In 2018, Apple famously became the first publicly traded company in the United States to reach a valuation of $1 trillion. Since then, several more companies have achieved this milestone, including Apple’s peers in the technology industry such as Microsoft, Alphabet, Amazon, Nvidia, and Meta Platforms. This group is still very exclusive, but more companies will join in the coming years. One of them might be Shopify (NYSE:Shop)an e-commerce specialist that currently has a market capitalization of $135 billion.
For Shopify to become a $1 trillion stock, it would need a compound annual growth rate (CAGR) of at least 14.3% over the next 15 years. It’s no easy task, but let’s take a look at why Shopify can pull it off.
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Shopify was created to address a real pain point for businesses looking to launch an online storefront: design challenges, lack of flexibility, and other issues that need to be addressed. Shopify changed that. This e-commerce specialist offers virtually everything sellers need in one place, from hundreds of customizable templates and payment processing to inventory, social media tools, marketing, and more.
Additionally, there are built-in systems that provide even more options to sellers. Shopify’s app store is home to thousands of apps that serve your customers’ very specific needs. With co-founder Tobias Lütke at the helm, since its IPO in 2015, Shopify has grown at a CAGR that far exceeds the CAGR needed to become a $1 trillion stock over the next 15 years.
SHOP Total Return Level data by YCharts.
There is some evidence in the academic literature that founder-led companies in the S&P 500 outperform other companies. Looking at the list of multi-trillion dollar companies, it’s hard to argue with this point. Nvidia and Meta Platforms are still led by their co-founders. Amazon was also founder-led until relatively recently, and Microsoft and Apple also had long stints with their respective founders (or co-founders) as CEOs before stepping down.
While Shopify following the same blueprint doesn’t guarantee success, it’s worth pointing out that the e-commerce specialist has set its sights on becoming a 100-year company. Few companies come close to this, but Shopify is off to a pretty good start.
One of the problems Shopify had was a lack of profitability. The company has recently made some changes to its business to help in that regard. Shopify has sold its low-margin logistics business, which was hurting profits. Since then, the company’s margins and profits look much better. Shopify’s revenue for the third quarter was $2.2 billion, up 26% year over year. Shopify’s net income increased 15% year over year to $828 million.
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Free cash flow margin was 19%, up from 16% in the prior year period. Shopify has consistently increased its free cash flow margin every quarter this year. It’s no wonder the stock price has risen significantly since the beginning of the year. More importantly, Shopify still has its sights set on a vast runway. Growth in the e-commerce industry should provide strong tailwinds for the company over the next decade and beyond. This allows people to do business with consumers and businesses that would otherwise be out of reach.
It also helps businesses save on overhead costs and savings that can be passed on to consumers. And despite its seeming ubiquity, e-commerce still has room to grow. Online transactions accounted for just 16.2% of total retail sales in the U.S. in the third quarter. Additionally, Shopify also benefits from competitive advantages. That app store has network effects. In other words, the more developers there are in the ecosystem, the more sellers it can attract, and vice versa. The company’s primary e-commerce service benefits from switching costs.
As such, Shopify has many of the characteristics needed to deliver market-beating returns over the long term. Profitable growth, long-term vision, abundant opportunities, and a moat that protects our leadership position in a niche market. The company appears to be on track to become a $1 trillion stock within 15 years.
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Prosper Junior Bakiny has held positions at Amazon, Meta Platforms, and Shopify. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Shopify. The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
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