UBS recently released a research report forecasting that Shopify (SHOP.US) could achieve a compound annual growth rate (CAGR) of approximately 15-21% in gross merchandise volume (GMV) and 15-20% in gross profit between 2025 and 2035. The projections are based on assumptions about current and projected market size, growth rates, market share, unit economics, payment penetration, and add-on service adoption. UBS assigned Shopify a "Neutral" rating with a 12-month price target of $165.
The analysis breaks down Shopify's revenue and gross profit contributions from its "Subscription Solutions" and "Merchant Solutions" segments, incorporating factors such as SaaS adoption rates, total payment penetration, net payment yield, transaction fee revenue, and potential contributions from new products. UBS estimates a gross profit CAGR range of 15-20% for the 2025-2035 period.
Key contributors to this growth include: - **International SMBs**: 650-750 basis points (due to a large market base, low penetration, and favorable unit economics). - **North American Core SMBs**: 400-500 basis points. - **Enterprise Segment**: 200-300 basis points. - **Offline POS**: 100-200 basis points. - **B2B Segment**: ~50 basis points. - **New Products (e.g., advertising)**: 50-150 basis points.
Underlying drivers for gross profit expansion include: - Rising payment penetration (partially offset by declining net payment yield due to business mix shifts). - Gradual improvements in subscription and merchant service margins (driven by payment adoption and pricing). - Contributions from new products (without which the gap between GMV and gross profit growth would widen slightly).
UBS highlights Shopify's success across four high-potential growth pillars: enterprise, international, offline POS, and B2B. The company is well-positioned to benefit from key investment themes over the next decade, including the convergence of software and payments, embedded financial services, and commerce-enabling solutions that enhance monetization.
Additionally, Shopify continues to excel in three critical dimensions: 1. **Product Depth Strengthens Moat** – Beyond monetizing its proprietary payment software, Shopify offers embedded financial services (e.g., capital, balance) and commerce solutions spanning marketing, logistics, cross-border support, and smart partnerships. 2. **Expanding Customer Breadth** – Serving both SMBs and enterprises with leading commerce tools, dominating retail e-commerce while gaining offline POS share, and growing internationally (50% of merchants outside North America by 2024-end). 3. **Building a Two-Sided Network** – Over 200 million registered users via Shop Pay, rising enterprise adoption, and the Shop app driving consumer engagement and ad revenue potential.
UBS believes Shopify has further room for growth across these areas, with sustained momentum likely to drive upward earnings revisions.
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