Increased TAM, But A Valuation That Is Hard To Justify

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Shopify (SHOP) is a Canadian e-commerce web development platform that serves clients of all sizes. It also offers complementary services such as payment processing, shipments, marketing, and financing solutions. In 2024, the websites that used Shopify as a provider had an estimated market share of over 12% in US e-commerce.

Despite these headwinds, the stock price has recovered significantly, from $25.67 to $110.95, thanks to a strong recovery in revenue growth and margins. Simultaneously, the top line is expected to continue accelerating in the following years as the company cross-sells new solutions and increases its total addressable market.

The second is through Merchant solutions, which provide customers with a centralized e-commerce platform to run their online business entirely. Here, Shopify earns from payment processing fees, currency conversion, and working capital lending. Recently, the company obtained $2.146 billion in quarterly revenue, growing 32.5% YoY. Finally, based on what the company has described, the sales volume is affected by seasonality , making Q4 the strongest quarter due to holiday demand, while Q1 is typically the weakest.

Shopify has been successful in incorporating every type of client, from solo entrepreneurs who want to build an online store to large enterprises with billions of sales. Simultaneously, the company has been cross-selling other solutions necessary to run an online business, which has allowed the company's financials to grow at double digits and increase its total addressable market.

These integrated solutions have increased customers' switching costs, especially on the web development front, as many apps are built exclusively for Shopify. At the same time, accepting Shopify Payments on a website tends to be cheaper than accepting Stripe or PayPal, as Shopify charges an extra fee per transaction, making customers more inclined to use Shopify Payments.

Finally, Shopify has benefited from higher interest rates, where they can earn interest from three solutions