Shopifyit is (NYSE: SHOP) the stock has fallen far from its highs of the last few months, but over the long term, it has produced incredible returns. If you had invested $2,500 in Shopify stock at the start of 2016, you would have $27,500 today.
The e-commerce catalyst has benefited from the long-standing tailwind of consumers increasingly spending money online. However, this is also part of the reason the stock has fallen in recent months. After online spending as a percentage of overall spending soared during the early stages of the pandemic, its growth rate is now falling faster than expected.
The rise of online shopping is fueling Shopify’s growth
Government-mandated business closures forced people to spend more time at home in 2020 and 2021. Many people simply did not have the opportunity to dine in restaurants, shop in malls, from visiting theme parks or going to ball games, and even after the forced closures ended, many people still largely avoided them. This focused consumer spending on e-commerce channels, so brick-and-mortar businesses that wanted to continue making sales needed an online presence.
Shopify, which helps businesses build and grow their e-commerce websites, has seen a surge in signups. Shopify also makes money by taking a small percentage of all spend made on its platform. Merchants appreciate Shopify’s differentiated offering because it gives them more control over their customer relationships compared to competitors Amazon (NASDAQ: AMZN) and eBay (NASDAQ:EBAY). For example, when I sell items on eBay, I don’t receive the buyer’s email address.
Now that vaccines are widely available and the threat of COVID-19 has become rampant, people are unleashing their previously pent-up demand for experiences away from home. The reversal of the online spending boom has slowed Shopify’s meteoric growth.
From 2012 to 2021, Shopify increased its revenue from $24 million to $4.6 billion. Despite recent fluctuations in e-commerce, the long-term trend is for consumers to shop more online. Visiting a website to buy something offers several advantages over visiting physical stores, including shopping from the comfort of your home, avoiding the search for parking, and door-to-door delivery.
According to Statista, e-commerce spending as a percentage of overall retail spending was 14% in 2020. This figure is expected to rise to 22% in 2025. Beyond that, it’s reasonable to assume it will continue to grow. increase. I don’t think there will come a day when 100% of shopping will be done online, but I’m confident that e-commerce market share will grow from here.
Is it too late for investors to buy Shopify stock?
The short answer is no. Shopify is riding a strong tailwind with years of growth. The company has done a great job of serving merchants who needed to establish an online presence and expand their offerings. Also, after falling 81% from its peak, the stock is not expensive. It now trades at a price-to-sales ratio of 8.1, which is the cheapest valuation by this metric that investors have ever been able to buy Shopify.
Shopify may not recapture the incredible 1000+% gain it has made since 2016, but investors today can reasonably expect the stock to be worth more years from now.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Parkev Tatevosian holds positions at Shopify and eBay. The Motley Fool holds positions and recommends Amazon and Shopify. The Motley Fool recommends eBay and recommends the following options: Shopify January 2023 $1140 Long Call, Shopify January 2023 $1160 Short Call, and eBay October 2022 $50 Short Call. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.