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IN BRIEF
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Lately, the name Shopify has been echoing in every financial conversation. Whether in circles of seasoned investors or among novices looking to familiarize themselves with the world of the stock market, the question comes up again and again: Why buy Shopify shares today? With its leading position in e-commerce and constant innovations, the company attracts the attention of experts and investors. Beyond the figures and analyses, a wind of optimism and new possibilities blows around this company. Let’s analyze what’s behind this craze.
Shopify, as one of the world’s largest e-commerce platforms, continues to captivate investors’ attention. Its ability to allow anyone to open an online store is already well known. However, despite its current valuation near $90 billion and having been in the market for almost a decade, Shopify has recently fallen out of favor with some investors.
So why the frenzy around Shopify stock today? Here are several compelling reasons to invest in this dynamic company.
Unparalleled Network Effects
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THE network effects are a major asset for Shopify. More than 2 million merchants already use the platform, ranging from solopreneurs to large enterprises. Such a user base attracts third parties interested in developing integrations and applications for Shopify, enriching the already rich ecosystem of more than 13,000 applications. The more traders there are, the more valuable and attractive the platform becomes, thus strengthening its dominant position.
An Economic Model Centered on Merchants
Unlike giants like Amazon which can sometimes be in conflict with their merchants, Shopify does not compete with its users. Merchant success directly translates to Shopify success. This merchant-centric approach has helped Shopify become a go-to platform for many businesses.
The Expansion of Electronic Commerce
E-commerce still represents only a fraction of global trade. For example, it only represents:
- 15% of retail in North America
- 11% in Asia-Pacific (excluding China)
- 10% in Europe, Middle East and Africa
Shopify only captured 2% of this potentially colossal market, estimated at $849 billion last year. The growth potential is immense.
A Lightweight Model
Shopify has learned from its mistakes. Acquiring Deliverr in 2022 for $2.1 billion was costly, but the subsequent sale of those logistics assets allowed Shopify to return to an asset-light model. As a result, the company’s free cash flow generation has improved significantly.
Strong Growth Ahead
Shopify has an impressive growth trajectory. Analysts forecast 20% annual growth in revenue through 2026, and 33% annualized growth in earnings per share for the next three to five years. Shopify’s growth potential lies in the constant expansion of its products and services.
Falling valuation
Despite robust growth prospects, Shopify’s valuation has declined. The stock is currently trading at a forward price-to-earnings ratio of 67 compared to more than 100 at the start of 2024. This drop in valuation, combined with Shopify’s expanding ecosystem and its immense market opportunity, reinforces the interest of investors.
| Network effects | Strengthens value with more users |
| Merchant-centric model | Non-competitive, beneficial for users |
| E-commerce potential | Market still growing |
| Asset-light model | Improves free cash flow |
| Future Growth | Strong revenue growth forecast |
| Falling valuation | Purchase opportunity at an attractive price |
- Network effects
- Merchant-centric model
- E-commerce potential
- Asset-light model
- Future Growth
- Valuation falling