Shopify managed to become the largest company in Canada, by market cap.
However, in 2022, it seemed like Shopify was constantly making headlines for the wrong reasons. The company announced it would be laying off more than 10% of its workforce. As a result, Shopify’s stock dropped more than 80%.
With that said, it would be normal for investors to wonder whether buying shares in Shopify stock could be a good idea today. I firmly believe that it could be a great financial move to do so. In this article, I’ll discuss three reasons to buy Shopify stock.
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Shopify is a global leader in an emerging industry
First and foremost, Shopify is a global leader in the rapidly growing e-commerce industry. In 2022, the size of the global e-commerce industry was quoted as being $5.7 trillion. In 2021, it was estimated that online sales represented about 18% of all retail consumer sales. Forecasts then had the industry growing to represent 22% of all global retail sales by 2024.
According to Shopify’s most recent earnings presentation, the company holds about a 10% share of the massive American e-commerce industry. That makes it the second largest player in that industry, only behind Amazon. If Shopify can maintain its market share over the coming years, its revenue should continue growing alongside the global e-commerce industry. However, if Shopify can increase that market share even a little bit, then investors could be in for massive returns.
The company’s financials remain impressive
In the second quarter (Q2) of 2023, Shopify reported US$1.7 billion in quarterly revenue. That represents an increase of 31% year over year. In my opinion, that’s the most important number that investors should focus on, since it’s a direct measure of how Shopify’s business is growing. If you’re interested in a larger sample size, then you could look at its total revenue for 2022. That year, Shopify reported US$5.6 billion in revenue, which represents a 21% growth in its revenue from the previous year.
What I find very impressive here is that much of Shopify’s revenue comes from recurring sources. Over the past five years, Shopify’s monthly recurring revenue has grown at a compound annual growth rate of 32%. That’s a very hard feat to accomplish, so investors should be very pleased with it.
It is founder led
Finally, Shopify remains founder led. It’s been shown previously that founder-led companies tend to outperform companies led by non-founders. Simply put, this is because founder-led companies have a lot of skin in the game, and the company’s management team will be more involved in the day-to-day operations, ensuring that the company they helped create can fulfill its potential.
In addition, Tobi Lütke, Shopify’s chief executive officer and the individual who wrote the very first line of code in what would later become Shopify’s platform, holds a large ownership share in the company (6.2%). With that said, his interests should align with those of the shareholders, since he’s set to benefit if Shopify performs well.
