After a big sell-off in December 2018, stocks have had a festive run in 2019. Major averages are up >30% as markets shrugged off trade wars, impeachment inquiries and the fatigue of the longest bull market in history.
- Looking back: With just one more trading day left in the year, we are going to do a case study on one of the best-performing stocks of 2019. Shopify, the Canadian software company, is up a blistering 200% on the year.
The Business Model
What is it? Shopify is a software-based commerce platform that enables retailers to sell their products online, in-person and on social media. Their customers range from mom & pop companies operating out of their garages to international companies that run multi-billion dollar operations.
- The Functionality: Not long ago, building an ecommerce company required a team of experienced coders to design a website, build payment functionality and create inventory management tools. Today, merchants can access all of these pre-built tools on the Shopify platform for a subscription price starting at $29 per month.
- Why it Has Worked: Starting an online business has never been easier or more popular. In our era of social-media and side-hustles, younger generations are starting new businesses in droves. Shopify has successfully capitalized on the trend and now boasts over one million merchants on its platform.
Shopify Vs. Amazon
“Let’s see if we can beat Amazon head-on” – Said no one ever.
Yet that’s exactly what Shopify is setting out to do. In June, the company announced it is launching a fulfillment program which will let certain merchants ship orders using Shopify’s new logistics network. Double Down: In October 2019, Shopify acquired 6 River Systems, a startup focused on logistics and fulfillment operations for $450 million.
The move positions Shopify to compete head-to-head against Amazon, which has long attracted vendors with their “Fulfill By Amazon” program that handles logistics in exchange for a fee.
- State of Play: At this stage, Amazon likely views Shopify as little more than a persistent gnat at a summer BBQ. Amazon controls nearly 40% of the U.S. retail ecommerce market, roughly 10x the amount of Shopify. But Shopify is pumping out 50% year-over-year revenue growth, making investors excited about long-term prospects of the platform.
The Inside Scoop
Even more impressive than Shopify’s gains over the last year are its gains over the last five. Over that time horizon, shares are up over 1,400% and the company now sports a market capitalization of nearly $50 billion.
The company’s third quarter results did give investors a momentary pause. In late October Shopify reported a surprise loss, sending shares down nearly 4%. Over the long term though, its the outcome of the battle with Amazon that will likely drive share price performance.