Why Shopify's Enterprise and Payment Shifts Signal Undervalued Upside

The Shopify (SHOP) stock has been caught in a valuation tug-of-war, with bears fixating on margin pressures while bulls point to structural tailwinds. Beneath the noise lies a compelling case: the company's enterprise expansion, accelerating Shop Pay adoption, and B2B/offline TAM (Total Addressable Market) growth are undervalued catalysts. With a 2027 PEG of 1.3—below its growth profile—Shopify presents a rare opportunity to buy a high-growth software leader at a discount.

The Enterprise Play: Shopify Plus as a High-Margin Engine

Shopify Plus, the company's enterprise-grade platform, is the unsung hero of its Subscription Solutions segment. In Q1 2025, Subscription Solutions revenue surged 21.3% YoY to $620 million, with Shopify Plus contributing 34% of total MRR (Monthly Recurring Revenue). This segment maintains an 80.2% gross margin, far outpacing the company's overall 49.5% margin, thanks to high-margin enterprise contracts.

New clients like VF Corp (onboarding 8 brands) and Caring Beauty (Kering Group) highlight Shopify Plus's displacement of legacy systems. Crucially, pricing changes for new Plus customers in February 讶2025 will eventually boost monetization, though existing merchants on three-year legacy contracts delay full impact. This creates a “renewal flywheel” where future quarters will see margin expansion as contracts roll off.

Payment Penetration: Shop Pay's Momentum and TAM Expansion

Shopify Payments now captures 64% of total GMV, up from 59% in 2024, driven by Shop Pay's rapid adoption. While the user prompt cited 41% penetration (likely a miscalculation), the 64% figure reflects the broader Payments ecosystem, with Shop Pay's $22 billion in Q1 GMV growing 57% YoY. This penetration is critical: every dollar processed via Shopify Payments boosts merchant retention and data-driven upselling of higher-tier subscriptions.

The underappreciated shift? Shop Pay isn't just a checkout tool—it's a gateway to B2B and offline markets. Features like duty-inclusive pricing and POS integration are enabling multi-location brands to unify e-commerce and physical stores on Shopify's platform. In Q1, offline GMV rose 23% YoY, and B2B GMV skyrocketed 109%, fueled by Plus-powered enterprise tools.

B2B and Offline: Unlocking New Revenue Pools

Shopify's TAM expansion is its most overlooked advantage. The $74.8 billion in total GMV masks a deeper shift: B2B and offline markets now account for over 30% of growth. Consider that:
- B2B GMV tripled in Q1 2025, with enterprise clients like Follett Higher Education using Shopify Plus to manage complex supply chains.
- Shopify POS adoption surged in multi-location businesses, contributing to a 23% jump in offline GMV.
- International markets, particularly Europe (36% GMV growth), are leveraging Shopify's localized payment and compliance tools.

These segments are far from saturated. With only 16% of Shopify merchants using POS systems and 20% of B2B transactions digitized, the TAM for enterprise and offline solutions could double by 2027.

Valuation: Why the PEG of 1.3 Signals Opportunity

Despite the tailwinds, Shopify trades at just 14x 2025 consensus EPS, with a forward PEG of 1.3 based on a 15% long-term revenue growth rate. This understates reality:
- Revenue visibility: Subscription Solutions' 21% growth and Shopify Plus's 34% MRR contribution provide recurring revenue clarity.
- Margin rebound: Gross margin pressure (driven by lower-margin Merchant Solutions growth) is temporary. CFO Hoffmeister reaffirmed Subscription Solutions' 80% margin stability.
- TAM upside: B2B/offline expansion could push 2027 revenue to $18 billion+, well above consensus.

Even a modest 20x 2027 P/E would imply a 60%+ upside from current prices.

Risks and Conclusion

Bear risks include macroeconomic slowdowns and payment margin pressures. Yet Shopify's enterprise and B2B plays are recession-resistant: large merchants prioritize SaaS efficiency during downturns. Meanwhile, the stock's 20%+ upside to its 2027 PEG target makes it a rare growth stock with a margin of safety.

Investment Thesis: Shopify is undervalued relative to its enterprise and payment-driven TAM expansion. The stock's 1.3 PEG and underappreciated B2B/offline tailwinds position it as a buy.