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Shopify Inc. (SHOP) Still Has Plenty of Room to Run

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Back in 2004, long before Shopify Inc (US) (NYSE: SHOP ) was a publicly traded company, Tobias Lütke, Daniel Weinand and Scott Lake wanted to create a website to sell snowboarding equipment. They soon realized that they weren't satisfied with the current e-commerce systems, so they decided to create one of their own. Well, of course, this turned out to be a much better idea than the original business, and now SHOP is one of the leaders in the cloud-based e-commerce market with a market cap of roughly $11.3 billion.

Source: Shopify via Flickr

A key to the success of Shopify stock has been its obsessive focus on the customer. To this end, the company has been prolific with new product innovations, including mobile apps, a point-of-sale system, inventory management, cash advances and sophisticated analytics.

But the story of SHOP stock has also been about an aggressive partnership strategy. This has involved the creation of a vibrant app platform, which includes over 13,000 partners. These partners span from small operators to large companies like Facebook Inc (NASDAQ: FB ) and Amazon.com, Inc. (NASDAQ: AMZN ).

No doubt, a typical Shopify client wants to get access to large numbers of potential customers. As a result, the company has made this a priority of the partnership program. Perhaps the most notable example of this is a deal with eBay Inc (NASDAQ: EBAY ).

And yes, this may seem kind of odd. Aren't Shopify and eBay rivals? While this is true, the fact is that many small business owners leverage the eBay platform. So SHOP has built a dashboard that provides seamless access to the transactions, providing customers with access to a whopping 167 million shoppers.

SHOP also recently completed another deal with Buzzfeed. It allows Shopify customers access to affiliate revenue opportunities for an audience of over 200 million.

The Financials and the Shopify Stock Price

During the latest quarter, revenues soared by 75% to $151.7 million. To put this into perspective, the total revenues for Q2 of 2015 came to $44.9 million.

Even though Shopify still loses money, the losses are not particularly large. For the most recent quarter, the adjusted net loss came to $1.1 million, or 1 cent a share, down from a loss of $3 million, or 4 cents a share, during the same period a year ago. Despite these losses, SHOP has $932.4 million in the bank.

In light of its hefty growth rate, it should be no surprise that Shopify stock has been a top gainer. For the year so far, its shares have logged an impressive gain of 167%. In fact, since the IPO in May 2015, Shopify stock has gone from $17 to $114.47.

Bottom Line on SHOP Stock

It's true that Shopify stock is far from cheap. Consider that the shares trade at a nose-bleed 22 times sales. Even in the red-hot cloud sector, this is steep. For example, Wix.Com Ltd (NASDAQ: WIX ) trades at 8.6x sales, and Godaddy Inc (NYSE: GDDY ) sports a multiple of 3.9x.

Yet a premium for SHOP stock is deserved because of its robust growth rate. More important, the company is still in the early stages of its market opportunity. Its customer base is at over 500,000, but there are still millions of businesses that do not have an e-commerce solution.

Now this is not to imply that Shopify will continue to rack up the kinds of returns that we've seen over the past couple years. Even though Shopify may not grow revenues at the same rate in the future, the company should continue to benefit as a best-of-breed operator in its industry.

Tom Taulli runs the InvestorPlace blog IPO Playbook and is also the author of High-Profit IPO Strategies , All About Commodities and All About Short Selling . Follow him on Twitter at @ttaulli . As of this writing, he did not hold a position in any of the aforementioned securities.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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