Shopify (NYSE: SHOP) has been on a meteoric rise since its IPO in 2016. The company’s e-commerce platform is used for helping small- and medium-sized businesses sell their products on their own sites and through other platforms like Amazon and Facebook.
The company has more than 600,000 merchants using its services, up from just 200,000 in 2015, and that growth has helped drive sales up — along with its share price gains.
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Shopify’s sales are booming, and in the fourth quarter of 2017, the company’s revenue jumped 71% year over year to $222.8 million. This increase was led by the company’s 67% increase in subscription sales and its 74% pop in merchant-solutions revenue.
Not everyone is impressed with Shopify’s growth, however. The company has been hounded by outspoken short-seller Andrew Left, the founder of Citron Research. Left has published a handful of bear reports saying that Shopify’s affiliate program has used questionable practices to sign up many of its merchants.
But Shopify has refuted Left’s claims, and the company’s numbers seem to speak for themselves. Shopify has managed to not only grow its customer base but also increase the amount it makes from them. Shopify’s monthly recurring revenue (MRR) — which is calculated by taking the number of merchants and multiplying it by the average subscription fee — increased by 62% in the fourth quarter.
The company has also been able to add larger customers, including Arby’s and the Phoenix Suns NBA team to its client list in the third quarter; these larger businesses are signing up for the company’s high-end service, Shopify Plus. Sales from customers who signed up for Shopify Plus accounted for 21% of the fourth-quarter MRR, up from 17% a year ago.
“At the same time, we’re excited to bring more established brands to Shopify Plus, like FAO Schwartz and Polaroid, and even industrial heavyweights like Cummins Engine Company and Ford,” Shopify’s chief operating officer, Harley Finkelstein, said on the latest earnings call. “Both our sales team and our growing plus partner network contributed to this growth.”
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No guarantees, but the future looks bright
There aren’t any guarantees that Shopify will continue its rapid growth, of course. But the company is still very young and has hardly begun to scratch the surface of the e-commerce market. Online sales made up just 9% of all retail sales in the U.S. last year and will account for less than 14% by 2021. That gives Shopify’s e-commerce platform plenty of room to grow for years to come.
I think Shopify’s ability to add customers quickly, earn more from them, and also grow its more lucrative Shopify Plus business makes this company a buy. Investors should keep in mind that the company will likely see some volatility because it’s still in growth mode and isn’t profitable yet. But the e-commerce market is still in its infancy, and Shopify is already well positioned to benefit from its continued growth.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Cummins, Facebook, and Shopify. The Motley Fool recommends Ford. The Motley Fool has a disclosure policy.
