“It is like Black Friday. Every day.”
I was talking to a good friend. He’d just landed a new job and couldn’t believe what their team had pulled off during the lockdown.
Q1 2020 hedge fund letters, conferences and more
You see, while the world ground to a halt, his company quietly sold $470 million worth of products — 47% up compared to last year. Behind the headlines, it attracted millions of new customers.
And when the S&P 500 plunged 9%, this company’s stock has doubled in value.
I’m talking about Shopify Inc (NYSE:SHOP), an invisible online shopping kingpin. And my analysis shows it’s just getting warmed up.
You see, on April 28, it made a very important strategic move that had been years in the making. It’s part of Shopify’s master plan to dominate online shopping. And the lockdown opened up a rare opportunity to pull it off.
But before I tell you all about it, let me give you some background.
COVID-19 Was the Final Nail for Retail
As you probably know, retail was already on its deathbed before COVID-19.
In 2019, over 9,000 stores shut their doors, with dozens of big-name retailers filing for bankruptcy, including Fred’s, Forever 21, and Barneys New York. Now COVID 19 has driven the final nail in retail’s coffin.
As America was put on lockdown, most retailers had no choice but to flip their storefront signs to “closed.” Scrambling to stay afloat, they fled to the internet en masse.
Thousands of new online stores have sprung up across America this year, according to Shopify Inc.
And there couldn’t be a better time to do this.
With Americans holed up at home, billions of dollars have migrated from retail to the internet. But while folks have been quick to adapt to this new way of shopping, it’s not always a walk in the park for businesses.
Migrating from Retail to the Internet Is Not Easy
Setting up an online shop is no easy stroll.
First, there is the technical side: you have to build a website, set up a server to run your website, and collect payments. Everything must be secure and comply with strict, ever-changing data protection laws.
That requires a lot of expertise — or deep pockets to pay for that expertise. A basic online store can cost tens of thousands of dollars.
But that’s not all.
You must also look after logistics and inventory, all while making sure your customers get their stuff on the front porch within a couple of days — max. At scale, it’s an operational nightmare, and it comes with a price.
For this reason, online shopping has long been off limits to most businesses. Then Shopify came along...
Shopify Inc Has Changed the Online Shopping Game
If you’ve come across an online store that isn’t Amazon, chances are it is run by Shopify.
But Shopify itself doesn’t sell stuff. Instead, it helps small businesses sell their stuff online.
For as little as $29, the company offers a simple tool that sets you up with a custom online store. They can even hold your inventory at their warehouses and ship your products.
Because Shopify Inc operates behind the scenes, most consumers don’t even notice it. But it’s already the world’s second-biggest online shopping company. It powers over a million online stores from all over the world that are grinding out 50+ billion a year.
Helping small businesses sell online, however, is just part of Shopify’s master plan to dominate online shopping.
Since 2017, Shopify Has Been Quietly Preparing for This Move
In 2017, Shopify Inc launched a parcel-tracking app called Arrive.
While the app was officially supposed to help online shoppers track their orders, the company was in fact quietly building up a customer base of online shoppers.
This app has attracted 16 million online shoppers since its inception, according to Business of Apps. By my calculations, it has pulled in more than 4 million shoppers during the lockdown alone.
Then, on April 28, Shopify flipped the switch.
The company renamed its parcel-tracking app to Shop and swiftly turned it into an online shopping app like Amazon’s. Besides tracking orders, Shop allows you to discover products from Shopify stores, get recommendations, order, and check out.
You see what just happened?
With a single flip of the switch, Shopify Inc connected 16 million shoppers with a million mom and pop online stores from across the globe. Shop is now probably the world's most diverse online store after Amazon—and it’s just barely started dipping its toes.
Until recently, Shopify was just a tool for retailers. Now it’s become the Amazon of small business, a pivotal development that went unnoticed by many investors.
Tread Lightly
I would not put a big position in Shopify Inc right now.
As we’ve discussed, the stock has soared over 100% since the beginning of 2020. But it’s not uncommon for such geyser-like stocks to take a breather.
Besides, the pandemic may have a longer-lasting negative impact on its merchant sales, which may nip at Shopify’s revenues in the short term.
Still, this is a game-changer moment for Shopify we don’t want to miss out on. So here’s what I suggest.
Slowly dollar cost average into this stock and brace yourself for wild price swings over the next year. Once we are past that, I see a very bright future for Shopify.
