The e-commerce industry has undoubtedly made room for Amazon (NASDAQ: AMZN) and Shopify (NYSE: SHOP), but outside these e-commerce ties, the companies have less in common than one might think. Amazon is an online seller with a tech business, while Shopify is more of a software business.
Hence, both companies approach e-commerce from different angles, meaning their investment cases differ significantly. However, after looking at both companies, one should stand out as the more lucrative investment.
Comparing Amazon and Shopify
As mentioned, the most apparent difference in these businesses is that only one of them, Amazon, is an e-retailer. Amazon pioneered e-commerce in the U.S. It started by selling books, but over time, evolved into a retailer that "sells everything."
While it has become the second-largest retailer in the U.S., the company actually earns its income from other businesses. Amazon's primary source of operating income is Amazon Web Services (AWS), its cloud computing arm. Moreover, even in its retail segments, businesses such as digital advertising, subscriptions, and online seller services are much larger growth drivers than online sales.
In contrast, Shopify is not an e-retailer. It developed a fast, highly customizable platform that enables merchants of all sizes to show and sell their products online. It has also ventured into ancillary services such as raising capital, processing payments, and managing inventory for items that sell both online and offline.
Additionally, Amazon has existed longer than Shopify. It was founded in 1994, versus 2006 for Shopify. Amazon has capitalized on a longer existence and rapid growth to become a much larger company. As a result, Amazon has risen to a market cap of almost $1.9 trillion, approximately 19 times larger than Shopify's market cap of just under $100 billion.
Amazon and Shopify, financially speaking
Despite its large size, Amazon continues to maintain a relatively rapid growth rate. This is mostly because of the smaller, high-margin businesses under its umbrella, which contrast with the low margins and slower growth rate of its massive online sales business.
In 2023, its $575 billion in revenue grew 12% from last year's levels. Retailing and cloud computing suffered a downturn in 2022. However, profitability recovered in 2023, with net income coming in at $30 billion, well above the $2.7 billion loss in 2022.
A smaller size worked in Shopify's favor, as its $7.1 billion in revenue increased 26% yearly. Nonetheless, its logistics businesses, which it sold last May, weighed on profitability. As a result, it earned just $132 million in net income in 2023, with its Q4 income of $657 million exceeding the yearly total. Shopify lost nearly $3.5 billion in 2022.
Those struggles may explain why Amazon's stock rose faster than Shopify's over the last 12 months. Still, on a five-year timeline, Shopify far outperformed the e-commerce conglomerate.
With that performance, Shopify is a comparatively more expensive stock. It sells at a pricey forward P/E ratio of 73. In contrast, Amazon, which rarely sells at a low multiple, trades at just 42 times forward earnings, a differential that could strengthen the case for Amazon amid the higher returns more recently.
Amazon or Shopify?
Ultimately, both stocks should beat the market as their technology continues to attract more business. Still, while risk-averse investors might prefer Amazon, investors with some appetite for risk should lean toward Shopify.
Shopify has grown revenue at a faster pace over time, and the decision to sell the logistics business has again made it a profitable company.
Moreover, even without a logistics arm, Shopify has an ecosystem that will help it attract more merchants and upsell additional services. Now that the company has again turned profitable, the faster revenue growth should translate into larger earnings increases, a factor that should drive the stock price higher at a more rapid pace.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Healy has positions in Shopify. The Motley Fool has positions in and recommends Amazon and Shopify. The Motley Fool has a disclosure policy.
