There's More Than Meets the Eye With Shopify

By Danny Vena Markets Fool.com

With the overwhelming trend toward e-commerce continuing, it's difficult to isolate an industry or company that hasn't been affected. Some have been killed outright, while others are on life support waiting to be put out of their misery. While this relentless march to buy everything online has been blamed for the decline of big box booksellers, the shopping mall, and brick-and-mortar retail in general, there are a few companies that have thrived.

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Setting up and running an e-commerce website can be difficult and requires a certain level of expertise that most smaller business owners don't possess. Wouldn't it be great if a budding entrepreneur could find a place where they could choose from various options, customize a website, and leave the details of keeping the site up running to somebody else? A one-stop shop to set up an online store? Enter Shopify Inc. (NYSE: SHOP).

Shopify provides business owners with a one-stop shop to setup an online store. Image source: Getty Images.

Everything necessary to run an online store

Nobody would blame you if you hadn't heard of Shopify. It isn't a household name and the company has been under the radar of many investors having gone public just two years ago. Shopify is host to an easy to use e-commerce and payments platform employed by small- and medium-sized businesses that lets them set up an online store to sell their goods and services. The company provides over 100 pre-designed templates and 1,000 apps which allows users to customize the experience for their respective shoppers.

Not content to just set up that website, Shopify's e-commerce solution accepts credit card payments and allows owners to respond to and track orders. This software-as-a-service lives in the cloud, so it doesn't require costly servers or a high-priced IT department. The company also has tutorials and online forums where users can learn tips and tricks from other Shopify users. The platform integrates with third-party logistics services and offers discounted shipping rates for larger users. It also integrates with many of the major payment processing services.

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Everything a business needs to run an online store. Image source: Shopify.

Cheap to start, expensive to switch

Shopify provides a 14-day free trial and price tiers that cater to the size of the business with subscription plans between $29 and $299 per month. It also has a lite plan and an enterprise-grade plan for high volume merchants and large businesses.

Once a business has its website up and running it would be difficult, almost painful, to switch. Many owners go by the old adage "if it ain't broke, don't fix it." That provides Shopify with an edge over would-be competitors. Once they are in place, they will likely continue as the default choice going forward.

The good news and the bad news

Shopify has been growing like gangbusters and there has acquisition interest from a big suitor. In its most recent quarter it grew revenue to $127.4 million, a 75% increase over the prior year quarter. The company's monthly recurring revenue grew $20.7 million, up 62% year-over-year. Gross merchandise volume was $4.8 billion, an increase of 81% over the first quarter of 2016, while gross payments volume grew to $1.8 billion, up 37% over the prior year quarter. The number of merchants reached 400,000 for the quarter, up 45% year-over-year.

While all that growth is fabulous, it doesn't come without risk. Shopify's stock is up over 400% since the company went public two years ago and currently trades at 18 times sales from the past year. Any misstep or failure to meet investor's expectations and the stock could plummet. Still for an investor with an understanding of the risk and a longer time horizon, Shopify could be just the way to invest in the massive migration to e-commerce.

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Danny Vena owns shares of Shopify. The Motley Fool owns shares of and recommends Shopify. The Motley Fool has a disclosure policy.