Four pillars drive long-term growth! UBS draws a blueprint for Shopify (SHOP.US) for the next ten years: the compound annual growth rate of GMV and gross profit is expected to exceed 15%

The Zhitong Finance App learned that in a recently released research report, UBS predicts that based on assumptions about current and 2035 predicted market size and growth rate, market share forecast range, unit economic efficiency, payment penetration rate, and additional service utilization rate, Shopify (SHOP.US) is expected to achieve a compound annual growth rate of about 15-21% of total commodity transaction volume (GMV) between 2025 and 2035, while the compound annual growth rate of gross profit is expected to reach 15-20%. The bank gave Shopify a “neutral” rating and a 12-month target price of $165.

UBS said that its analysis disassembled the revenue and gross profit contributions generated by each business segment of Shopify through “subscription solutions” and “merchant solutions,” and comprehensively considered different levels of software-as-a-service adoption rate, total payment penetration rate, net return on payment, transaction fee revenue and other merchant services, as well as the potential contribution of new products.

The bank finally arrived at a compound annual growth rate of about 15-20% in gross profit for the 2025-2035 forecast period. Among them, the international SME sector contributed about 650-750 basis points (due to its large market size base, significant penetration rate, and SME economic effects based on net return), the North American core SME sector contributed about 400-500 basis points, the enterprise sector contributed about 200-300 basis points, the offline POS sector contributed about 100-200 basis points, and the B2B sector contributed about 50 basis points, and new products (such as advertising potential) contributed about 50-150 basis points.

Underlying factors underpinning Shopify's gross profit growth include: an increase in payment penetration rate (although partially offset by a decline in net return on payments due to changes in the business structure), a slight increase in the expected gross profit margin of subscriptions and other merchant services year by year (due to the dual effects of payment penetration and pricing), and the assumption that new products contribute (if no new products are launched, the gap between total product transactions and gross profit growth will be slightly larger).

According to UBS, Shopify has succeeded in the four growth pillars of enterprise, international, offline POS, and B2B, which have broad market potential. At the same time, Shopify is well-positioned to benefit from what the bank sees as the most important investment themes of the next decade, including the intersection and integration of software and payments, as well as financial services and business-enabling solutions that embed the ecosystem and enhance monetization capabilities.

UBS added that Shopify continues to achieve success in three key dimensions: 1) deepening the product moat — in addition to monetizing payment services built on its proprietary software, Shopify has also launched a variety of embedded financial services (including funds, balances, etc.) and business enablement solutions covering marketing, logistics, audiences, cross-border solutions, intelligent business cooperation, etc.; 2) Continued expansion of customer coverage — at the customer type level (providing the strongest or leading commercial solutions for both small and medium-sized enterprises and enterprise merchants), channel level (stabilizing e-commerce retailers) It is a leader in the field, and continues to gain market share in the offline POS market) and geographical coverage (by the end of 2024, about 50% of merchants are located outside of North America), and continues to make efforts in the cross-border e-commerce field; 3) Building a two-way network — the consumer side attracts more than 200 million registered users through Shop Pay, and the adoption rate of corporate merchants continues to increase, while the Shop application continues to drive consumer participation and show advertising business potential. The bank believes that Shopify has room for further growth in each of these areas, and its continued growth is expected to drive profit forecasts to continue to rise.