11. Shopify Inc. (NYSE:SHOP)
Number of Hedge Fund Holders: 56
5-Year Revenue CAGR: 42.11%
Upside Potential as of January 15: 16.45%
Shopify Inc. (NYSE:SHOP) is an e-commerce platform that provides a SaaS solution that uses AI to automate tasks and personalize shopping experiences. Its competitive strengths include a user-friendly interface, a vast app store, and a mobile-first approach. It’s expanding its reach into the enterprise market with Shopify Plus. This is a premium platform designed for high-growth businesses and offers advanced features and dedicated support.
In the third quarter of 2024, the company’s GMV (gross merchandise value) was up 24%, marking five consecutive quarters of 20%+ growth. This was driven by factors like international expansion, offline sales growth, and new merchant additions. Several AI-driven initiatives contributed to this growth. For instance, AI drives international expansion through features like automated VAT calculations and cross-border compliance within Shopify Tax.
Similarly, Shopify Flow has new AI-powered features that empower merchants with enhanced automation capabilities that streamline workflows. Shopify Inbox has AI-powered reply suggestions that improve customer service response times and boost conversion rates. Loop Capital analyst Anthony Chukumba believes that the company’s extensive use of AI across its platform is driving growth and margin expansion. He upgraded Shopify Inc. (NYSE:SHOP) to Buy on 6 December 2024, raising the price target from $110 to $140.
In FQ4 2024, the company’s revenue growth projection is mid-to-high 20% range year-over-year, driven by ongoing GMV strength. RiverPark Large Growth Fund increased its position in Shopify Inc. (NYSE:SHOP) following GMV results. It’s well-positioned for continued growth driven by e-commerce expansion and new product offerings. It stated the following in its Q3 2024 investor letter:
“Shopify Inc. (NYSE:SHOP): Shopify was a top contributor in the third quarter following a strong second quarter earnings report that included better than expected revenue growth and substantial margin expansion. Gross merchandise value (the value of all items sold on the platform) growth of 22% was three percentage points above investor estimates, revenue of $2.0 billion was $50 million better and free cash flow of $333 million was $80 million better. A combination of new merchants to the company’s platform, increased adoption of SHOP’s offerings by existing merchants, and e-commerce market share gains are driving this revenue growth and profitability.
Last year, 10% of US retail e-commerce sales flowed through SHOP, second only to Amazon, and the company is still enjoying significant tailwinds as retail merchants of all sizes adopt SHOP’s software tools to display, manage and sell their products across a dozen different sales channels. We believe that the overall growth of e-commerce, combined with the development of new products and services, such as its digital wallet Shop Pay, should continue to drive revenue growth of more than 20% per year over the next several years, accompanied by re-acceleration of operating margin growth and FCF generation.”