Why Shopify Inc. Stock Surged in 2016

By Bradley Seth McNew Markets Fool.com

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Image source:Shopify.

What happened

Shares of e-commerce platformShopify Inc. (NYSE: SHOP) surged 67% in 2016, according to data from S&P Global Market Intelligence.The company continued to get rewarded throughout the year following its impressive revenue and customer growth each quarter, as well as its initiatives to drive future growth such as new partnerships.

SHOP data by YCharts

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So what

In the most recent quarter, ended Sept. 30, Shopify's revenue grew 89% year over year, and its total transactions processed doubled to nearly $4 billion. Those transactions came from over 325,000 customers, up from 200,000 in Q3 2015, which includes not only thousands of small-scale entrepreneurs, but also some big names.

Image source: Shopify.

Shopify also announced a slew of new ways for its sellers to reach and interact with customers. During 2016, Shopify integrated mobile payments, made it possible for sellers to converse with customers and take payment via social media, and created a Shopify smartphone app for on-the-go sales processing. Shopify also increased its services offering to merchants through Shopify Plus for an added fee, which has also helped drive Shopify's revenue growth, while providing more tools and expertise to help merchants sell even more.

Now what

Looking to potential share price growth going forward, the big question will be whether Shopify can turn its massive sales and transaction growth into earnings. While the company's growth -- both in sales and in stock price -- is impressive, its losses have grown, and the company has guided for a $1 million to $3 million adjusted operating loss(excluding stock-based compensation expenses and related payroll taxes of$9 million) for the full year 2016.

However, management has said it believes the company could break even by the end of 2017.If that does happen in such a short time, that would certainly be impressive, but either way, Shopify is a long-term bet, not one to be made on short-term earnings expectations. In the meantime, Shopify has some room to run until it has net positive earnings after the additional stock offering from mid-2016, which doubled its available cash reserves to around $400 million.

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Seth McNew has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Shopify. The Motley Fool has a disclosure policy.