The Default Platform for Entrepreneurs that Keeps Compounding

I’ve owned Shopify for many years, and my conviction originally came from seeing the product work in the real world.

While working at an agency, one of our clients migrated their business to Shopify. What stood out wasn’t simply how easy it was to build the store. It was how seamlessly the business could grow afterwards.

Shopify’s architecture gets the trade-off right. It takes the difficult, heavy-duty parts of running an online business, including hosting, payments, transaction security and infrastructure, and handles them behind the scenes. At the same time, merchants retain enormous flexibility through Shopify’s ecosystem of apps, extensions and integrations.

That combination is incredibly difficult to compete with.

Some competitors have tried to differentiate by bundling more functionality directly into their platforms. But there’s a natural downside to that approach. The product becomes more complex, while merchants are ultimately limited by what the platform itself decides to build.

Shopify took the opposite approach. Keep the core platform simple and reliable, then let an enormous ecosystem build around it.

This has helped Shopify become something close to the default operating system for independent commerce. As more merchants use Shopify, more developers build for Shopify. More integrations make the platform more useful, attracting even more merchants and making the ecosystem increasingly difficult to replicate.

More importantly, Shopify increasingly makes money when its merchants make money.

Today, roughly 78% of revenue comes from Merchant Solutions rather than subscriptions. This includes services such as Shopify Payments, transaction fees and other merchant services. Shopify therefore isn’t simply collecting a monthly software subscription. It participates in the economic activity flowing through its platform.

As its merchants sell more, Shopify makes more.

That creates a powerful long-term growth engine. Shopify doesn’t necessarily need to keep dramatically increasing subscription prices or constantly finding new merchants. Existing merchants becoming larger businesses can drive Shopify’s revenue higher alongside them.

AI could strengthen this flywheel further.

AI is dramatically reducing the cost of starting a business. A single entrepreneur can increasingly create branding, product descriptions, advertising, customer support and much of an online storefront with tools that barely existed a few years ago.

But making a website easier to build doesn’t eliminate the difficult infrastructure underneath commerce. Businesses still need payments, security, checkout, fraud prevention, tax tools, fulfilment and integrations.

AI may therefore commoditise the creation of an online store while simultaneously creating far more people capable of starting businesses.

That could be a very good trade for Shopify.

The biggest risk today is valuation. By no means is Shopify a cheap stock, and at its current valuation I don’t see it as an obvious stock that will double next year.

But my Shopify thesis has never really been about the next twelve months.

I believe Shopify has become one of the core pieces of infrastructure behind global entrepreneurship. And with most of its revenue now tied to merchant activity, Shopify increasingly benefits directly as the businesses built on top of it grow.

If Shopify can continue compounding revenue at around 20% annually for many years, the business can become dramatically larger from here.

That’s why, despite the valuation, I continue to see Shopify as a long-term compounder that beats market returns.