Will Shopify Become a Trillion Dollar Stock by 2030?

Shopify (STORE -2.68%) has taken its investors on a volatile ride since its inception initial public offering in May 2015. But the stock was still a very successful investment, as it rose 2,860% over the company’s entire public history.

At the time of writing, the business carries a market capitalization of just under $100 billion. Can this top e-commerce stock see its market cap 10x between now and 2030? This would make Shopify a trillion dollar enterprise by the end of the decade.

All about e-commerce

Shopify hasn’t even been around for 20 years. Management deserves a lot of credit for the monster success this business has achieved. Seeing an unmet need in the market, Shopify created a software platform that makes it incredibly easy for anyone to set up an online store and start selling products right away. Various tools are provided such as checkout and point of sale solutions, payment processing, marketing features and inventory management among many others.

The business has carved a successful niche for itself in the e-commerce sector. Shopify boasts that it “powers millions of businesses in over 175 countries.”

It handled $67.2 billion in gross merchandise volume, or the dollar value of orders on the platform, in the second quarter (ended June 30). This figure was up 22% year-on-year and almost 5 times higher than the same period five years earlier in 2019.

This has led to tremendous growth in revenue over the years. Even in uncertain economic times, Shopify’s top-line earnings are impressive. Sales rose 22% in the first six months of this year. And Wall Street consensus analyst estimates call for revenue to grow at a compound annual rate of 21% between 2023 and 2026.

It’s easy to be optimistic about long-term growth potential. In the US, brick and mortar still accounts for 84% of all retail spending. According to Grand View Research, global e-commerce sales will grow at an annual rate of nearly 12% for the rest of the decade. This provides a favorable backdrop for Shopify to continue its growth trajectory.

Keep expectations in check

Before even considering the possibility of Shopify entering the trillion-dollar club, a group that currently consists of only seven companies (as of August 23), investors need to figure out whether the stock is worth adding to their portfolio.

Shares are up 119% since the start of 2023, and today trade at one price-sale (P/S) ratio of 12.8. While this multiple is lower than the stock’s historical average of 22, it is still extremely expensive in my opinion.

Dominant firms with Internet access such as Alphabet, Amazonand Meta platformsall trade well below Shopify’s P/S ratio. While Shopify may have better growth potential than these big companies, potential investors have a bottom line safety margin. For example, investors will likely run for the exits if growth slows significantly.

Shopify also leaves a lot to be desired in terms of profitability, as it hasn’t had a consistent history of posting positive earnings. It reported $327 million operating income through the first six months of 2024. That was a huge improvement over last year, but only accounted for 8.3% of revenue. The hope is that as the business grows, earnings can increase. But, of course, this outcome is far from certain.

I don’t think Shopify is a smart buying opportunity. I also don’t think the company’s market cap can expand 10x in the next six years to reach $1 trillion. This would imply a monstrous annual growth rate of 47%. Over the past six years, the market capitalization has grown at an annual rate of 37%. It’s best to temper expectations.