The Shopify (SHOP, Financial) platform empowers entrepreneurs and small businesses across the world, allowing them to process digital payments from their customers. The company has the second-largest e-commerce market share in the U.S., only 10% behind Amazon (AMZN, Financial) at 40% and more than double the likes of eBay (EBAY, Financial), which has only a 4.2% e-commerce market share.
The company's core business is the Shopify platform, which includes shipping, payments and Shopify Capital. Shopify Capital offers rapid funding for businesses within two to three days. The small- to medium-sized business e-commerce market has a $160 billion market opportunity according to the company, thus giving them plenty of growth runway ahead.
The business has also been expanding into brick and mortar retail with their Point of Sale (POS) systems, which are similar to the fintech giant Block's (SQ, Financial) offering. In the long-term, the company hopes to have a large-scale fulfillment network similar to Amazon and offer wholesale services.
Source: Shopify investor presentation
The business has scored huge partnerships with major social media players. These include Shop Pay, which offers checkout functions for users of Meta Platform's (FB) social media sites; Tik Tok Shopping, which allows things to be purchased directly from the fastest-growing social media platform; and a partnership with Alphabet (GOOG, Financial)(GOOGL, Financial) allowing users to buy directly from the search engine.
NFTs, or Non Fungible Tokens, are a major new asset class, and whether you think the technology has merit or not, the sales volume has skyrocketed. According to DappRadar, the NFT trading volume in Q3 2021 reached $10.67 billion. This is an increase of over 700% from the previous quarter. Shopify aims to take full advantage of this popularity.
In the Q4 2021 earnings call, Shopify president Harley Finkelstein said the company is currently testing a tool to allow brands to sell NFTs to their communities. The Shopify NFT program is currently in beta and available to all Shopify Plus customers in the U.S.
The company's financials have been growing incredibly over the past few years. Gross payment volume (GPV) skyrocketed by 59.2% in 2021 to $85.8 billion, and now makes up 49% of the Gross Merchandise Volume (GMV) processed, an increase from 45% in the prior year. This GPV increase implies strong loyalty and higher usage as more customers are transacting with merchants via the platform.
During Q4, the company's net loss came in at $371.3 million, compared to net income of $123.9 million reported during the year-ago period.
The valuation is low for Shopify compared to history, as the company is trading at 14 times forward sales compared to a historical average price-earnings ratio of 40. However, when compared to competitors, such as Wix (WIX, Financial), the valuation still looks high.