Will Shopify be a trillion dollar stock by 2040?
Shopify ( STORE -2.57% ) benefits from the continued transition of businesses to an online presence. The trend is accelerating and the cloud-based e-commerce platform is on a hyper-growth trajectory that not even the pandemic could disrupt.
While the rate of growth may have slowed after last year’s meteoric surge as stranded individuals launched their own startups at an all-time high, the expansion is returning to a more normalized and long-lasting pace. term.
Founded in 2004, Shopify went public 11 years later. Since then, the share price has sometimes experienced some volatility. But in the six years that it’s been a public company, investors have been sitting on some net gains from those early days when it started trading at just $ 17 a share.
At around $ 1,470 a share today, Shopify is a $ 182 billion company that is valued at 43 times this year’s sales, or what Wall Street says makes it fully valued at that level.
But beyond the short-term noise, let’s see if Shopify can still generate additional multibagger earnings, and if it has the potential to become a trillion dollar stock over the next two decades.
On a growth trajectory of its own
Shopify does not provide specific advice, but maintains that its growth will continue in a more or less standardized fashion, albeit at a slower pace than set in 2020.
He estimates that live shopping events will generate $ 25 billion by 2023 in the United States, because Amazon (AMZN -1.38% ) and Meta (FB -1.14% ) test live selling platforms, and click-and-collect commerce will hit $ 64 billion this year alone. Globally, approximately $ 2 trillion is spent annually in the top 100 markets. That’s a lot of opportunity for Shopify to tap into, and analysts agree.
Incomes are expected to grow at a compound rate of over 38% per year over the next five years, from $ 2.9 billion to nearly $ 14.6 billion by the middle of the decade. Analysts might underestimate it a bit, as third-quarter revenue rose 46% to $ 1.12 billion, and the fourth quarter is still expected to contribute the most to revenue for the year.
Shopify’s eCommerce retail activity was above its level two years ago and continues to follow hot trends.
In the third quarter, Shopify showcased its new Shopify marketplaces to improve cross-border commerce. It also added TikTok Shopping, which allows consumers to organically discover products through shopping tabs directly linked to a merchant’s online store. Shopify even launched a no-cost money management platform called Shopify Balance.
Shopify’s path to a trillion dollar market cap
Given the trajectory Wall Street is predicting, if the current price / sales (P / S) of the ecommerce platform makes it fully valued, then in just five years it will be on track to a market of. trillion dollars. cap.
Achieving those goals would give it a market cap of $ 630 billion. If its growth rate were halved afterwards, or if its revenue increased by 19% per year, it would generate nearly $ 200 billion in revenue per year by 2040.
Assuming the company is still valued at over 40 times sales, its market cap would easily exceed $ 1,000 billion. But it’s unrealistic to think that it can continue to post such high valuations down the road, not when most of its rivals aren’t trading close to 20 times income.
Oracle (ORCL -1.95% ), for example, trades at just six times sales, and Salesforce.com (CRM -1.10% ) goes for about 10 times the sales. The best his peers could do would be Wholesale trade (BIGC -6.50% ), which is valued at 15 times sales.
Even so, if Shopify trades at a P / S multiple of just 5, it could still exceed a trillion dollar market cap.
Look beyond the numbers
Instead of trying to dial a parabolic number, investors had better see if what Shopify is building is sustainable. From this point of view, it seems likely.
FTI Consulting estimates that the online retail market share as a percentage of total US retail sales will increase from 18% in 2020 to 33% by 2030. It will exceed the $ 1,000 billion mark. dollars by 2023 and will approach $ 2 trillion by 2030.
The small to mid-size business market alone represents a $ 153 billion opportunity for Shopify, and it’s only just beginning to scratch the surface of a subscription-based model that will bring it higher levels of recurring revenue with higher margins. Its recurring monthly revenue, growing at a compound annual rate of 43% over the past five years, reached $ 98.8 million in the last quarter.
With that in mind, Shopify looks like a viable stock to buy and hold for years to come, even if it doesn’t cross the trillion dollar threshold. But I think it’s on track to do just that, and the ecommerce platform will be an awesome multibagger for investors.
This article represents the opinion of the author, who may disagree with the âofficialâ recommendation position of a premium Motley Fool consulting service. We are motley! Questioning an investment thesis – even our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.