Shopify is one of the biggest positions in my stock portfolio, and I believe it has an incredibly bright future.
About two years ago, I bought the stock, but it was terrifying then. Around that time, a short seller, Citron, was on the scene and was putting reports about how Shopify was illegitimate and a “scheme.” It’s laughable now since they publicly announced that they were wrong about Shopify. But it wasn’t funny then—at all. Their words moved the price a lot. It felt like riding the worst rollercoasters ever, and, with each rise and nauseating dip, someone was taking or adding to my net worth. I hated it.
I’ve had a history with Shopify that extends beyond just as a person who owns their stock. I have a creative agency that has used Shopify to build online stores for our clients. And I’ve been well aware of Shopify’s power and ability for years. I saw first hand that businesses were making hundreds of thousands and millions of dollars on Shopify since we helped build them.
And you would think that after having that experience and doing further research on the company and seeing its incredible growth and climb into success, it would have given me the confidence to hold onto it when things with the stock got rocky, with Citron making waves. But it didn’t. I still got spooked.
When a stock price moves so violently down and you own it, it’s hard not to doubt. I even wondered if Shopify was a legitimate investment. And that says nothing about them and more about me, that I’m easily shaken. And I also knew that short-sellers are incented to make negative statements about the companies they’re shorting because they get richer when the stock price goes lower. But I still doubted.
I don’t think I sold my position, or if I did, I bought back in. Regardless, I own stock with the price from around that time. And, in one of my accounts it’s up 389%, another over 500%. And I don’t say this to brag. I only tell you this because it’s easy to sell when everyone else is. Getting scared out of a stock when the markets get turbulent, like the past couple of weeks, is common.
But to get the gains, you have to go through the pain. And Shopify, I think, still has a lot more room to gain.
It’s just getting started. The pandemic pulled the future of e-commerce closer. Some say it has sped up the move to online shopping by five years. No matter what you think, e-commerce isn’t going anywhere and will only continue to grow.
And retail as a whole is huge—like, massive. Global retail sales are over $23 trillion. $5 trillion of that is in the US alone. And retail is still growing. People aren’t going to stop buying things, even in a pandemic. Families still need diapers. People still need to eat. Socially distanced kids need toys. Some people are buying more, others less. But humans still need things. As long as that is the case, they will continue clicking and buying.
And yes, Amazon is huge, but even they can’t gobble up $23 trillion worth of business. There is plenty of space for competitors, or, better yet, alternatives.
There are plenty of reasons why businesses wouldn’t want to sell on Amazon. Amazon doesn’t let other retailers own the channel, the distribution, not even the customers. When a brand sells on Amazon, they must play by Amazon’s rules and pay their fees and use their systems to tap Amazon’s customers.
Shopify is different. When you build an online store there, it’s yours. The sales are yours; the customers are yours; the email list you collect is yours; the branding is yours. Sure, you pay to use Shopify’s services and platform. But it’s a pittance compared to starting without them. To build your new system and e-commerce site from scratch would cost bundles more. So using Shopify makes sense.
My wife and I used Shopify to build a little online business selling vegan and gluten-free cookies. It took me less than a day to set up the website. Shopify’s free trial was risk-free, and all I had to do was spend my time putting the site up. And since then, we’ve been able to grow a business that seems to have real potential, slinging delicious, clean cookies, through the incredible power of Shopify.
Not all e-commerce plays will win. For instance, Stitch Fix reported earnings a couple of days ago, and their stock tanked because their business model isn’t relevant at the moment. They dress women who want great outfits styled for them by professional stylists. But since people aren’t really going out, there’s no real need for anything other than the sweatpants we’re all wearing.
Shopify isn’t Stitch Fix.
They are launching new products that have a lot of potential. Last year they launched their fulfillment services, where they will store inventory and ship products for customers. It’s just like Amazon’s fulfillment service, except its from Shopify. And it has been a business-to-business company, meaning they have a product that helps other businesses. But now they’re trying out a B2C play, leveraging their stores, and listing them on an app. People can look for various products and stores by location or other filters to find interesting new products.
And they have a lot of stores. This site states that there are over five hundred thousand stores on Shopify, which amounts to $40 billion worth of sales. Those numbers are huge, but, I believe, they will only get bigger. The pie is growing, with e-commerce taking more and more market share from brick and mortar. And Shopify has great brands using their software. Allbirds, Shopnova, Kardashians, and many more are using them to power their online stores. And this gives Shopify a vast advantage over other platforms trying to make a play in this space.
Lastly, I’ll mention that they have an app store that is mature with a healthy eco-system of developers building supporting software for Shopify and its customers. It’s a significant edge. Imagine the iPhone without apps. What would that experience be like without being able to open up an app to check your bank accounts, or play games, or take notes, or the thousands of other things people do on their phone? The Apple App Store set the iPhone apart. Shopify has the same thing. Except their apps help you get deliveries optimized and recorded, and figure out accounting and fulfillment, and set up a subscription system so vegans can buy your vegan cookies every week to get their fix. A mature app store is difficult to cultivate, and to have one already established only establishes Shopify as an incumbent that will be very difficult to dislodge.
There are a lot of reasons to be afraid these days. But the more I consider this company, the more confident I get in its future.
And plan on holding my position in Shopify for a long time.