Shopify’s High Returns Raise Questions for Future Investors

TORONTO, Canada — Shopify Inc. (NASDAQ: SHOP) has seen remarkable growth since going public in 2015, posting a staggering 3,664% return. However, potential investors are asking if it’s still a good time to invest in the company as they look to enhance their portfolios.

Founded as a platform for merchants to sell their products, Shopify has developed a unique business model that adapts to both online and brick-and-mortar sales through its hardware and software solutions. With a basic monthly subscription fee of $29, Shopify enables new merchants to sell successfully, taking a transaction fee of 0.2% to 2% from each sale. This structure aligns the company’s success with that of its users.

As of December 31, 2024, Shopify reported $178 million in monthly recurring revenue, translating to $2.1 billion annually from subscription fees. This dependable income, coupled with a 26% growth in gross merchandise value (GMV) for 2024, indicates a continued upward trend for the platform.

Shopify’s attractive business model draws investors, particularly with the potential for future growth both domestically and internationally. The company aims to delight its users, which could lead to an expanding user base.

Despite its advantages, investors must also be mindful of risks. As Shopify grows, maintaining its high growth rates could become challenging. The COVID-19 pandemic initially boosted online sales for Shopify but that surge has slowed recently.

Competition is also increasing. Major players like Amazon may become more aggressive, offering better tools and services to attract Shopify’s merchants. Shopify faces global macro risks, including tariffs that adversely affect the capacity of small and medium businesses to thrive.

Investors should weigh these factors carefully, especially since Shopify trades at a price-to-earnings ratio of 110. This high valuation could lead to steep price adjustments if growth does not meet expectations.

While Shopify has effectively executed its business strategy, potential investors are cautioned to approach with a long-term view. The Motley Fool’s Stock Advisor team currently advises considering other stocks that may offer greater returns.