5 things you didn’t know about Shopify

Even with their recent decline, Shopify ( STORE -3.61% ) shares have more than doubled over the past year and been a solid multi-bagger for those who have held them for more than two years. Given the incredible gains, some investors might be tempted to sell stocks and “lock in” the profits. But I would say that’s a short-sighted approach. You’re probably underestimating this innovative e-commerce platform’s ability to continue growing, and selling today could hurt your portfolio returns.

Let’s look at five things you might not know about Shopify that might persuade you to hold onto your stocks.

1. Its rock star CEO didn’t want the job

In 2008, co-founder and CEO Scott Lake left Shopify, which left its co-founder and chief programmer, Tobias Lutke, as the company’s executive. Not wanting the job, he met with Silicon Valley venture capitalists to find someone else to fill the job, but the search was unsuccessful. Angel investor John Phillips eventually convinced Lutke to stick with it, saying “Tobi, you’ll never find anyone who cares about Shopify as much as you do. And so you should just give it a try.” Luckily, the reluctant software guru rose to the challenge and, by all accounts, turned out to be a terrific CEO.

Image source: Getty images.

2. Its customers shape the development roadmap

It might be his programming background, but Lutke has a knack for finding a common sense approach to even the toughest problems. One of the many important decisions for a fast-growing software startup is how to prioritize new features to launch for customers when it has limited resources. If these critical decisions are made incorrectly, the business could lose customers or waste valuable resources. For Lutke, his approach boils down to a simple question“Do most of our customers need it [the new feature] most of the time?” This clear guideline has enabled the company to deliver the most valuable improvements for customers over time and resulted in a platform that is both powerful and easy to get started.

3. He creates his own market

The coronavirus pandemic has created huge disruptions for small businesses, and a farmer was afraid of losing everything because the pandemic left him with no way to sell his crops. But she explained that Shopify’s software has helped make an incredible difference in her life:

There is now interest in picking up the vegetables at the farm, which we hope to make pre-sales online. I almost didn’t install it [her online store], because building a website is so hard, but Shopify has made it so easy. They should really know that they are helping people.

With years of Shopify platform development effort, it’s easier than ever to help merchants get started. The farmer’s story is just one of many entrepreneurs who now have their own e-commerce store thanks to Shopify. This ability to create own market is a powerful driver of long-term growth.

4. His partners make more money than the company

Shopify knows it can’t fulfill its mission to “make e-commerce better for everyone” without help. Since 2009, he has been building a extensive network of qualified professional partners such as web designers, app developers, designers, and even marketers to help merchants. This network grew with the company and shared its success. In fact, over the past four years, the partner network’s revenue has exceeded its revenue.

Bar chart showing Shopify's annual revenue and indicating that partner revenue exceeds it each year.

Data from Shopify presentations and year in review 2019. Table by author.

Jay Myers, an executive at app-building partner Shopify, described this network as the company’s “moat” and said, “It’s not the software – their competitive advantage is in the partnerships.” . Partners play a vital role in the long-term success of this e-commerce platform.

5. It’s not about finances

Most investors probably missed Shopify’s 2017 earnings call, but it was on that call that the CEO shared important insight into how the company is run. these, in a way, ratios or financial objectives.”

Lutke went on to explain how he is constantly focused on improving his product for traders and that “all of these things are going on the flywheel, which will hopefully spin faster and faster, faster.” The wheel Lutke refers to the acceleration effect that ecosystem upgrades have. Traders are attracted to the platform because it is powerful and easy to use. More customers on the platform allow partners and the company to improve the software even more, which in turn attracts more merchants.

Financial data provides what Lutke calls “verification that things are moving in the right direction,” but Shopify’s long-term growth is fueled by its flywheel.

If you are still not convinced…

You can see that this e-commerce platform has a lot to offer which power growth for years to come, but I’ll wrap up with my favorite aspect of Shopify’s business model, which Lutke explains in his latest letter to shareholders:

It is a chance and a rarity that our business model is in perfect harmony with our mission. We succeed when our traders succeed. Our merchants succeed when we make commerce better for everyone, and we’ve never been more ready to do so.

If you are still interested in selling your stocks after reading this, I certainly can’t stop you. But, I don’t make that mistake.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

About Gertrude H. Kerr

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