The future of e-commerce as told by Shopify and Amazon
Last week, two giant e-commerce companies reported earnings that confirmed what was already expected — e-commerce spending is slowing down as consumers take their spending elsewhere. But their earnings also show us two diverging growth stories…
Something old: Amazon
Amazon (NASDAQ:AMZN) fell 7% after reporting worst-than-expected earnings on Thursday — sending other e-commerce companies (i.e. Etsy, eBay) down with it. Amazon’s total sales increased 27% but its core e-commerce business only grew 13% — the slowest rate since 2019. Instead, growth was held up by two units:
- Amazon Web Services (cloud division), which grew 30%.
- Other Sales (primarily advertising), which grew 83%
These two units made up 20% of its sales, far from its e-commerce sales (46%).
Looking forward: Amazon is entering a slower growth phase — forecasting growth of 10-16% in the next quarter — well below estimates.
Something new: Shopify
Shopify (NYSE:SHOP), the platform providing merchants the tools to run their own e-commerce store — may be one of the bright spots among e-commerce companies.
Sales grew 56% but the impressive part is its earnings growth — jumping 24x to $879m thanks to investments in Affirm/Stripe (3x growth excluding these investments). On the revenue potential, Shopify is pumping out products non-stop:
- Struck partnerships to offer Shop Pay, its checkout tool, throughout Facebook and Google’s e-commerce platforms.
- Pushing into advertising for the first time — which could open another growth channel.
Looking forward: By sales, Amazon is nearly 100x larger but Shopify is showing investors that it’s only in the early stages of its growth.
Investors: The future of e-commerce
E-commerce had an impressive run but despite lockdowns keeping people home, global e-commerce only reached 18% of retail sales in 2020 — up from 13.6% the previous year. In the US, that share is even lower at 14.5%
Long-term, it’s also difficult to find another industry that’s as large and growing as fast. When investing in the e-commerce companies of tomorrow, look beyond Amazon:
- Carvana (NYSE:CVNA) — building the digital new/used car marketplace
- Snap (NYSE:SNAP) — redefining e-commerce on social media.
- Shopify — empowering small retailers with the e-commerce tools of the bigger stores
With a new decade comes a new set of companies generating multi-bagger returns.