Shopify is a disruptive force in online shopping that could follow Amazon into the trillion-dollar club within the next decade. Shopify is a standalone site building tool that allows businesses to build their own stores, process payments, shShopify is a disruptive force in online shopping that could follow Amazon into the trillion-dollar club within the next decade.
Shopify is a standalone site building tool that allows businesses to build their own stores, process payments, ship orders, and market their products without relying on marketplaces like Amazon.
Shopify's decentralized strategy has helped it to outpace Amazon's growth rate in the past few years.
Shopify achieved a compound annual growth rate (CAGR) of 70.2% between 2015 and 2020, compared to Amazon's 29.3% CAGR over the same period.
Shopify's stock has soared 4,460 percent over the past five years, compared with nearly 400 percent for Amazon. Still, Shopify's $182 billion market cap is less than a tenth of Amazon's $1.86 trillion market cap.
But in 10 years, will Shopify's market cap match -- or even surpass -- Amazon's?
Shopify has great prospects
Shopify now serves more than 1.7 million businesses worldwide, ten times as many as in the first quarter of 2015.
But these huge increases are just the beginning. Last June, Piper Sandler analyst Brent Bracelin estimated that Shopify merchants accounted for just 2 percent of the e-commerce market.
Bracelin points out that Shopify's annual revenue will quadruple from $2.93 billion in 2020 to $12 billion in 2025 if e-commerce penetration rises from 15 percent today to 50 percent in the next decade.
While Shopify mainly serves small and medium-sized businesses, it now serves a growing number of large enterprise customers through its Shopify Plus platform.
Walmart integrated its third-party online marketplace with Shopify's services last year, and it is expected that more businesses will follow suit, which will be a big boost for Shopify.
Can Shopify catch up and surpass Amazon?
Amazon's market share growth has been driven by the expansion of its e-commerce ecosystem, including overseas platform expansion, the acquisition of physical stores (like Whole Foods), and the acquisition of smaller online marketplaces. It's also driven by the growth of the Global Cloud Infrastructure Platform Market, where Amazon Web Services (AWS) remains far and away the leader.
If Amazon's revenue grows by 25% a year for the next five years, it could reach $1.18 trillion in 2025. If its growth slows to 20% over the next five years, its revenue will reach $2.93 trillion in 2030.
Assuming Amazon's stock still trades at four or five times its annual revenue, the company could be worth more than $13 trillion by 2030. That forecast may be too optimistic because it does not take into account the impact of the recession, the enactment of antitrust regulations and other unforeseen factors. But a compound annual growth rate of 22.5% over the next decade should not be a problem for Amazon.
Assuming that Shopify can generate $12 billion in annual revenue in 2025, that's a compound annual growth rate of 32.6%. If that rate of growth is maintained over the next five years, it could generate nearly $50 billion in revenue in 2030. With e-commerce penetration rising globally, Shopify's growth is not out of the question.
Shopify is currently trading 60 times last year's sales and 40 times this year's. Assuming its price-to-sales ratio falls to 30 times, it would be worth $1.5 trillion by 2030.
What do we see beyond market capitalization?
Shopify may still be worth less than Amazon in 10 years, but that doesn't mean it's not worth investing in. Shopify is still likely to show stronger growth trends than Amazon for the foreseeable future. Breaking the $1 trillion mark within the next decade is a remarkable achievement for a young company founded in 2006, and it will become Canada's first trillion-dollar company.
The past decade shows that Shopify's decentralized strategy is as competitive in the market as Amazon's decentralized strategy. We don't know who is better, but it is this diversification that has led to a boom in e-commerce.