Written by SmallCapPower.com
Shopify, Inc. (NYSE/TSX: SHOP) has been making new highs since its IPO in May 2015, rallying 140%+ in the past year alone. Is this just the tip of the iceberg? Does Shopify have more room to run? To answer these questions this article explores the near-term catalysts in Shopify’s horizon as it scales to become a disruptive global eCommerce platform for small and medium-sized businesses.
Organic Growth Potential
Shopify is in the early stages of its growth cycle and its $6.1B market cap does not appear too outlandish when you consider its market opportunity. With only a 3.25% market penetration of its local US$14B total addressable market (TAM)—even less for its global US$57B TAM—upside potential comes from fundamental growth catalysts including more merchants, solutions, sales channels, partners, and international penetration. Additionally, eCommerce is a relatively early industry and is expected to continue to undergo double-digit growth through 2020, when sales will top US$4 trillion according to eMarketer.
Although bricks-and-mortar businesses are already feeling the heat from online retail, eCommerce sales make up only about 10% of total retail sales worldwide today (Figure 1). Expanding middle classes, greater mobile and Internet penetration, growing eCommerce competition, and improving logistics as well as infrastructure will all fuel eCommerce growth worldwide.
Figure 1: Retail eCommerce Sales Worldwide, 2015-2020
Trillions, % change and % of total retail sales
Source: eMarketer
Over the last five years, Shopify has shown strong consistent growth in revenue of 90%+ Y/Y, and benefits from enviable 81% CAGR in monthly recurring revenues (MRR). Obviously as the numbers get larger, the percentage growth will become smaller. However, the average analyst forward sales growth rate of 51% seems out of whack. Analysts forecast 125-150K new merchant additions in FY/2017 vs. 134K in FY/2016, yet although its strongest season, Q4/2016 saw additions of 53K new adds alone! These numbers exemplify an increasing trend of online business that is not expected to slow down:
