Shopify's TAM Expansion: A Double-Edged Sword

Shopify's Total Addressable Market (TAM) has been expanding at an impressive rate, driven by a combination of factors that have positioned the e-commerce giant as a formidable player in the market. However, while this growth is undeniably impressive, it also raises questions about the company's valuation and its long-term sustainability.

Shopify's TAM has grown significantly over the past few years, thanks to several key drivers. First, the company has expanded its reach by targeting new markets and customer segments, including larger merchants through its Shopify Plus platform and consumers directly through the Shop app. Additionally, Shopify's cross-border e-commerce services have enabled merchants to reach international customers, further expanding its TAM.

Second, Shopify's growth in gross merchandise volume (GMV) and gross payment volume (GPV) has been a significant contributor to its TAM expansion. From 2019 to 2023, Shopify's GMV growth rates were 49%, 96%, 47%, 12%, and 20%, respectively, while GPV growth rates were 55%, 110%, 59%, 24%, and 29% during the same period. These impressive growth rates indicate a substantial increase in the total addressable market for Shopify's services.



Third, Shopify's continuous innovation and introduction of new services have attracted more merchants and expanded its TAM. These services include Shop Pay, Shop Cash, Magic and Sidekick AI tools, point-of-sale hardware devices, credit and expense management tools, and cross-border e-commerce services. Additionally, Shopify's partnership with Amazon's "Buy with Prime" buttons has allowed it to tap into Amazon's vast customer base and fulfillment network, further expanding its reach.

However, while Shopify's TAM expansion is undeniably impressive, it also raises questions about the company's valuation. Shopify's current valuation is 13 times next year's sales, which is higher than its historical averages and industry peers. This valuation was likely inflated by the recent buying frenzy in AI stocks and expectations for lower interest rates and a warmer macro environment. However, it could limit its near-term gains.

Assuming Shopify matches Wall Street's expectations, grows its revenue at a robust CAGR of 20% from 2026 to 2028, and trades at a more reasonable 10 times sales, its stock price could rise about 30% to the low $160s by 2027. This would be a decent three-year return but might not impress investors who had expected it to replicate its gains from 2015 to 2021.

In conclusion, Shopify's TAM expansion has been driven by its expansion into new markets and customer segments, growth in GMV and GPV, innovation, and strategic partnerships. However, while this growth is impressive, it also raises questions about the company's valuation and its long-term sustainability. As Shopify continues to grow and mature, investors should closely monitor its progress and evaluate its valuation in relation to its historical averages and industry peers.