Amazon.com, Inc. (AMZN) and Shopify Inc. (SHOP) are two of the most popular e-commerce and retail infrastructure platforms. While retailing juggernaut AMZN is the world’s largest online marketplace, SHOP is a relatively smaller and emerging player in the e-commerce sector.
Most e-commerce stocks have hit record highs amid the pandemic, due largely to the widespread adoption of virtual shopping and contactless transactions while traditional brick-and-mortar stores were closed. With more consumers buying products and services online, and more entrepreneurs adopting digital platforms to meet the soaring demand, prominent industry players like AMZN and SHOP are expected to maintain their growth trajectory this year and beyond.
While AMZN has gained 53.1% over the past year, SHOP has returned 177.5%. In terms of their performance over the past nine-months, SHOP is the clear winner with 92.2% gains versus AMZN’s 34.7% returns. But which of these stocks is a better pick now? Let’s find out.
This month AWS, an AMZN company, entered an agreement with the National Hockey League (NHL) to become its official cloud, artificial intelligence (AI), and machine learning infrastructure provider. AWS’s deep portfolio of machine learning should help the company to become a foundational partner in delivering NHL performance analytics.
Also this month, AMZN announced plans to open a fulfillment center in Tennessee in 2022. The project will create nearly 3000 new jobs. The investment should support the company’s long-term growth and expansion plans.
On December 1, Ottawa-based SHOP reported record breaking Black Friday/Cyber Monday sales results of more than $5.1 billion. The sales were derived from more than one million Shopify-powered brands worldwide. The sales performance demonstrates the company’s strong independent and direct-to-consumer business platform.
Recent Financial Results
In the fourth quarter, ended December 31, AMZN’s net sales increased 44% year-over-year to $125.6 billion. Its net income increased 121% from its year-ago value to $7.22 billion, while its EPS grew 118.5% year-over-year to $14.38. Its net sales under its AWS segment rose 37.3% from the prior-year quarter to $3.56 billion. The company’s cash and cash equivalents grew 16.4% year-over-year to $42.38 billion over this period.
SHOP’s total revenue has increased 94% year-over-year to $977.7 million in the fourth quarter ended December 31. Its gross profit increased 91% from its year-ago value to $504.4 million. And its operating income for the fourth quarter of 2020 was $112.5 million, versus a loss of $30.1 million for the comparable period a year ago.
Past and Expected Financial Performance
AMZN’s revenue has grown at a CAGR of 29.5% over the past three years. Also, the CAGR of the company’s total assets has been 34.7% over the same period.
Analysts expect AMZN’s revenue to increase 38.5% in the current quarter, 22.8% in the current year, and 17.6% next year. The company’s EPS is expected to grow 87.6% in the current quarter and 39% next year. And its EPS is expected to grow at a rate of 38.4% per annum over the next five years.
In comparison, SHOP’s revenue has grown at a CAGR of 61.7% over the past three years. The CAGR of the company’s total assets is 89.2% over the same period.
Analysts expect SHOP’s revenue to increase 78.1% in the current quarter, 36.2% in the current year, and 31.8% next year. Its EPS is expected to grow 247.4% in the current quarter, and 24.3% next year. , SHOP’s EPS is expected to grow at a rate of 68.5% per annum over the next five years.
AMZN’s trailing-12-month revenue is significantly higher than SHOP’s. But SHOP is more profitable, with a gross profit margin of 53% versus AMZN’s 39.6%.
However, AMZN’s ROE and ROA of 27.4% and 5.2%, respectively, compare favorably with SHOP’s 4.4% and 0.02%.
In terms of trailing-12-month price/sales, SHOP is currently trading at 70.81x, which is significantly more expensive than AMZN, which is currently trading at 4.23x. Also, SHOP is more expensive in terms of trailing-12-month price-to-book (29.09x versus 17.60x) and trailing-12-month ev/sales (71.59x versus 4.31x).
So, AMZN is the more affordable stock.
AMZN has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system. However, SHOP has an overall rating of C, which represents a Neutral. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
AMZN has a Sentiment Grade of A, consistent with favorable analyst estimates. In comparison, SHOP has a Sentiment Grade of B.
In sync with the company’s high profitability, AMZN has a Quality Grade of B. SHOP’s Quality Grade of C is reflective of its lower profitability.
While AMZN has a Value Grade of C, SHOP is graded F, consistent with its stretched valuation.
Beyond what I’ve stated above, our POWR Ratings system also rates AMZN and SHOP for Momentum, Stability, and Growth. Get all AMZN’s ratings here. Also, click here to see the additional POWR Ratings for SHOP.
While AMZN and SHOP are both good long-term investments, considering their market dominance, huge customer base, continued expansion, and strong industry backdrop, AMZN appears to be a better buy based on the factors discussed here. Moreover, AMZN’s relatively lower valuation compared to SHOP should help it to perform better .
Our research shows that the odds of success increase if you bet on stocks with an Overall POWR Rating of A or B.
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AMZN shares were trading at $3,315.22 per share on Friday morning, down $13.01 (-0.39%). Year-to-date, AMZN has gained 1.79%, versus a 4.68% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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