The e-commerce industry is undoubtedly Amazon (AMZN 1.82%) and Shopify (shop -0.10%), but outside of these e-commerce relationships, the two companies have less in common than you might think. Amazon is an online seller in the technology business, while Shopify is more in the software business.
Therefore, the two companies approach e-commerce from different angles and have very different investment cases. However, after considering both companies, one should stand out as the more profitable investment.
Comparing Amazon and Shopify
As mentioned earlier, the most obvious difference between these businesses is that only one of them, Amazon, is an electronic retailer. Amazon is a pioneer in e-commerce in the United States. It started out selling books, but over time evolved into a retailer that sells everything.
Although the company has become the second largest retailer in the United States, it actually derives its income from other businesses. Amazon's main source of operating revenue is its cloud computing division, Amazon Web Services (AWS). Additionally, within the retail sector, businesses such as digital advertising, subscriptions, and online seller services are much larger drivers of growth than online sales.
In contrast, Shopify is not an e-tailer. The company has developed a fast, highly customizable platform that allows merchants of all sizes to display and sell their products online. We also work on ancillary services such as financing, payment processing, and inventory management of products sold both online and offline.
Additionally, Amazon has been around longer than Shopify. The company was founded in his 1994 while Shopify was founded in his 2006. Amazon has used its long existence and rapid growth to become a much larger company. As a result, Amazon's market capitalization rose to about $1.9 trillion, about 19 times Shopify's market cap of just under $100 billion.
Amazon and Shopify, economically speaking
Despite its large size, Amazon continues to maintain a relatively rapid growth rate. This is primarily due to the smaller, higher-margin operations under its umbrella, as opposed to the lower margins and lower growth rates of its larger online retail operations.
Revenue in 2023 was $575 billion, an increase of 12% from the previous year. Retail and cloud computing slumped in his 2022. However, profitability returned in 2023, with net income of $30 billion for him, significantly exceeding his 2022 loss of $2.7 billion.
The reduction in scale worked in Shopify's favor, with revenue of $7.1 billion increasing 26% annually. Despite this, the logistics business, which was sold in May last year, weighed on profitability. As a result, net income for 2023 was only $132 million, and fourth-quarter profit of $657 million exceeded the annual total. Shopify lost nearly $3.5 billion in 2022.
Those struggles may explain why Amazon's stock has risen faster than Shopify's over the past 12 months. Still, over a five-year timeline, Shopify far outperformed the e-commerce conglomerate.
SHOP data by YCharts
Considering its performance, Shopify is a relatively expensive stock. The company is selling at a high forward P/E ratio of 73 times. By contrast, Amazon, which rarely sells at low multiples, trades at just 42 times forward earnings, a difference that could strengthen Amazon's case amid recent high earnings.
Amazon or Shopify?
Ultimately, both stocks will beat the market as their technology continues to attract more business. Still, risk-averse investors may prefer Amazon, while investors with a moderate tolerance for risk should lean toward Shopify.
Shopify grew its revenue at a faster pace over time, and its decision to sell its logistics business made it a profitable company again.
Additionally, even without a logistics department, Shopify has an ecosystem that helps you attract more merchants and upsell additional services. Now that the company is back in the black, faster sales growth should lead to stronger earnings growth, which should help drive the stock price up at a faster pace.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool's board of directors. Will Healy has a position at his Shopify. The Motley Fool has positions in and recommends Amazon and Shopify. The Motley Fool has a disclosure policy.
