Castlefield Stock Story - Shopify

From Black Friday to Cyber Monday and beyond, roughly a quarter of all dollars spent this Christmas will be through online transactions. Here, Castlefield Investment Analyst David Gorman introduces Shopify – the Canadian e-commerce company connecting merchants and consumers to fuel global retail sales.   

“Are you ready for Christmas?” It’s a familiar refrain this time of year, as we enter the peak shopping season on both sides of the Atlantic; Black Friday, Thanksgiving and then the festive period itself. In recent years, though, weary shoppers have spent less time battling for a parking space and trudging around the shops and more time buying gifts online.  

Even though retail sales in the US have been sluggish this year, consumers will dig deep for Christmas, such that online festive spending is expected to rise by 5% year-on-year, to more than $250 billion, according to Adobe Analytics. Adobe believes that $1 in every $4 spent over the festive period will be spent online.¹ A typical British household spends around £713 or 29% more in December than in any other month² and promotional events such as Cyber Monday encourage us to spend in November too. 

At the forefront of the revolution in e-commerce is the Canadian company Shopify. The company began life in Ottawa in 2004, when three friends, Tobias Lütke, Daniel Weinand and Scott Lake, started their own online snowboarding equipment store called Snowdevil. After a period of development, this platform launched as Shopify in 2006. The launch was timely, as Apple launched the first iPhone in 2007 and its App Store in 2008, helping to connect merchants and consumers. Like many other online businesses, Shopify had a good pandemic, with lockdowns giving sales and profits an extra boost and forming new shopping habits among consumers.   

Shopify is the leading global commerce company that provides users with the essential internet infrastructure for commerce, offering users everything they need to start, scale, market and run a retail business of any size.  

So, what does Shopify do? It’s a bit like eBay in that it enables you to sell things online. Shopify is the leading global commerce company that provides users with the essential internet infrastructure for commerce, offering users everything they need to start, scale, market and run a retail business of any size.  

eBay works well for people who want to sell a limited number of items quickly to an established market, without having to build a complete website and it becoming a full-time job. For example, you might be having a clear-out at home and eBay is ideal for that.  

Shopify meanwhile is best for people who want to build a fully-fledged, online retail business. Its platform allows you to build a website using a range of customisation features. New users are introduced to a dashboard that allows them to add products, view transactions and manage store operations. They can organise products by categories, keyword tags and collections of related items. They can add content to their store, such as “about”, “contact us” and FAQ pages. They can customize store design and functionality using templates, customizing navigation menus and checkout carts, or adding apps from the Shopify app store. Users have their own shopfront with total control over design, layout and customer data. They can also access services such as stock management, shipping cost calculators and marketing tools.  

Some well-established “bricks-and-mortar” brands also use Shopify for services such as payment and order fulfilment, names like Estee Lauder cosmetics, Michael Kors, Chilly’s water bottles and Oatly, plus UK brands such as Penguin Books, Lloyds Pharmacy and GymShark. The company is now home to 2.7m live stores.³  

So, what about Artificial Intelligence? Shopify is in a great place to benefit from the AI revolution because it already has the data from millions of merchants and billions of transactions to draw on, as well as partnerships with ChatGPT, Microsoft Copilot and other AI tools. 

We hold Shopify shares in our TM Castlefield Thoughtful World Equity Fund and e-Commerce is a market we like, both for its attractive financial returns and its sustainability attributes. We also own shares in the Latin American e-commerce company Mercado Libre, which was a Stock Story a couple of months ago.   

Recent financial results show Shopify benefitting from its market-leading position and we like the fact that the company is constantly evolving in response to market trends.