tariffs imposed by U.S. president Donald Trump are expected to have an adverse impact on Shopify since more than half of its merchants are located in the U.S. and many of them import Chinese goods.Justin Tang/The Associated Press
Larry MacDonald is an economist, freelance journalist and author. His latest book, The Shopify Story, was published in the fall of 2024.
Investors may be dreading Shopify Inc.’s first-quarter report to be released May 8 because of the pain inflicted by U.S. President Donald Trump’s tariffs. Then again, Shopify SHOP-T has a great track record when reporting financial results: since its IPO in 2015, the company has exceeded analysts’ expectations in 34 of 39 quarters, often sparking a bounce in the stock price. Even if the first quarter is a dud, there is still Shopify’s long-term growth potential to consider.
Launched in 2006 from an Ottawa coffee shop by current CEO and chairman Tobi Lütke and two other co-founders (who have since left the company), Shopify has grown rapidly over the years by building a cloud-based e-commerce platform now used by millions of merchants of all sizes around the world.
But in 2025 there are tricky shoals to navigate as a result of Mr. Trump’s tariff hikes, which began in early February and reached a crescendo with “Liberation Day” on April 2. Of particular note are the 145-per-cent tariffs on U.S. imports of Chinese goods and the cancellation of the de minimis exemption that had allowed Chinese shipments worth less than US$800 to enter the United States duty-free.
These measures will have an adverse impact on Shopify since more than half of its merchants are located in the U.S. and many of them import Chinese goods. Hardest-hit by the much higher cost of imports from China will be U.S. dropshippers, who promote Chinese products and pass the orders to Chinese suppliers for fulfilment; they account for 5 to 10 per cent of the sales on Shopify’s platform, according to RBC Dominion Securities analyst Paul Treiber, who added that “China-sourced products represent 25 to 30 per cent of imports in Shopify’s core verticals.”
Analysts also worry that the tariffs will curb consumer spending as prices are bumped up and recessionary conditions gather force owing to layoffs at U.S. companies facing higher import costs. The retaliatory tariffs from China will also cause U.S. job losses, as will those from dozens of other U.S. trading partners if Mr. Trump levies high tariffs on them for not doing a “deal” during the 90-day reprieve he announced April 10.
Shopify’s stock is down 18 per cent over the past three months. Using valuation multiples such as price-to-earnings, price-to-sales and price-to-cash flow, Zacks Investment Research calculates a summary indicator, the Zacks Value Style Score, to rank companies from A to F, with A being the most undervalued and F being the most overvalued. Despite the recent dip in its stock price, Shopify currently has an F rating, “indicating that it is trading at a premium to its peers,” concludes Zacks.
Many investors will take a pass because of the valuation (and rightly so if their risk appetite is moderate), yet shares in fast-growing companies within the tech sector often continue appreciating for extended periods despite having rich valuations. A comparison of some Shopify valuation yardsticks with their historical averages also shows some modest undervaluation: the latest price-to-sales ratio is 14.5, below its 10-year average of 20.3, and the forward enterprise value-to-sales ratio is at 9.9, below its long-term median of 11.2.
According to TipRanks.com, 37 analysts covering Shopify have sharply lowered their 12-month target prices to an average of US$121, but that’s still 22 per cent above the closing price of US$99.25 on May 2. There were 24 buy, 13 hold and zero sell recommendations from the analysts.
According to LSEG Data & Analytics, the mean estimate from analysts for first-quarter revenues is US$2.3-billion, which is up 25.3 per cent year-over-year. The mean estimate for first-quarter earnings is 26 cents per share, up 30 per cent. And the mean estimate for earnings edged down a minuscule -2 per cent over the past 30 days, according to Zacks Investment Research.
Longer term, Shopify is still riding the large, secular growth opportunity that Mr. Lütke and the executive team have been mining since the company’s launch. According to a 2024 publication from Grand View Research, the global e-commerce market will expand at a compound annual rate of nearly 19 per cent until 2030. Moreover, the U.S. Census says e-commerce currently represents 16.4 per cent of total U.S. retail sales, whereas in China, e-commerce has advanced to more than 30 per cent of retail sales.
Shopify also has a strong market position. Merchant sales on its platform give it the second-largest market share in North American retail e-commerce. Amazon may be the 800-pound gorilla in the space, but it is competing in a different segment than Shopify by running a marketplace that sells standardized goods at the lowest prices and best delivery. Shopify is not competing directly with this business model; it offers a platform for independent merchants who tend to sell mostly differentiated products with unique and/or customized features (which provides a degree of immunity from price competition).
Instead, Shopify’s direct rivals are other e-commerce platforms that host independent merchants. They include Adobe Commerce (Magento), Salesforce Commerce Cloud, WooCommerce and BigCommerce. According to e-commerce expert Rick Watson, the founder and CEO of RMW Commerce Consulting, many of those other platforms have been struggling as Shopify builds its brand and increases its market share. In short, the trade war initiated by Mr. Trump has come at a time when Shopify has a demonstrated competitive edge, so it appears likely the tariffs will impinge more on its rivals, resulting in their market shares slipping further into Shopify’s hands.
Its balance sheet is strong and has the wherewithal to continue financing the company’s rate of innovation, one of the highest in e-commerce as measured by spending on research and development. According to the 2024 annual report, the balance sheet had current assets of US$7.3-billion versus current liabilities of US$1.9-billion; long-term assets were US$6.7-billion, far overshadowing long-term liabilities of US$400-million. Free cash flow has grown substantially since the pandemic to reach US$1.6-billion in 2024.
Indeed, there appears to be potential here for the ongoing stream of new e-commerce tools and solutions to boost Shopify’s sales and earnings, offsetting to some extent the weight of Mr. Trump’s tariffs. The company’s capacity to counter the tariff drag also applies to Shopify’s well-advanced rollout of a more diversified product line into other market segments, particularly point-of-sales transactions, international markets, large enterprises and business-to-business e-commerce.
Shopify has faced difficult environments before. During the financial crisis and recession of 2008-2009, it became profitable for the first time as jobless persons set up businesses on its platform and companies switched to its less expensive e-commerce offering. During the pandemic, Shopify’s growth went ballistic as people switched en masse to online shopping and activities.
The tariff crisis may not play out as well as past trials, but the outcome could still turn out better than expected. Mr. Trump’s tariff stand will inflict a world of pain on U.S. trading partners – and on the United States, because of the higher prices U.S. consumers will have to pay for many goods and the job losses resulting from an economic downturn.
Americans are beginning to feel the pain. The Conference Board’s index of consumer confidence is at its lowest level since May of 2020. And opinion polls conducted for ABC News/Washington Post, The New York Times, Fox and other media are finding that Mr. Trump’s disapproval ratings now exceed his approval ratings by wide margins. Those and other developments should put pressure on the President to dial down his hardline approach and accept “deals” from U.S. trading partners.