Morningstar | Shopify: E-commerce Platform Provider Has a Narrow Moat in a Growing Market
Shopify strives to be a one-stop shop for small retail businesses, especially those that are e-commerce primarily, only, or first. The company offers an e-commerce platform with a variety of related add-on functionality that ultimately converge into a turnkey solution for small and midsize businesses, or SMBs. Shopify’s rapid growth since its 2015 IPO underscores a nascent software niche that is rapidly growing and demonstrates a winning solution. We believe the company has established a narrow moat, as switching critical e-commerce platforms has financial and operational costs for an already resource-constrained SMB. We forecast robust top-line growth decelerating over the next decade but still clocking in the high-teens area compounded annually.Our research suggests Shopify is the leading platform for SMBs, as supported by the largest number of merchants of any platform. More merchants and high attach rates from add-on features like Payments and Shipping should continue to drive strong revenue growth over the medium term. The company’s focus on using search engine optimization, topical blogs, and network referrals to attract SMB users suggest to us that there should be leverage in the sales and marketing line to help increase operating margins over time. We also think scale will help with margin expansion. We do not see a high degree of differentiation among the lower end of the market for core e-commerce platforms, but Shopify has established itself as a leader in this niche. Ease of use, a large expert support community, and an emerging developer ecosystem combine to make Shopify’s platform attractive. Add-ons such as Payments, Shipping, and Capital allow for upsells and provide another growth lever for the company. The platform also offers an enterprise-grade solution, Shopify Plus, which allows online stores to remain on the platform as their needs become more advanced. We think at the higher end, the company will enjoy some success, but will face stiff competition from highly sophisticated and tightly integrated platforms from Salesforce.com and Adobe.Shopify provides a cloud-based commerce platform designed for small and medium-sized businesses. Merchants use its software to run their business across all of their sales channels, including web, tablet and mobile storefronts, social media storefronts, and brick-and-mortar and pop-up shops. Co. provides a platform for merchants to create an omni-channel experience that helps showcase the merchant's brand and grow its business. Co.'s platform provides merchants with a single view of their business and customers across all of their sales channels and enables them to manage products and inventory, process orders and payments, build customer relationships and leverage analytics and reporting.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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