Shopify Stock: Should You Buy, Sell or Hold?

Stocks part of the e-commerce industry usually have long-term growth potential and that was seen during the pandemic where online shopping spiked up all over the world.

Shopify (TSX:SHOP)(NYSE:SHOP), the e-commerce sweetheart of 2020, is one such growth stock. Shopify investors have only become richer over the years as the stock has grown exponentially despite being through some unfriendly economic conditions.

Shopify shares have also grown by 56% over the past 12 months and are up over 6,000% since its initial public offering (IPO) in 2015.

Huge TAM opportunity in the e-commerce space

As the pandemic bought the entire world to a halt, e-commerce platforms took the opportunity to amplify their earnings. As per Digital Commerce 360, online spending of U.S. residents alone had skyrocketed by 44% in 2020. Also, Statista reported the global retail e-commerce sales have surpassed $4 trillion in 2020 and might surpass $5.4 million by next year.

Shopify has exploited the surge in demand pretty well by democratizing commerce. Its business model is perfect for the global push toward digitalization. As more consumers shop online the e-commerce market will only grow and no market crash can change that trend. This shift in preference indicates there is a huge TAM opportunity in the e-commerce space.

Shopify continues to deliver

Shopify has been a strong performer even before the pandemic had stimulated e-commerce sales. For example, in 2015, 2016, 2017, 2018, and 2019, Shopify’s revenues have grown by 95%, 90%, 73%, 59%, and 47% respectively. And in 2020 despite facing a global economic recession, it managed revenue growth of 86%.

Although Shopify had previously suffered a net loss of more than US$31 million in the Q1 of 2020, in this year’s first quarter it successfully achieved an adjusted net income of US$245 million. It also boasted a 110% surge in total revenue for the three months on a year-over-year basis. However, the management has claimed to have an unrealized gain from their equity investment in Affirm resulting from its IPO in 2021.

Additionally, both its software subscriptions and merchant solutions (e.g., payment processing and shipping) segments have grown at an impressive pace. Last year the subscription sales had jumped by 41%, while the merchant solutions saw a surge of 116% as several merchants increased spending on solutions such as Shopify Payments, Shopify Shipping, and Shopify Capital.

Excellent business strategy

Shopify’s merchant-first philosophy helped it to maintain its momentum with the increasing digital transformation in the e-commerce space. Because of its resilience, it could quickly adapt to the changing pandemic conditions and support the sellers in a difficult phase by helping them launch online operations overnight.

Shopify is also known for offering merchant services like order processing, payment processing, discounted shipping, and financing. Moreover, unlike other e-commerce giants, Shopify allows its sellers to build digital storefronts, help them to integrate with social media platforms, and thereby develop long-lasting relationships with the buyers.

Shopify had acquired a robot-powered network of warehouses in the U.S. That has helped the company simplify its delivery and supply chain management services for sellers which in turn has improved the overall buying experience.

The above-mentioned points justify Shopify’s status as a growth stock that should keep generating outsized gains for its investors. It can help you optimize your portfolio by providing maximum resilience and growth in the coming period of economic depressions and therefore is a perfect fit for most kinds of portfolios.

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.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Shopify. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify.

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