Should You Forget Amazon? Why You Might Want to Buy This Unstoppable Growth Stock Instead

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11 hours ago

Key Points
Amazon remains the king of the e-commerce arena.
Its sheer size and heavy-handed management of its online shopping mall, however, isn't necessarily what the marketplace wants anymore.
A fast-growing company capitalizing on this shift in consumer preference should easily outgrow its bigger rival over the course of the next several years.
10 stocks we like better than Shopify ›
There's no denying it. Up more than 300,000% since its 1997 public offering, e-commerce giant Amazon is one of the market's most rewarding investments of this generation. It's still going strong too. Despite it's already massive size, this year's expected top-line growth of more than 9% should reach nearly 10% next year. Not bad.
But no company keeps its competitors in-check forever. Young, enterprising rivals will eventually figure out how to penetrate the market with a new and better idea, technology, or solution.
Enter Shopify (NASDAQ: SHOP), which has introduced what's arguably the most change the online shopping industry has seen since Amazon laid down its roots nearly 30 years ago. And it's got the growth numbers to prove it.
What's Shopify?
In simplest terms, Shopify helps businesses of all sizes establish and operate their own e-commerce presence. From websites to digital shopping carts to inventory management to online marketing to payment processing, Shopify is a one-stop shop for any enterprise that wants to be online but doesn't have a clue about where to start. Although the company itself no longer discloses the number, estimates put the current number of Shopify-powered online stores well into the millions. You may have even used its tech without even realizing it.
Simply opening an online store doesn't necessarily mean it's successful, of course. How are these operators actually faring?
Pretty well, actually. Shopify's technology facilitated the sale of $292.3 billion worth of goods and services last year, up 24% from 2023's top line. For its part, Shopify generated nearly $8.9 billion worth of its own revenue in 2024, reflecting a percentage of those sales, revenue from subscriptions to certain services, fees for processing payments, and the like. Of that, $1.1 billion was turned into operating income. For comparison, Amazon reported a 2024 top line of $638 billion and net income of $59 billion. Clearly, Shopify poses no immediate existential threat to the e-commerce giant.
Shopify doesn't have to topple Amazon, however, to be a rewarding investment. It only needs to grow itself, and it's had no problem doing that. It's probably not going to face a growth headwind anytime soon either, given how the online shopping landscape is evolving in a way that plays right into Shopify's unique strengths.
Different in all the right ways
To fully appreciate Shopify's likely future, you really need to revisit its roots.
Tobias Lütke, Daniel Weinand, and Scott Lake didn't create Shopify back in 2006 by accident. After launching a snowboarding-equipment online store just a couple of years earlier, the trio realized the tools available to small businesses looking to establish their own e-commerce presence were pretty lousy. That's when the actual business opportunity became crystal clear. The rest, as they say, is history.
That being said, in a way, it was actually Amazon's commanding-but-heavy-handed control of North America's online shopping market that set the stage for Shopify's incredible growth.
Think about it. Plenty of merchants and online sellers utilize Amazon.com as a selling platform due to its sheer size; industry research outfit Digital Commerce 360 says it facilitates on the order of 40% of North America's online shopping. But, these sellers decreasingly view Amazon as a partner. That's because -- in addition to competing directly with Amazon's own goods -- Amazon is increasingly pitting its third-party sellers against one another by monetizing its sales platform in a new way. That's advertising. For a third-party seller to become and remain truly competitive at Amazon.com, it needs to pay to feature its products. Amazon did over $56 billion worth of this high-margin advertising business last year alone, all of it coming out of its sellers' pockets.
Then there's the matter of brand authenticity in an environment that craves it.
While Amazon's product listings are effective and efficient, they're also cold and impersonal, and unable to tell the underlying company's story. That's not the case with a Shopify-powered store though, where sellers have complete control of the presentation that makes the personal connection which leads to a sale. And it matters. Recent research performed by Forrester indicates that 70% of consumers say they can better relate to an authentic brand and are therefore more likely to buy that brand. This trend is growing too, with younger consumers increasingly requiring this personal connection.
In this vein, perhaps the most frustrating aspect of selling through Amazon is that once a seller or merchant has turned a consumer into a paying customer, that person is more of an Amazon customer than the seller's. By using Shopify's technology to sell directly to a consumer, however, a business can build a deeper customer relationship with the individual if for no other reason than it directly garners that person's contact information.
The resulting opportunity created by all of these factors is nothing less than amazing. An outlook from Straits Research suggests the worldwide e-commerce platform market is set to grow at an average annualized pace of 12% through 2033, jibing with similar predictions from Mordor Intelligence and Market.us. Analysts expect even better growth from Shopify at least through 2027.
Given its commanding share of this space (a leading 28% share of the U.S. market, according to Oberlo) on top of the entire industry's ongoing expansion, Shopify is likely to maintain its strong growth rate well past that point.
Don't sweat the steep valuation too much
There are legitimate concerns. Chief among them is valuation. Shopify shares are presently priced at nearly 90 times this year's expected per-share profits of $1.39 and 70 times next year's projected bottom line of $1.78 per share. If nothing else, this steep valuation leaves the stock vulnerable to sizable stumbles. Being priced above the consensus target of $118.79 doesn't exactly help either.
This is one of those cases, however, where the story is so compelling and a company's future is so bright that the market is supportive of a rich valuation. Indeed, the fact that Shopify shares are still trading near February's high and still priced well below their 2021 high is an opportunity.
This window of opportunity probably won't remain open much longer though, if recently reported economic data is any indication of how the economy's faring. While July's jobs report was disappointing, June's retail sales, June's consumer spending, and Q2's estimated GDP growth rate of 3% were all pretty strong. It matters simply because economic strength supports consumerism, including the online shopping that Shopify helps make happen.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Shopify. The Motley Fool has a disclosure policy.
Should You Forget Amazon? Why You Might Want to Buy This Unstoppable Growth Stock Instead was originally published by The Motley Fool