Shopify’s Stock: Analyzing Its Journey and Future Prospects
Shopify‘s (NYSE: SHOP) stock reached a peak of $169.06 on November 19, 2021. Investors who bought in at their initial public offering (IPO) on May 21, 2015, have seen an astonishing gain of 9,845%, turning a $1,000 investment into $99,447 over six and a half years. During the pandemic, Shopify attracted many investors due to its rapid growth and benefited from the surge in meme stocks.
However, in the three years after its peak, Shopify’s stock price fell by nearly 30%. Factors like the tapering off of pandemic growth, inflation lowering consumer spending, and rising interest rates affected its stock. Now, we examine whether this dip is a potential buying opportunity and if Shopify can rise again over the next three years.
Shopify’s Performance Over Recent Years
Shopify’s platform enables merchants to set up online stores quickly, manage marketing, process payments, and fulfill orders. This flexibility appeals particularly to sellers wanting their own online presence, avoiding integration with a giant like Amazon.
Initially, Shopify’s growth was propelled by smaller business owners, especially those using social media networks. Recently, it has also attracted larger companies through its Shopify Plus service, providing support for growing businesses, alongside its Shop app and Shopify Capital for financing. The Shop Pay platform facilitates these digital payments.
In 2022, Shopify’s growth metrics, including gross merchandise volume (GMV), gross payment volume (GPV), and total revenue, saw a slowdown due to the end of pandemic effects, worsening inflation, and changes in Apple’s privacy policies affecting retailers. However, by 2023, these metrics rebounded significantly, boosted by a more stable macro environment and new advertising tools introduced to meet these challenges.
|
Metric |
2019 |
2020 |
2021 |
2022 |
2023 |
|---|---|---|---|---|---|
|
GMV Growth |
49% |
96% |
47% |
12% |
20% |
|
GPV Growth |
55% |
110% |
59% |
24% |
29% |
|
Revenue Growth |
47% |
86% |
57% |
21% |
26% |
Data source: Shopify. Chart by author.
In the first nine months of 2024, Shopify’s GMV and revenue rose by 23% year over year. The company has stopped revealing its GPV growth quarterly since the third quarter. Analysts project total revenue will increase by 25%, reaching $8.8 billion for the year.
After a notable net loss in 2022, Shopify achieved profitability again in 2023 based on generally accepted accounting principles (GAAP). This turnaround followed the divestment of its logistics division, workforce reductions, and cost-saving measures. Expectations point to GAAP net income rising nearly sevenfold to $1.3 billion this year.
Shopify’s Outlook for the Next Three Years
Over the period from 2024 to 2026, analysts anticipate Shopify’s revenue will grow at a compound annual growth rate (CAGR) of 22%, while its GAAP earnings per share (EPS) could see a CAGR of 30%. This growth is expected to come from enhancements within its ecosystem, including Shop Pay, the Shop Cash rewards initiative, and the increasing adoption of new generative artificial intelligence tools like Magic and Sidekick. Shopify Plus now represents 31% of the monthly recurring revenue (MRR) in the latest quarter, signaling its ability to attract more businesses to its subscriptions.
The company may also expand its MRR through additional point-of-sale hardware, credit and expense management tools, and cross-border e-commerce solutions. Furthermore, integrating Amazon’s “Buy with Prime” buttons offers Shopify shops a competitive advantage, allowing Prime members to purchase with ease and access fast delivery through Amazon.
Despite its promising outlook, Shopify’s stock trades at 13 times next year’s sales. This high valuation may be a product of current AI stock trends and hopes for lower interest rates, potentially limiting immediate price increase opportunities.
If Shopify aligns with Wall Street’s revenue growth expectations, estimates suggest a CAGR of 20% from 2026 to 2028, possibly leading to a stock price of around $160 by 2027. While that represents a reasonable three-year return, it might not meet the hopes of investors who are looking for the explosive gains seen from 2015 to 2021.
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*Stock Advisor returns as of December 30, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Leo Sun has investments in Amazon and Apple. The Motley Fool holds positions in and recommends Amazon, Apple, and Shopify. For more information, see the disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
