Originally posted on https://financhill.com/blog/investing/shopify-stock-vs-amazon-stock
E-commerce launched in the mid-1990s, with Amazon leading the way. While consumers showed interest in the concept, the relatively primitive technology of that time made this method of purchasing goods and services too cumbersome to go mainstream.
Of course, digital technology has advanced dramatically in the past 20 years. Today, nearly everyone uses mobile devices for a wide variety of tasks, including e-commerce. Shopping online is no longer a novelty, and many consumers have fully embraced it as an established method of making purchases.
E-commerce currently makes up approximately 10% of total retail sales, and that figure is growing rapidly.
Overall, e-commerce has increased at a rate of about 15% per year since 2009, and analysts are confident that growth will continue in coming years.
Consumers have demonstrated that they measure companies by the quality of their e-commerce platforms, whether they ultimately choose to make their purchases online or in-store. This has prompted businesses of all sizes and across industries to dedicate resources to more impressive online storefronts.
Perhaps more importantly, consumers are clearly excited by the opportunities e-commerce offers when it comes to comparison shopping for product prices and features.
There are a variety of online services that make it easy to find the lowest price available for identical items. Consumers are also delighted with their newfound ability to connect with individual sellers and small businesses that would otherwise be invisible.
It’s now common to secure an obscure treasure from a niche merchant overseas through e-commerce platforms, when just a few years ago, such a purchase would have been difficult if not impossible.
For investors, the question is this: what is the best way to capitalize on future growth in e-commerce: Amazon or Shopify?
The top two contenders for e-commerce investment are Amazon and Shopify. Both offer innovative services in this space, and both have a strong history of successful development and implementation of new technology.
Amazon [NASDAQ: AMZN] fans point out that this stock has performed better than any other in any industry since its IPO in 1997.
It has broken records with its 85,000% gain, and there is every indication that the company’s runaway success will continue to offer solid returns for shareholders.
Amazon is currently realizing impressive profits thanks to its cloud computing division, Amazon Web Services. The company is also devoting resources to voice-activated technology through its popular Alexa platform. Leadership in this area may lead to a wide variety of applications in coming years.
Interestingly, Amazon [NASDAQ: AMZN] isn’t limiting innovation to traditional e-commerce and other digital services. The company is exploring opportunities to serve brick-and-mortar consumers.
It acquired the Whole Foods grocery chain, and there is talk of launching a second grocery store brand. In addition, Amazon is still hard at work on the Amazon Go cashierless brick-and-mortar retail concept, and more Amazon Go stores are expected to open in the near future.
The main challenge Amazon [NASDAQ: AMZN] faces is shifting from increased revenues to increased profits. This is particularly important as revenue growth begins to slow.
In 2018, Amazon realized $232.9 billion, making it one of the largest companies in the world. However, revenue growth in the last quarter was just 20%. Business leaders predict growth of 10% 18% for the beginning of 2019.
Slower revenue growth won’t matter to investors if Amazon [NASDAQ: AMZN] can increase its profits. Many believe that if the company can continue to stay on the cutting edge of technology, while simultaneously meeting the needs of brick-and-mortar consumers, there is every reason to believe profits will start pouring in.
Though Shopify [NYSE: SHOP] hasn’t been around as long as Amazon, it has performed admirably since it was introduced to the stock market.
Shopify boasts total returns of almost 700% since 2015, which is actually higher than Amazon’s returns during the same period. In the first quarter of 2019 alone, Shopify shares rose 45%.
In 2018, Shopify’s revenue increased by 59% to a massive $1.07 billion. The total value of goods sold on the Shopify platform rose by 56% to a total of $41.1 billion.
Of course, this rate of growth is unlikely to persist. Already, growth slowed to 54% in the most recent quarter, and business leaders predict revenue growth of just 36% 38% in 2019.
Competition may present a challenge for Shopify [NYSE: SHOP].
It was one of the first to offer e-commerce solutions for small and medium sized businesses, as well as individual merchants, so there was a huge market when the platform rolled out.
The first flood of sales to entrepreneurs who had long awaited access to e-commerce is over, and Shopify will have to compete for new business with other platforms that are catching up in terms of technology and pricing. Examples include Squarespace, Volusion, WooCommerce, and PrestaShop.
Fortunately, Shopify’s features are still perceived by most to outperform those of its competitors; businesses can leverage Shopify [NYSE: SHOP] tools across channels.
There is high demand for Shopify support with shipping, payments, and similar, which keeps the platform in the top spot.
Best of all, Shopify is designed to grow with its clients, so there are pricing packages and service plans to meet a wide variety of needs. Not every competitor can match this.
The key is to maintain its leadership position in terms of services and value, while increasing profitability. Runaway revenue growth loses some of its luster if it doesn’t translate into profitability.
Both companies have convincing arguments to attract new investors, so your decision boils down to financial goals and investment style.
For example, Amazon is better diversified with revenue streams that range from e-commerce to cloud computing, while Shopify is tied more directly to the world of e-commerce, and therefore to consumers. Amazon earns revenues from consumers, businesses, and even government sources.
Share price may be a deciding factor for some investors, as Amazon shares currently sell for around $1,900. Shopify shares are at a more affordable $262. If you want to buy 100 shares of either company, with a view to selling calls for income, for example, Amazon may be out of reach. After all 100 shares of a $1,900 stock will set you back $190,000!
Arguably the largest % growth in Amazon is behind it whereas the the % gains in Shopify could still be sizable based on the market capitalizations of the two company. So, if you are more risk averse, Amazon may offer less upside but equally less downside thanks to its revenue diversification while Shopify may offer more upside but equally more risk due to its concentration of revenues tethered to e-commerce.
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