Shares of Canadian e-commerce company Shopify (TSX:SHOP) are trading 20% higher in early market trading at the time of writing, following its strong third-quarter (Q3) results. While the TSX tech stock is up 50% year to date, it still trades 35% below all-time highs.
With a market cap of $162 billion, SHOP stock is among the largest companies in Canada. Although Shopify has trailed the broader markets since touching a record high in 2021, it has returned over 3,000% to shareholders after going public in 2015.
Let’s see why I’m bullish on Shopify stock and expect it to trade at record levels by the end of 2025.
Strong revenue growth
Despite its massive size, Shopify continues to grow at an enviable pace. In Q3 of 2024, it reported revenue of US$2.16 billion, up 26% year over year, surpassing estimates of US$2.11 billion. This was the sixth consecutive quarter in which Shopify has reported revenue growth of at least 25%.
The e-commerce giant reported adjusted earnings of US$0.64 per share or $364 million, crushing estimates of US$0.27 per share. Notably, its net income almost doubled from US$173 million in the year-ago period.
Here are a few key metrics for Shopify in Q3:
- Its gross merchandise volume rose 24% to US$69.7 billion
- Merchant solutions revenue grew by 26.4% to US$1.55 billion
- Its gross profits rose 24.1% as the margin narrowed to 51.7% from 52.6% last year
- Its free cash flow stood at US$421 million, up from US$276 million last year
Shopify remains the go-to for merchants looking to establish and enhance their online presence. With revenue growth of 26% and a free cash flow margin of 19%, Shopify remains a top investment option in November 2024.
Shopify stock: An expanding addressable market
Over the years, Shopify has expanded its suite of products and solutions. It has simplified the process of running a digital store and offers a slew of artificial intelligence features to automate tasks and generate on-brand content.
The Shop app can personalize mobile shopping experiences for users, resulting in a wider brand reach and strong engagement rates. Moreover, its integrated payment processing solution is powered by a robust checkout process.
Last year, Shopify estimated its total addressable market at US$849 billion, providing significant room to grow its top line, given its reported sales of US$7 billion in 2023.
A focus on earnings expansion
In recent quarters, Shopify has focused on improving profit margins amid slower revenue growth. In the last 12 months, it has reported a free cash flow of US$1.5 billion, up from US$905 million in 2023 and US$383 million in 2020.
Shopify is a high-flying tech stock generating significant free cash flow, which can be used to strengthen the balance sheet and target accretive acquisitions.
Analysts tracking Shopify expect adjusted earnings to expand from US$1 per share in 2024 to US$1.85 per share in 2025 and to touch US$7.5 in 2028. If SHOP stock trades at 40 times forward earnings, it will trade at $300 in December 2027, up from $154 right now.
