Shopify’s Revenue Could Climb Sharply in the Next 5 Years. The Stock Is a Buy for the Long Term.

“It’s an exceptional business with very strong long-term growth prospects. There is a potential for Shopify to grow at super normal rates for very long periods,” he told Barron’s in an interview. 

Shopify is also Baillie Gifford’s biggest holding in its U.S. equity growth fund, which had $97.7 million assets under management as of Dec. 31, 2021. The Scottish fund manager tends to own its investments for five to 10 years and sometimes longer. It originally invested in Shopify in 2017, Robinson said. 

Shopify CEO Tobias Lütke co-founded the Ottawa company in 2006, when he was trying to open an online snowboarding store. The e-commerce tools at the time “were terrible,” Robinson said. An accomplished programmer, it didn’t take very long for Lütke to realize that selling tools for small companies to build online stores was a better business long term than selling snowboards, Robinson said. 

Shopify provides tools—like a payment processor, a point of sale system, and a shipping partner—that allow businesses around the world to start, grow, market, and manage a retail business of any size. Businesses use Shopify to automate routine tasks like payments, inventory and order management, shipping, as well as cash flow management. 

Retailers can use Shopify to connect to marketplaces like Amazon.com (AMZN), Meta Platforms
‘ (FB) Facebook and Instagram, and even TikTok, where they can sell to consumers, Robinson said. Shopify powers millions of merchants, including sustainable shoe company Allbirds (BIRD) and Staples Canada, in more than 175 countries. 

Shopify went public in 2015 at $17 a share and has risen 4,800% since. Like a number of other tech stocks, it has had a rocky January, falling more than 37%, to a recent $853. The stock trades at 131 forecast 2022 earnings.

Shopify was a major beneficiary of the Covid-19 pandemic, which caused businesses to digitize. Revenue jumped 96%, to $767.4 million in the third -quarter of 2020, according to a statement. As the pandemic has eased, the company has continued to grow, although more slowly, with revenue rising 46% in the third quarter of 2021 from the quarter a year ago.

Shopify’s gross merchandise value—which represents all the products and sales from the merchants that use the platform—rose 35%, to $41.8 billion, in the third quarter, while revenue was $1.1 billion. This means that the take rate, which refers to the percentage of the value of deals Shopify helps with that it keeps as revenue, is only 2.6%, Robinson said.

“I think it’s a phenomenal deal,” he said. “Their merchants do, too. That’s why they’re flocking to Shopify in droves.”

Robinson estimates that the company generated an estimated $160 billion of GMV in 2021, which should grow by 30% over the next five years. Shopify is ahead of rival e-commerce platforms competitors like Adobe Commerce, Salesforce (CRM) and Bigcommerce Holdings (BIGC), Robinson said. 

Amazon.com isn’t a competitor to Shopify, he argued. Shopify is more of an operating system for merchants, while Amazon is a marketplace for merchants, he said. “There is a bit of overlap but they serve different customers.”  

This month, Shopfiy unveiled a partnership with JD.com, making it easier for U.S. merchants to sell their products in China, the world’s largest e-commerce market with a $1.4 billion population. 

The company was profitable during the first nine months of 2021. Shopify has the potential to generate healthy profit margins in the long term, Robinson said. He wouldn’t make any short-term margin predictions because Shopify’s management continues to reinvest in the business, he said. “We are very supportive of that as shareholders,” he said.

Write to Luisa Beltran at [email protected]