Key Points
Bank results are telling a story of a healthy economy.
Shopify benefits when spending is strong.
Shopify has many growth drivers.
Economic indicators continue to confound the powers that be as they don't move in their typical lockstep. Federal Reserve Chairman Jerome Powell is lowering interest rates because of high unemployment, but in the meantime, inflation has not been tamed, and this week, the big banks have been painting a rosy view of the economy as their earnings soar.
If the U.S. consumer remains strong and spending patterns are healthy, you can be confident that Shopify (NASDAQ: SHOP) is reaping the benefits.
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The other e-commerce giant
Although Amazon has a strong hold on U.S. e-commerce, Shopify may be the runner up to the retail powerhouse. You won't see its name on the list of top U.S. e-commerce retailers because it doesn't sell products to consumers; it sells e-commerce, and increasingly all types of commerce, solutions as a business-to-business company. However, Shopify's gross merchandise volume, or the amount of money it processes across its commerce empire, comes close to Amazon's stores and third-party sales figures: $87 billion versus $107 billion in the second quarter.
Shopify makes money from subscription fees and processing fees, so its revenue is much lower than that: $2.7 billion in the second quarter. However, it's growing quickly. Revenue increased 31% year over year, and that's been accelerating.
The company has many factors helping it achieve that kind of growth. E-commerce is still increasing as a percentage of retail sales, an organic growth driver, but it's also expanding to physical stores and a complete set of omnichannel shopping options. Shopify offers the gamut of different packages, including single services, and that more recent development opens it up to a larger group of clients, including enterprise clients like Starbucks and Canada Goose. Entrepreneurship is on the rise, and that's Shopify's sweet spot.
It's also expanding internationally. Although Shopify is the largest e-commerce software platform in the U.S., it has major international competition from larger companies like WooCommerce and Squarespace, and it's launching new services in more global locations to grab greater market share.
Shopify stock is climbing
Shopify stock is already up about 47% this year, but if the banks are telling a story of the overall economy, Shopify is likely to demonstrate excellent performance when it reports third-quarter results on Nov. 4.
But whether or not it jumps in early November, which looks likely right now, it has a long growth runway, and the best time to invest is as soon as you can.
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Shopify, and Starbucks. The Motley Fool has a disclosure policy.
