What’s Next for Shopify Stock?

It’s your choice. Shopify (TSX:SHOP)(NYSE:SHOP) has been one of the most traded Canadian stocks in the last few years. Shopify stock is both listed on the TSX as well as the NYSE. Evidently, e-commerce was always an interesting secular trend. This trend was greatly accelerated by the pandemic. The pandemic is no longer the primary driver of the economy. It’s been replaced by inflation and a possible recession.

So, what’s next for Shopify stock?

E-commerce is a real secular trend that has staying power

The e-commerce trend had been steadily growing since the time before the pandemic. Online shopping is a great way to save time and money. This rising tide was slow and measured. Even though ecommerce’s growth rate was high, it was only a small percentage. E-commerce sales made up 1% of all retail sales in 2000.

 Actually, e-commerce was first introduced to us in the 2000s. It was then that the benefits were obvious. I believed that ecommerce would quickly grow and displace traditional retail.

It did grow but not at the rate I expected. This just goes to show how habits die hard — even when an alternative is a clear winner. Although change is slow, the pandemic was a catalyst for e-commerce. Consumers discovered the many benefits of ecommerce only out of necessity. And now that we’ve discovered it, there’s no turning back. E-commerce sales grew 32% in 2020. E-commerce accounts for nearly 14% of total retail sales.

With this evolution, it’s clear to see that the value proposition of e-commerce is real. Shopify has enjoyed the benefits of e-commerce for many years.

Shopify stock: Will this be the end to the ecommerce success story of Shopify?

So, we have seen how the pandemic has undoubtedly boosted Shopify’s growth profile. It was amazing how growth that would have taken years occurred in a matter of days. Today, shops are open and people are shopping in person again. The next question is: How much of this retail market can ecommerce take?

While this is a difficult question, I think that a change has happened and that it’s here to stay. The younger generations grew up on their phones — very tech savvy and used to everything being at their fingertips. We can assume that if e-commerce companies like Shopify play their cards right, there’s still a lot of room for strong growth.

Trouble in 2022

Now, let’s address the elephant in the room. Shopify has seen its stock price decimated since hitting highs in 2021 — down almost 80%. This is quite a significant figure and could make you wonder whether Shopify and e-commerce are just a pandemic.

Let me add a few words to this. First, let’s look back at the steady, strong growth that’s taken place since 2000. The compound annual growth rate for e-commerce retail sales has been 18%. Second, let’s look at Shopify. Shopify has been able to grow by making it easier for e-commerce via partnerships and education. It’s created an ease of online business and transactions that has never been seen before — for both buyers and sellers.

Shopify stock has been hard hit recently but it has never looked better in my opinion. Its risk profile, however, is lower. This is due to the fact that Shopify has successfully proven its business model. It’s also because Shopify finally has earnings and positive cash flows. We must also consider valuation when discussing Shopify stock’s potential risk. Today, Shopify still has a stock price that’s highly valued. But it’s a far cry from its prior valuations of over 100 times sales.

So, while there are many alternatives to Shopify stock on the TSX and the NYSE, it’s certainly shown that it’s best in class and worth considering.