Better Buy: Shopify vs. Square

The fast-growing e-commerce specialist and high-tech transactions processor are hot, but only one is the better fit for your portfolio right now.

Rick Munarriz
Rick Munarriz
Jul 24, 2019 at 2:00PM
Technology and Telecom

It's never been easier for you as a budding entrepreneur to put a dream business plan into action. Shopify (NYSE:SHOP) makes the process of setting up an online shop seamless, putting every potential customer a click away from your digital storefront. Square (NYSE:SQ) allows you to process credit card payments wherever you may be, through the convenience of the smartphone in your pocket. 

Shopify and Square are treating upstarts well, but they are treating their shareholders even better: They are two of the market's hottest stocks over the past couple of years.

But which one is the better fit for your portfolio right now? Let's size up the two tech darlings to see which comes out on top.

A Square payment system in use.

A Square payment system in use. Image source: Square.

Shopping spree

Both companies are growing quickly. Shopify's revenue rose 50% in its most recent quarter, well ahead of the 42% to 45% it was targeting back in mid-February. There are now more than 800,000 businesses set up on the e-commerce platform. Wall Street has taken a shine to Shopify despite 13 consecutive quarters of decelerating top-line growth.

Square's net revenue rose 43% for the same quarter, up 59% if we go with adjusted revenue. A whopping $22.6 billion in gross payment volume was processed through Square's platform during the first three months of the year, 27% ahead of the transactions it helped clear a year earlier. Square was working on a different streak, as revenue accelerated for seven straight quarters before proving mortal last time out.

The market clearly likes both stocks. Square stock has more than doubled since the start of last year, and it's nearly a six-bagger if we stretch the starting line a year earlier. Shopify is faring even better, more than tripling over the past year. Its stock is almost an eight-bagger since the start of 2017. 

Both stocks have great stories to tell. They are making business in general -- and e-commerce in particular for Shopify -- easier, and growth is expected to remain strong for both companies through the next several years. They also have a hand in hot niches, as Ottawa-based Shopify scored a deal to run several official government shopping sites following the legalization of marijuana for recreational use late last year. Square became an early publicly-traded player supporting bitcoin. 

Neither stock is cheap, but that hasn't stopped the shares from moving higher before. Both have enough firepower to continue beating the market in the near term, but the better candidate for appreciation at this point is Square. It trades at slightly less nosebleed multiples, and it's better positioned to thrive since it's better diversified by not relying merely on e-commerce.