SHOP: Shopify vs. Wix.com: Which Stock is a Better Buy?

Shopify Inc. (SHOP) and Wix.com Ltd. (WIX), two prominent global online business service providers, have been thriving amid the COVID-19 pandemic because the crisis has triggered a rapid shift to digital commerce. As more consumers move to buying products and services online, more internet business providers are stepping up to meet the demand.

As Canada’s most valuable company, SHOP provides an intuitive cloud-based, multi-channel commerce platform. WIX is an Israel-based internet service provider that develops and markets a cloud-based platform enabling anyone to create a website or web application.

Both stocks have generated significant returns over the past three years. While SHOP returned 945.3% over this period, WIX gained 368%. In terms of year-to-date performance, SHOP is a clear leader, returning 171.5% versus WIX’s 105.4%. But which of these stocks is a better pick now? Let’s find out.

Business Structure and Latest Movements

SHOP’s software facilitates merchants’ creation of multiple sales channels, including web, mobile, social media, brick-and-mortar locations, and pop-up shops. SHOP powers more than one million businesses in more than 175 countries.

SHOP recently reported a record-setting Black Friday sale of $2.4 billion from the independent and direct-to-consumer brands on its platform worldwide, growing 75% compared to the year-ago event. In the last quarter, SHOP rolled out Shop Pay Installments, a ‘buy now, pay later’ product that lets merchants offer their customers more payment choice and flexibility at checkout, helping merchants boost sales through increased cart size and higher conversion.

WIX offers web development, design, and management solutions and apps through an online platform that enables its user base of businesses, organizations, professionals, and individuals to create digital presence in North America, Europe, and internationally.

WIX partnered with Vodafone in October to benefit its business customers in the United Kingdom on Vodafone Business Marketplace platform. The deal will enable SMBs to build an online presence. Moreover, the company recently announced WIX Capital, an internal venture arm that invests in technology innovators that are focused on the future of the web and that look to accelerate how businesses operate in today’s evolving digital landscape.

2024 STOCK MARKET OUTLOOK

Recent Financial Results

In the third quarter ended September 2020, SHOP’s revenue soared 96% year-over-year to $767.4 billion. While subscription-solutions revenue increased 48%, due primarily to more merchants joining the platform, merchant-solutions revenue surged 132% year-over-year. The company reported EPS of $1.54, compared to the year-ago loss of $0.64 per share.

WIX’s revenue for the quarter ended September 2020 grew 29% year-over-year to $254.2 million. The company has benefitted from the monetization of new users. While creative-subscriptions revenue soared 23%, business-solutions revenue increased 60% year-over-year. However, WIX reported a loss of $0.14 per share, significantly declining from the year-ago EPS of $0.41.

Past and Expected Financial Performance

SHOP’s revenue and total assets have grown at a CAGR of 61.7% and 89.2%, respectively, over the past 3 years.

The market expects the company’s revenue to increase 79.1% in the current quarter, 80.6% in the current year, and 32.2% next year. SHOP’s EPS is expected to grow 197.7% in the current quarter and 1,126.7% in the current year. Moreover, its EPS is expected to grow at a rate of 105.4% per annum over the next five years.

WIX’s revenue and total assets have grown at a CAGR of 32.5% and 80.1%, respectively, over the past 3 years.

The market expects WIX’s revenue to increase 57.5% in the current quarter, 28.3% in the current year and 27.3% next year. The company’s EPS is expected to decline 130.8% in the current quarter and 147% in the current year. However, WIX’s EPS is expected to grow at a rate of 14.8% per annum over the next five years.

Profitability

SHOP’s trailing-12-month revenue is nearly 2.7 times of what WIX generates. Additionally, SHOP is more profitable with a net margin of 8% versus WIX’s negative value. Moreover, SHOP’s ROE and ROA of 4.4% and 0.02% compare favorably with WIX’s negative values.

Valuation

In terms of trailing-12-month P/S, SHOP is currently trading at 51.86x, 252.5% more expensive than WIX, which is currently trading at 14.71x. In terms of trailing-12-month price/cash flow, SHOP’s 566x is 550.5% higher than WIX’s 87x. However, SHOP is less expensive in terms of trailing-12-month P/B (21.30x versus 51.01x).

POWR Ratings

While SHOP is rated “Buy” in our proprietary POWR Ratings system, WIX is rated “Neutral.” Here are how the four components of overall POWR Rating are graded for SHOP and WIX:

SHOP has an “A” for Trade Grade, a “B” for Buy & Hold Grade and Peer Grade, and a “C” for Industry Rank. In the 35-stock Internet – Services industry, it is ranked #7.

WIX has a “C” for Trade Grade, Buy & Hold Grade and Industry Rank, and a “D” for Peer Grade. It is ranked #16 in the same industry.

The Winner

While both SHOP and WIX are good long-term investments considering their huge customer base and expansion strategies, SHOP appears to be a better buy now based on the factors discussed here.

The pandemic has forced many retailers and businesses to go online to survive. However, even if the virus’ spread is contained globally, the trend is here to stay. Entrepreneurs across the globe will have to depend on internet services to manage their business and grow their brand.

While WIX is a relatively cheaper option to bet on the growing needs for internet-focused products and services, SHOP is a proven winner due to its large scale of operation.

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SHOP shares were trading at $1,069.23 per share on Friday morning, up $6.55 (+0.62%). Year-to-date, SHOP has gained 168.93%, versus a 16.12% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...