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Here's Why Everyone Should Be Rooting for Shopify

E-commerce software and support company Shopify (NYSE: SHOP) had another blockbuster year. Total revenue for 2019 grew 47% to $1.58 billion, and adjusted net income was $34.3 million -- including a surprise $50.0 million adjusted net profit during the busy holiday shopping period in the fourth quarter.

Of course, the bottom line is of little consequence right now as Shopify remains in spend-happy mode to maximize its revenue potential. And there was plenty for shareholders to like regarding the top line, as management said that 2020 revenues should increase by at least another 35%. Of course, a high-growth stock that barely turns a profit and trades for a steep premium (currently 29.5 times 2020 expected sales at the midpoint of guidance) isn't for every investor. Owner of the stock or not, though, everyone should be rooting for Shopify as it increases its global reach and e-commerce continues its relentless rise.

Image source: Getty Images.

An enabler of new digital business

First, a recap of what Shopify is. The company sells nothing itself online, save for cloud-based software and digital tools to help businesses set up and grow a website and digital store. It has also grown into physical point-of-sale systems for those companies that also maintain a brick-and-mortar storefront. Shopify and its peers offer an important counterpoint to megaretailers (that sell merchandise themselves, like Walmart), and online marketplaces (like Amazon, which allows third-party sales but retains the relationship with customers and also directly competes with third-party partners by also selling directly to shoppers). Shopify is an e-commerce enabler, not a retailer itself.

This is evident in Shopify's mission statement:

We help people achieve independence by making it easier to start, run, and grow a business. We believe the future of commerce has more voices, not fewer, so we're reducing the barriers to business ownership to make commerce better for everyone.

Granted, Shopify helps large enterprises too, especially through its Shopify Plus subscription (starting at $2,000 a month) geared toward high-volume sellers that need logistical support. But it's the small-business and entrepreneur network that originally attracted me to Shopify as an investment, and that thesis remains intact. CEO Tobi Lütke said the Shopify platform now supports more than one million merchants. Sellers using Shopify for at least a year grew the value of merchandise sold on Shopify by an average of 22%, and the number of merchants that sold more than $1 million in annual sales grew 44%. Consumers buying from a Shopify merchant also grew 37% year over year and topped 300 million worldwide.

Keeping the global opportunity fair

Shopify is just getting started helping small businesses carve out a niche on the internet. According to the company's own numbers, its merchants represented just 5.9% of the U.S. retail e-commerce industry, compared with 37.3% for Amazon. Sales on the Shopify platform are just a drop in the global bucket too, with 2019 worldwide retail spending at about $25 trillion -- a number expected to increase to $30 trillion in the next few years. Still, early on in expanding internationally, the e-commerce software outfit grew its native language-support count up to 20 (from seven before) in 2019.

Global retail is dominated by small businesses and entrepreneurs, and megaretailers and online marketplaces like Amazon and Walmart are expanding to try and consolidate market share as economies develop and make the move online. Pair Shopify's software capabilities with its investment into fulfillment centers and business-to-business selling tools and the sky-high pricing begins to make a little more sense as it starts to tap into the worldwide market. Shareholder or not, though, Shopify will be an important part of leveling the playing field in the years ahead -- enabling even small players with the same digital tools that the largest retail enterprises possess.

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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. Nicholas Rossolillo and his clients own shares of Shopify. The Motley Fool owns shares of and recommends Amazon and Shopify. The Motley Fool has a disclosure policy.


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