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AMZN Trades Cheap, SHOP Falls After Earnings: Which Is a Better Buy?
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Amazon (AMZN - Free Report) is so far ahead of everyone else in the ecommerce market that sometimes, you need binoculars to find any other player. But Shopify (SHOP - Free Report) has grown in leaps and bounds over the past two years such that it can no longer be ignored. It is the second largest player in the segment now and growing.
Amazon’s innovation engine is fueled by its huge operational scale, spanning ecommerce, payments, media and infrastructure. On the commerce side, there’s a virtuous cycle with the number of transactions driving the volume of data collected, which is driving customer satisfaction, which again is driving more sales. The huge volumes enable the company to quickly build out its fulfilment centers, and invest in logistics and transportation. While Amazon old-timer and soon-to-be CEO Andy Jassey comes from the AWS division, it’s clear that the innovation driving the ecommerce business won’t hit any roadblocks.
Shopify has a slightly different model from Amazon; the company allows enterprises to open their store fronts on its ecommerce platform and takes care of the entire back end. It provides a full range of merchant services, delivery/logistics and payments processing. A growing number of its customers are moving toward its fulfilment services that seamlessly leverage their own physical outlets for BOPIS (buy online pick up at store), buy in-store ship to customer, and such other options.
Its success during the pandemic was partly because of the credit it started offering businesses, as well as Shop Pay (its accelerated checkout system) and Shop Pay Instalments (its buy now pay later offering). Shop Pay integrates across Facebook and other platforms, so it’s a great way to pick up customers and keep them on the Shopify platform.
It’s generally expected that the 2020 ecommerce growth rate won’t repeat in 2021 because at least some of the shopping that shifted online because of the pandemic will return to the store. That is true for all players, big and small.
So we have the numbers for Amazon. After the company beat analysts’ earnings estimates for the fourth quarter by 99.9%, the average earnings estimate for 2021 jumped 10.3%. We are looking at expected revenue and earnings growth rates of 22.1% and 18.1%, respectively for Amazon, down from 37.6% and 81.5%, respectively in 2020.
In Shopify’s case, the company topped the Zacks Consensus Estimate for revenue and earnings by 7.8% and 30.6%, respectively. Management said on the earnings call, “we expect that we will continue to grow revenue rapidly in 2021, albeit at a lower rate than in 2020.” But the launch of an “ambitious hiring campaign for engineers” and also the expected addition to the global sales teams could impact earnings.
The Zacks Consensus for 2021 represents revenue and earnings growth of 32.0% and -1.5%, respectively. The numbers are very likely to improve as analysts revise estimates.
So why did the shares drop after the strong results?
Amazon earlier abandoned the store front idea, taking the marketplace approach instead. But it recently picked up Australian ecommerce platform Selz that is built on the storefront technology. This has spurred speculation about increased competition for Shopify.
There’s no evidence as yet of Amazon changing tactics though of course this could be a better approach in certain geographies and to satisfy regulatory requirements. And Amazon would be the first to know about changing seller/user preferences given the amount of data that it controls. So investors are likely factoring in additional risk from Amazon.
They may have also taken some profits.
What to do with AMZN and SHOP shares?
AMZN is going cheap with respect to its trading range over the past year while SHOP is looking expensive. However, both are poised to grow strongly over the next few years. So if you think that dishing out $3,300+ for an AMZN share is more of a challenge than the $1,425 you’d have to pay for a SHOP share, it’s probably the better buy.
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
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AMZN Trades Cheap, SHOP Falls After Earnings: Which Is a Better Buy?
Amazon (AMZN - Free Report) is so far ahead of everyone else in the ecommerce market that sometimes, you need binoculars to find any other player. But Shopify (SHOP - Free Report) has grown in leaps and bounds over the past two years such that it can no longer be ignored. It is the second largest player in the segment now and growing.
Amazon’s innovation engine is fueled by its huge operational scale, spanning ecommerce, payments, media and infrastructure. On the commerce side, there’s a virtuous cycle with the number of transactions driving the volume of data collected, which is driving customer satisfaction, which again is driving more sales. The huge volumes enable the company to quickly build out its fulfilment centers, and invest in logistics and transportation. While Amazon old-timer and soon-to-be CEO Andy Jassey comes from the AWS division, it’s clear that the innovation driving the ecommerce business won’t hit any roadblocks.
Shopify has a slightly different model from Amazon; the company allows enterprises to open their store fronts on its ecommerce platform and takes care of the entire back end. It provides a full range of merchant services, delivery/logistics and payments processing. A growing number of its customers are moving toward its fulfilment services that seamlessly leverage their own physical outlets for BOPIS (buy online pick up at store), buy in-store ship to customer, and such other options.
Its success during the pandemic was partly because of the credit it started offering businesses, as well as Shop Pay (its accelerated checkout system) and Shop Pay Instalments (its buy now pay later offering). Shop Pay integrates across Facebook and other platforms, so it’s a great way to pick up customers and keep them on the Shopify platform.
It’s generally expected that the 2020 ecommerce growth rate won’t repeat in 2021 because at least some of the shopping that shifted online because of the pandemic will return to the store. That is true for all players, big and small.
So we have the numbers for Amazon. After the company beat analysts’ earnings estimates for the fourth quarter by 99.9%, the average earnings estimate for 2021 jumped 10.3%. We are looking at expected revenue and earnings growth rates of 22.1% and 18.1%, respectively for Amazon, down from 37.6% and 81.5%, respectively in 2020.
In Shopify’s case, the company topped the Zacks Consensus Estimate for revenue and earnings by 7.8% and 30.6%, respectively. Management said on the earnings call, “we expect that we will continue to grow revenue rapidly in 2021, albeit at a lower rate than in 2020.” But the launch of an “ambitious hiring campaign for engineers” and also the expected addition to the global sales teams could impact earnings.
The Zacks Consensus for 2021 represents revenue and earnings growth of 32.0% and -1.5%, respectively. The numbers are very likely to improve as analysts revise estimates.
So why did the shares drop after the strong results?
Amazon earlier abandoned the store front idea, taking the marketplace approach instead. But it recently picked up Australian ecommerce platform Selz that is built on the storefront technology. This has spurred speculation about increased competition for Shopify.
There’s no evidence as yet of Amazon changing tactics though of course this could be a better approach in certain geographies and to satisfy regulatory requirements. And Amazon would be the first to know about changing seller/user preferences given the amount of data that it controls. So investors are likely factoring in additional risk from Amazon.
They may have also taken some profits.
What to do with AMZN and SHOP shares?
AMZN is going cheap with respect to its trading range over the past year while SHOP is looking expensive. However, both are poised to grow strongly over the next few years. So if you think that dishing out $3,300+ for an AMZN share is more of a challenge than the $1,425 you’d have to pay for a SHOP share, it’s probably the better buy.
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>