In the last few years, several companies south of the border have surpassed the trillion-dollar valuation in terms of market capitalization. Apple (NASDAQ: AAPL) was the first publicly listed company to be valued at $1 trillion and has since more than doubled in valuation.
While there is no Canadian stock on this list, things might soon change by the end of this decade. Canada’s tech giant Shopify (NYSE: SHOP) is already the largest company on the TSX, trading at a market cap of $175 billion. Let’s see why it is poised to be the first TSX stock to reach $1 trillion in market value.
Revenue and earnings growth
In 2020, Shopify managed to increase its top-line by 86% year over year to $2.9 billion. The company operates via its Merchant Solutions and Subscription businesses.
While Merchant Solutions sales more than doubled by 117%, Subscription sales were also up by a solid 53% in the last year. This allowed the company to post a net income of $320 million in 2020, compared to a net loss of $125 million in 2019.
Wall Street expects revenue growth to decelerate in 2021, but it’s still forecast to rise by 39.6% to $4.09 billion this year and by another 31% to $5.36 billion in 2022. Analysts expect earnings to decline marginally by 2% in 2021. However, its forecast to rise by over 50% annually in the next four years.
Expanding addressable market
The COVID-19 pandemic acted as a massive tailwind for e-commerce companies including Shopify that accelerated the shift towards online shopping.
In 2020, online sales accounted for 14% of total retail sales, up from just 11% in 2019 and 6% in 2014. According to a Statista report, this figure is expected to touch 19% by the end of 2024, giving Shopify enough room to grow revenue at a fast clip.
Massive merchant base
Shopify has close to 1.7 million merchants on its platform with over a million of them in the U.S. and this figure should move higher in the next few years. Shopify will be able to leverage its suite of expanding solutions to drive incremental sales from its new and existing user base lowering its user acquisition costs.
It is also the fastest-growing website store builder. Shopify has managed to increase its market share from 0.1% at the start of 2014 to almost 2% at the start of 2020 in this vertical.
We can see why Shopify may be Canada’s first trillion-dollar company given its multiple secular tailwinds, widening user base, and a rapidly expanding addressable market.