Leading e-commerce platform Shopify (NYSE:SHOP) continues to blow away the expectations of even the most bullish investors and analysts. Indeed, SHOP stock has continued to be one of the best performing Canadian growth stocks, fueled by impressive earnings.
During Shopify's most recent quarter, the company crushed analyst estimates. This earnings beat allowed SHOP stock to remain stable at around all-time highs. (Shopify ran up into earnings in a big way).
The company's revenue surged 57% to $1.11 billion in the second quarter. Among the segments driving this growth was Subscription Revenue. This recurring revenue stream surged 70%, due to an increased number of merchants across the platform. Merchant Services grew by 52%, as did the company's overall user base.
However, growth in gross merchandise and revenue slowed down a bit from the previous quarter. This was somewhat to be expected, given the outsized growth rates following the pandemic.
That said, investors may not know where this stock could be headed from here. It's a growth stock with a high valuation, and everything is pointing in the right direction. However, Shopify will need to execute perfectly to see more substantial growth from here.
I'm bullish on Shopify's ability to do so. Let's dive into why. (See SHOP stock charts on TipRanks)
Value Drivers to Shopify’s Success
According to eMarketer’s predictions, by the end of 2022, 20.4% of all retail sales will happen online. Adding to these numbers, the research firm calculated a CAGR of 22.9% in the e-commerce sector from 2022-2027.
That's a hefty growth rate for any sector. It's also above the 15% hurdle that provides for a doubling every five years.
For SHOP stock, the growth catalysts underpinning the e-commerce transition are strong. Shopify's focus on developing its various verticals and business segments should bode well over the long-run. Via Shopify Payments as well as the company's capital and shipping programs, there's a tremendous amount of potential for Shopify to capture more of the value chain along the way.
Additionally, Shopify's partner ecosystem is growing fast. This ecosystem has provided the company with a range of unique solutions that make merchants' lives better.
The more value Shopify can provide its e-commerce clientele, the better off investors in SHOP stock will be over the long-term.
Escalating Partnerships
As mentioned, partnerships have become a key growth strategy implemented by Shopify. This could be a lever that allows Shopify to grow its revenue lighting fast, without having to put up the capital.
Among the company's partnerships that are noteworthy are those with third-party sales platforms. The company recently teamed up with viral video-sharing app TikTok. It goes without saying that the reach this partnership could provide is nearly endless.
In addition to this recent high-profile partnership, Shopify has partnered with other mega cap players such as Alibaba (NYSE:BABA), Amazon (NASDAQ:AMZN), Walmart (NYSE:WMT), among others.
Moving forward, analysts believe that Shopify can also levy e-commerce fees on these merchants, somewhat similarly to Amazon.
However, an increasing amount of companies are seeking to provide e-commerce software services. This could add further competition to Shopify over the long-term.
Here for a Good, Long Time
Wall Street expects Shopify's earnings to soar 66% in 2021. While the company's earnings growth is expected to slow somewhat, it will continue to grow likely in line with the company's stock price. Thus, investors will be keeping a close eye on the pace of Shopify's earnings growth from here.
Both consumers and merchants shifted online during the pandemic, in a big way. Accordingly, it's to be expected that Shopify would see a deceleration of growth as pandemic restrictions were lifted. Still, the e-commerce platform hopes to see continued rotation in customer spending toward e-commerce and away from traditional bricks-and-mortar retail.
During the past three years, Shopify's EPS grew 230%, while sales grew 65% annually. Investors are typically advised to look for stocks with sales growth of at least 25%. Accordingly, SHOP stock really blows most growth stocks out of the water right now.
All these data suggest that Shopify is here to stay for a long time, and investors are hoping to make it a good time by stocking up on SHOP stock.
What Analysts are Saying on SHOP Stock
As per TipRanks' analysts rating consensus, SHOP stock is a Moderate Buy. Out of 26 ratings, there are 16 Buy recommendations and 10 Hold recommendations.
The average Shopify price target is $1,735. Analyst price targets range between a high of $2,000 per share and a low of $1,450 per share.
Bottom Line
SHOP stock certainly ticks off various boxes that growth investors generally look for. It was a massive winner in 2019 and 2020, posing threats to big names like Amazon and eBay (NASDAQ:EBAY). Further, its expansion plans and key acquisitions open new avenues for growth.
In simple terms, Shopify investors should benefit from holding this stock over the long-term. Sure, volatility is likely to come and go, and no one knows what the future holds. However, owning companies tethered to strong secular catalysts such as e-commerce has proven to be a solid long-term investment strategy.
Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article.
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