Where Will Shopify Be in 3 Years?

Shopify's (SHOP) stock recently experienced a significant rise, reaching an all-time high of $169.06 on November 19, 2021. This remarkable increase of 9,845% from its initial public offering (IPO) price on May 21, 2015, would have transformed a $1,000 investment into $99,447 over just six and a half years. At the time, the company enjoyed a surge in interest, particularly due to its strong growth during the pandemic and the overall market excitement surrounding meme stocks.

However, in the subsequent three years, Shopify's stock has fallen by almost 30%. This drop came as the company faced the end of its pandemic growth phase, alongside challenges like inflation affecting consumer spending and rising interest rates impacting valuations. In this context, it’s worth analyzing whether this recent decline presents a potential buying opportunity and evaluating the outlook for Shopify's stock in the next three years.

Shopify's Recent Performance

Shopify provides a powerful e-commerce platform that enables merchants to easily establish online stores, handle marketing, process payments, and manage order fulfillment. This service is attractive for businesses looking to build an online presence without committing to third-party marketplaces like Amazon.

Initially, Shopify’s growth was driven mainly by small businesses, particularly those leveraging social media for storefronts. However, it has shifted focus and now includes larger merchants through its Shopify Plus offering, which is tailored for growing enterprises, as well as its Shopify Capital lending services and the consumer-facing Shop app that utilizes its Shop Pay platform for digital payments.

In 2022, Shopify saw a slowdown in growth concerning gross merchandise volume (GMV), gross payment volume (GPV), and total revenue. This deceleration was largely due to the waning pandemic boost, worsening inflation, and the impact of Apple’s privacy changes on iOS. Yet, in 2023, the company rebounded with renewed growth in all key metrics, aided by a stabilizing economic environment and the launch of new advertising tools to help merchants navigate the challenges posed by Apple's updates.

Metric	2019	2020	2021	2022	2023
GMV Growth	49%	96%	47%	12%	20%
GPV Growth	55%	110%	59%	24%	29%
Revenue Growth	47%	86%	57%	21%	26%

As of the first nine months of 2024, Shopify reported a year-over-year growth of 23% in both GMV and revenue. Although the company ceased disclosing GPV growth on a quarterly basis, analysts estimate a total revenue growth of 25%, expecting it to reach $8.8 billion for the year.

Following a substantial net loss in 2022, Shopify returned to profitability in 2023, marking a significant turnaround. This shift was achieved through various strategic moves, including divesting its logistics division and reducing its workforce and operational expenses. Analysts predict that Shopify's GAAP net income could soar nearly sevenfold to $1.3 billion this year.

Future Outlook for Shopify

Looking ahead, from 2024 to 2026, analysts anticipate that Shopify's revenue will grow at a compound annual growth rate (CAGR) of 22%, with its GAAP earnings per share (EPS) increasing at a CAGR of 30%. This growth will likely stem from the expansion of its ecosystem, including the Shop Pay service and Shop Cash rewards program, as well as the wider adoption of its new generative artificial intelligence (AI) tools, such as Magic and Sidekick. Additionally, the Shopify Plus platform is expected to continue attracting businesses with its subscription model, accounting for a substantial portion of the company’s monthly recurring revenue (MRR).

Shopify could further enhance its MRR by introducing new point-of-sale hardware devices, credit and expense management tools, and cross-border e-commerce services. The integration of Amazon's "Buy with Prime" feature into Shopify stores enables Prime members to enjoy one-click purchases and access free shipping, which should help broaden Shopify's market reach. This partnership counters concerns that Amazon might outpace Shopify with its merchant services.

Nonetheless, it's important to note that Shopify's stock is currently valued at 13 times next year’s sales, a figure that could be seen as inflated, particularly following the recent AI stock surge and optimistic forecasts surrounding lower interest rates and a more favorable macroeconomic climate. This elevated valuation may limit short-term stock gains.

If Shopify meets analysts’ expectations for robust revenue growth—around 20% from 2026 to 2028—and its stock trades at a more conservative valuation of 10 times sales, observers could potentially see its stock price rise by about 30%, reaching the low $160s by 2027. While this projection would represent a decent return over three years, it may still fall short of the remarkable gains experienced between 2015 and 2021.

Shopify, Stock, E-commerce