Will Shopify Become a Trillion-Dollar Stock by 2030?

Shopify (SHOP -2.68%) has taken its investors on a volatile journey ever since its initial public offering in May 2015. But shares have still made for a wildly successful investment, as they have soared 2,860% during the company's entire public history. As of this writing, the business carries a market cap of just under $100 billion. Can this top e-commerce stock see its market cap rise 10-fold between now and 2030? That would make Shopify a trillion-dollar enterprise by the end of the decade. All about e-commerce Shopify hasn't even been around for 20 years. Management deserves a ton of credit for the monster success this business has registered. Noticing an unmet need in the market, Shopify created a software platform that makes it incredibly easy for anyone to set up a store online and start selling products immediately. Various tools are offered, like checkout and point-of-sale solutions, payment processing, marketing features, and inventory management, among many others. The business has carved a successful niche in the e-commerce sector. Shopify boasts that it "powers millions of businesses in more than 175 countries." It handled $67.2 billion in gross merchandise volume, or the dollar value of orders on the platform, in the second quarter (ended June 30). That figure was up 22% year over year and almost 5 times higher than the same period five years earlier in 2019. This has resulted in tremendous revenue growth over the years. Even in uncertain economic times, Shopify's top-line gains are impressive. Sales were up 22% in the first six months of this year. And Wall Street consensus analyst estimates call for revenue to rise at a compound annual rate of 21% between 2023 and 2026. It's easy to be optimistic about long-term growth potential. In the U.S., brick-and-mortar still represents 84% of all retail spending. According to Grand View Research, global e-commerce sales are set to rise at an annualized pace of almost 12% throughout the rest of the decade. This provides a favorable backdrop for Shopify to continue its growth trajectory. Keep expectations in check Before we even think about the possibility that Shopify will enter the trillion-dollar club, a group that currently consists of only seven companies (as of Aug. 23), investors must first figure out whether the stock is worthy of adding to their portfolio. Shares have soared 119% since the start of 2023, and today, they trade at a price-to-sales (P/S) ratio of 12.8. While this multiple is lower than the stock's historical average of 22, it's still extremely expensive, in my opinion. Dominant internet-enabled firms, like Alphabet, Amazon, and Meta Platforms, all trade well below Shopify's P/S ratio. Although Shopify might have better growth potential than these great companies, prospective investors have a minimal margin of safety. For example, investors will likely run for the exits if growth slows down meaningfully. Shopify also leaves much to be desired on the profitability front, as it hasn't had a consistent history of posting positive earnings. It reported $327 million in operating income through the first six months of 2024. That was a huge improvement from last year but represented just 8.3% of revenue. The hope is that as the business scales up, earnings can soar. But of course, this outcome is far from certain. I don't believe Shopify is a smart buying opportunity. I also don't think the company's market cap can expand 10-fold over the next six years to reach $1 trillion. This would imply a monster annualized growth rate of 47%. In the past six years, the market cap climbed at a yearly pace of 37%. It's best to temper expectations.