SHOP: The Underlying Drivers (and the Investor Expectations) of Shopify’s Strong Growth
Shopify continues to grow revenue at a meteoric rate, with 90% growth in 2016 and 75% year-over-year growth in the latest quarter. With shares at an all-time high and estimates continually moving higher, investors have taken a closer look at the total addressable market size and the growth trajectories going forward. With a large global market of small-medium sized businesses, and many that have yet to develop an online and mobile presence, investors see a massive opportunity for Shopify to continue to capture share and grow at strong rates in the foreseeable future. The key question is: what is the magnitude of that growth?
Visible Alpha’s detailed consensus estimates shed light on current investor expectations for segment revenue as well as the underlying revenue drivers. Within Subscription revenue, analysts expect strong growth of 56% and 35% in 2017 and 2018, respectively. Most of this growth is driven by expectations for strong merchant growth, shown below, as the company invests in increasing awareness through advertising.
Merchant growth is continually being revised higher as well. Six months ago, analysts believed there would be 845,000 merchants on Shopify in 2020. Today, analysts now expect almost 980,000 merchants by 2020.
A similar story is occurring in Merchant Solutions, where analysts expect strong growth of 76% and 48% in 2017 and 2018, respectively. This is primarily driven by strong growth in gross merchandise value (GMV), as the businesses on Shopify grow over time.
Estimates for GMV have also been continually revised upwards as analyst estimates have been too conservative. Over the last six months, GMV estimates for 2020 have moved up from $56 billion to $64 billion.
As Shopify continues to grow within the small-medium business market, debate on the number of merchants that Shopify will be able to capture on its platform longer-term will only intensify.
