When it comes to Shopify (NYSE: SHOP) stock, many growth investors have been gobbling it up enthusiastically. The allure is undeniable: the shares possess considerable long-term growth potential.
The Power of Platform Stocks
Some of the most legendary stocks in history belong to the group known as platform stocks. These companies offer a foundation upon which numerous other entities flourish. Take, for instance, the appropriately named Meta Platforms, which oversees a bevy of successful businesses like Facebook, Instagram, and WhatsApp.
When users engage with Facebook, they are not merely consuming content crafted by Meta. While Meta engineered the software that serves as the conduit for this content, it is the users who form and share the content. This unique setup allows Meta to have millions of content creators enriching its platform, essentially for free.
Platform companies like Shopify operate on a similar model. Since its inception in 2006, Shopify has empowered merchants to establish online storefronts within seconds. Early on, Shopify invited external developers to enhance its platform. Much like Facebook, these developers could monetize their contributions, consequently drawing a vast “free” workforce into the mix.
It’s crucial to highlight that Shopify’s e-commerce platform diverges significantly from Amazon’s marketplace. While anyone can buy or sell on Amazon, the company does not provide developers unrestricted access to modify its software. In stark contrast, Shopify grants developers the freedom to tweak its platform to their liking, integrating new payment options, inventory tracking tools, design templates, marketing features, or customer analytics dashboards, which are then accessible to all Shopify users. This mounting capability sets Shopify apart, solidifying its status as an e-commerce leader in the U.S.
A robust distributed developer network has endowed Shopify with a broad array of functionalities, propelling it to capture a significant market share. According to Statista, Shopify commands a 28% slice of the U.S. e-commerce market, with WooCommerce at 17% and Wix Stores at 16%. Shopify’s dominance stems from its superior functionality, a direct result of its massive developer community.
The AI Advantage for Shopify
Artificial Intelligence (AI) has emerged as a red-hot topic lately. While many investors focus on companies creating AI technologies, perceptive investors are also eyeing companies poised to reap the benefits of AI advancements.
Morgan Stanley recently designated Shopify as one of its “high conviction” winners concerning AI integration due to its robust platform business model.
Technology now plays a pivotal role in online retail. Behind every e-commerce website lies a suite of tools aimed at tracking and enhancing each visitor’s experience.
For instance, upon visiting a Shopify-powered website, the platform may already discern the products of interest based on the visitor’s browsing history or location, dynamically curating a personalized shopping experience.
These optimization tools are increasingly AI-driven, necessitating developers to build and refine them. And where are most of these developers likely to congregate? With Shopify, the foremost e-commerce platform in the U.S. Thus, Shopify stands to attract the majority of AI developers working on such applications, bolstering its platform and drawing in more users over time. This virtuous cycle positions Shopify to enjoy sustained benefits for years to come.
Shopify epitomizes a quintessential platform stock that investors should strongly consider for extensive long-term growth prospects.