The future of e-commerce as told by Shopify and Amazon - The Average Joe

    The future of e-commerce as told by Shopify and Amazon

    Victor Lei β€” Head of Research

    August 4, 2021

    the future of e-commerce, amazon and shopify

    August 4, 2021

    Last week, two giant e-commerce companies reported earnings that confirmed what was already expected β€” 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 β€” 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% β€” 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 β€” forecasting growth of 10-16% in the next quarter β€” well below estimates.

    Something new: Shopify

    Shopify (NYSE:SHOP), the platform providing merchants the tools to run their own e-commerce store β€” may be one of the bright spots among e-commerce companies.

    Sales grew 56% but the impressive part is its earnings growth β€” 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 β€” 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 reachedΒ 18% of retail sales in 2020 β€” 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) β€” building the digital new/used car marketplace
    • Snap (NYSE:SNAP) β€” redefining e-commerce on social media.
    • Shopify β€” 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.

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