- SHOP
- AMZN
- BABA
Many tech platforms come and go, but few convert tech into a responsible business. Shopify (TSX: SHOP) is one of them. It successfully made a place for itself in the e-commerce landscape dominated by Amazon and Alibaba. The ride was never smooth for Shopify. The 2022 tech stock meltdown was one of its worst setbacks. To build an end-to-end solution, Shopify launched a logistics business. However, logistics was asset-heavy and didn’t align with Shopify’s asset-light model. While the idea was strategic, the timing was bad.
A logistics business needs a certain scale of regular order volumes and cash flow to make economic sense. The 2021 pandemic rally pulled 10 years of future growth into a single year. However, the end of lockdown in November 2021 and the interest rate hike in April 2022 pushed growth into the future.
Shopify has earned a permanent spot in my portfolio
Slow, resilient growth is always better and stronger than quick, windfall growth. Shopify has moved past the windfall growth, offloaded its logistics business, and achieved resilient growth over the last three years. The e-commerce platform has turned its operations profitable and reported a double-digit free cash flow margin in the last 12 quarters.
The above table shows how Shopify’s revenue growth rate accelerated, slowed, and is now gradually accelerating without any external catalyst, like the pandemic. This has earned Shopify a permanent spot in a long-term portfolio.
The resilient growth of Shopify
Shopify’s resilient growth in the last three years came despite geopolitical tensions, tariff wars, and the AI boom disrupting trade, making goods expensive, and cutting IT jobs. Despite the chaos, Shopify’s gross merchandise volume (GMV) kept growing. Its revenue from apps, themes, domains, and other platform fees increased, hinting that existing customers expanded their Shopify stores.
Shopify used AI to help customers shop for the right products and help merchants target the right customers. AI also partly contributed to accelerated revenue growth.
How to maximize returns from this growth stock
Despite global expansion, Shopify experiences seasonality. The holiday season continues to be its strongest, and March its weakest. Shopify’s share price tends to rally from October to February and fall between March and June. For such a seasonal stock, profit booking and reinvesting can help compound returns when done in a Tax-Free Savings Account (TFSA).
