WHY INVESTORS SHOULD STICK WITH SHOPIFY INC.

Merchants love Shopify Inc., and for good reason. The average merchant on the Ottawabased e-commerce provider’s platform saw annual revenue growth of 16 per cent in the first quarter, outpacing broader retail sales growth by a wide margin.

This type of success explains why more small and medium-sized businesses are choosing Shopify for their online sales solutions.

Gus Papageorgiou, an analyst at Macquarie Capital Markets, believes Shopify’s total merchant count is somewhere around 430,000 — an impressive figure. Papageorgiou suggested this is a sign that Shopify’s brand is growing.

“As the company continues to focus on removing the complexity of the on-line experience, lowering the barriers to commerce and making merchants successful, we believe it will continue to enjoy outstanding success,” the analyst said in a research note.

Ross MacMillan at RBC Capital Markets thinks the merchant additions imply no slowing of Shopify’s customer acquisition and growth trajectory. The analyst noted that the company’s Shopify Capital funding business is quickly ramping to “hyper-growth mode, as it has committed $60 million of aggregate cash advances so far in 2017, compared to $30 million in fiscal 2016.

Meanwhile, monthly recurring revenue (MRR) for Shopify Plus, which offers enhanced services and support for merchants, is growing at an annual rate of approximately 150 per cent.

Shopify’s relatively expensive valuation aside, investors must be wondering what happens when it hits some turbulence.

Richard Davis at Canaccord Genuity thinks that is at least several quarters, if not years, away. He’s recommending investors hold on for what should be an exciting ride higher.

“When you have a hot hand you stick with it, and when you have a company with very good visibility and a barely penetrated, open-ended opportunity the stock price tends to keep rising, barring overall stock market corrections.”