Shopify Inc - Registered Shs -A- S

Shopify is a leading global ecommerce platform enabling the next generation of retail. Revenue grew 32 percent, the company’s fastest growth rate since 2021, supported by strength in North America and higher payments penetration. Concerns around AI-related expenses and forward guidance overshadowed strong quarterly results, but these concerns are manageable. Shopify is embedding AI into its platform to improve merchant productivity, product discovery, conversion, and win rates, creating potential latent pricing power over time. Early traction is encouraging, with Sidekick usage up 400 percent and Campaigns usage up 300 percent year over year. We maintain conviction in Shopify’s long-term growth, supported by enterprise adoption, international expansion, rising take rate, and AI-driven discovery and product enhancements.

Shopify Inc. continues to post healthy growth in gross merchandise volume and revenue, which were up 30% and 32% year-on-year, respectively. Despite a decline in stock price driven by multiple compression rather than any deterioration in the underlying business, we view concerns about Shopify's long-term positioning in e-commerce as misplaced. We see Shopify as an AI winner, leveraging two decades of proprietary data across millions of merchants to develop AI tools that improve merchant outcomes. This positions Shopify as the category-defining platform for modern commerce, benefiting from durable secular growth in digital retail.

Shopify delivered another outstanding quarter with revenue growing 34% year over year to $3.2 billion, marking its strongest quarterly growth in four years. The company is positioning itself as a foundational infrastructure provider for AI-powered shopping agents, helping establish an open standard that allows these agents to interact with merchants and complete purchases using Shopify’s infrastructure. We believe AI will accelerate Shopify's evolution into a comprehensive commerce operating system, making it increasingly valuable to merchants over time.

We added to our position during the quarter, seeing evidence of the growing AI wave in China through significant bookings growth and a material step-up in expected capital expenditures over the next few years to support the robust growth opportunity. Shopify is positioned to benefit from these trends, as the market underappreciates its potential in the evolving landscape driven by AI advancements.

Shopify Inc. is mentioned as part of the Fund's holdings, but there is no specific argument or directional language provided regarding its future performance or valuation.

Shopify is a leading global provider of mission-critical commerce infrastructure that enables retail companies to start, grow, market, and manage a retail business of any size. The company reported strong quarterly results that were above both consensus expectations and management’s guidance for most key metrics, including gross merchandise volume (GMV), revenue, adjusted operating profit, and free cash flow. For the quarter, revenue of $3.7 billion rose 31% year over year, benefiting from strong growth among existing clients and new client acquisition across all regions. The company has seen its free cash flow margins increase from -3% in 2022 to 19% of revenue in 2023, indicating a strong recovery and growth trajectory.

Shopify has been an exceptional business over time, compounding at over 40% annually since its IPO. Despite experiencing significant volatility, including a decline of more than 80% in 2022, the underlying fundamentals remain strong. The business continued to grow revenues, expand its merchant ecosystem, and strengthen its competitive position. The stock rebounded 124% in 2023 and generated over $1 billion in operating profit for the first time in 2024. This demonstrates the importance of patience through periods of valuation compression, as the returns in businesses like Shopify are earned by those willing to endure temporary divergences between stock prices and business performance.

Shopify is a business that the market has consistently struggled to value, and for understandable reasons: it does not fit neatly into a single category. The core thesis is simple: Shopify is becoming a commerce infrastructure layer for the modern internet. The AI story at Shopify is also compelling. The company has been building AI-powered tools for merchants that are genuinely useful. As AI capabilities become part of the core platform, Shopify becomes more valuable to more merchants, which expands the addressable market and deepens the moat. We added Shopify to the portfolio in mid-March and see it as a long-term compounder.

Shopify has evolved from a small to midsize business tool into a unified commerce platform, increasingly winning larger, more complex customers while continuing to gain share internationally. Its integrated ecosystem across storefronts, payments, point of sale and merchant services creates strong network effects and high switching costs. Shopify is also well positioned to benefit from the next phase of e-commerce, including AI-enabled and agent-driven shopping experiences, supported by disciplined execution and existing large language model partnerships.

We continue to view Shopify as a category-defining platform for global commerce, with a long runway for growth driven by its expanding ecosystem of merchant tools, international expansion, and payments infrastructure. Its consistent market share gains, growing recurring revenue from subscriptions and merchant services, and improving profitability profile support our long-term investment thesis.