Is Shopify the next Amazon?

Amazon has been one of the best-performing stocks (if not the best) over the past two decades. Owning shares since 1997 would turn any $10,000 into over $20 million by 2024.

It’s no wonder investors are always looking for the next Amazon, using it as a benchmark for promising, growing companies. Online shopa growing e-commerce software company, is one of the promising candidates.

But is Shopify the next Amazon? Let’s take a closer look.

Shopify is a company with extraordinary growth

Like Amazon, Shopify has been a huge wealth generator for investors. Since going public in 2015, the stock is up about 2,000% at the time of writing. To put that in perspective, every $10,000 you invested at the beginning would have grown to over $200,000.

The stock’s remarkable performance was due to its strong execution. Revenue grew from $105 million in 2014 to $7.06 billion in 2023, an increase of over 6,700%! And its secret sauce? A fanatical focus on delivering software and tools that help sellers succeed in online and everywhere else.

To do this, Shopify provides an easy-to-use software platform that allows merchants to start selling online almost immediately. The technology company also offers a wide range of tools to help merchants succeed, including payment processing, retail systems, shipping services, and more.

In addition to its platform and software tools, the company also works with other partners to provide almost everything merchants need to run a modern retail business: accounting and tax services, and marketing assistance. All of this makes the platform essential to merchants’ long-term success.

The company has become a preferred vendor for many merchants, which is important because it becomes a sticky service that customers are unlikely to abandon. This gives Shopify pricing power, which it has occasionally used — for example, in 2023, to improve its monetization.

If management continues to add new tools and help sellers succeed, its pricing capabilities will become even stronger over time.

But there are many differences between Shopify and Amazon

There are some similarities between Shopify and Amazon. Both operate in the e-commerce sector, focus on customer satisfaction, and deliver extraordinary returns to shareholders. However, the two are significantly different in many ways. Let’s start with the business model.

Amazon operates a first- and third-party e-commerce marketplace, selling directly to consumers and allowing other sellers to sell on its platform (in exchange for a fee), giving it a complete online catalog to meet ever-increasing consumer demands while building a diversified e-commerce revenue stream for itself.

The story continues

Unlike Amazon, Shopify doesn’t sell any products directly to consumers. Instead, it empowers merchants to sell their products everywhere—online, offline, and global. As such, Shopify’s core customer base is merchants, and the company’s interests align with them.

That means if they succeed, the company will succeed, too, since part of its revenue stream depends on their gross merchandise value (GMV). We can’t say the same for Amazon, since it competes with its sellers for a share of the customer’s wallet.

Another significant difference is that Amazon is a highly diversified technology conglomerate with other businesses including cloud computing through Amazon Web Services (AWS), logistics, advertising, and more. Shopify is narrowly focused on providing software and tools in the e-commerce space.

Amazon employs over 1.5 million people, while Shopify has fewer than 10,000 employees. In other words, the former runs a heavy business model (with huge assets and human capital), but the latter is a software company with few assets.

Another area where the two companies differ significantly is their prospects. While Amazon started out in e-commerce, its biggest future opportunity may come from elsewhere—primarily cloud computing and advertising. For example, AWS generated $9.4 billion in operating profit in the first quarter of 2024, more than half of the company’s total operating profit of $15.3 billion.

Meanwhile, Shopify’s biggest opportunity remains in retail, as it deepens its online e-commerce penetration and expands into brick-and-mortar and global commerce. Focusing solely on the retail segment will keep the company busy for years, if not decades.

Will Shopify be the next Amazon?

The short answer is: probably not.

Both companies are in e-commerce but have very different business models. Shopify is narrowly focused on e-commerce, while Amazon generates most of its operating profits from other segments, primarily its cloud computing business.

Still, Shopify doesn’t have to be the next Amazon to deliver good returns for investors in the long term. Focusing on growing its e-commerce market share in the U.S. and globally will keep the company’s growth machine running for a long time to come.

In short, Shopify can just be itself!

Is it worth investing $1000 in Shopify right now?

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Lawrence Nga 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.

Is Shopify the Next Amazon? was originally published by The Motley Fool