No one needs to be told that the future of retail is online. It seems as if every few months, an iconic mall chain is buckling, and consumers generally prefer the convenience, selection -- and, just as importantly, the pricing advantages -- that are available for a streamlined internet-fueled platform over an old-school bricks-and-mortar outpost.
Amazon.com (AMZN -4.03%) is the top dog in this booming universe, and rightfully so, with more than $250 billion in revenue over the past year. Shopify (SHOP -3.86%) isn't a household name to most consumers, but its seamless platform is arming more than 800,000 merchants with the ability to be a click away from any potential customer with an online connection. Both stocks have generated life-altering wealth for their investors in recent years, but let's see which of the two investments will deliver the stronger shot at capital appreciating in the near future.
Let's go shopping
Amazon is everywhere, and the amazing thing about the leading online retailer is how quickly it's growing for a company with its girth. Amazon's $252.1 billion in trailing revenue is 21% higher than it was at this point last summer, making it surprisingly fleet-footed for one of only three publicly traded companies commanding a market cap north of $900 million.
Shopify is growing faster. Revenue might have decelerated for 14 consecutive quarters -- slowing to a year-over-year increase of 48% in its latest quarter -- but it's obviously growing at more than double the pace of Amazon. Shopify is a substantially smaller player than Amazon, but the $1.3 billion in trailing net revenue is 52% more than where it was perched last summer.
Most Amazon bears will argue that the stock is overvalued, but it's a relative bargain when pitted against Shopify. Both stocks trade at sky-high adjusted earnings multiples, but only Amazon is profitable on a reported basis.
Turning our attention to the top of the income statement, Amazon's fetching 3.7 times its trailing revenue -- a stiff multiple for a retailer but a blue-light special when pitted against Shopify's top-line multiple of 32.4. In Shopify's defense, it operates an online platform where margins under optimal operating conditions will be substantially higher than those of a company that relies in part on its own merchandise sales.
Shopify is a dynamic company with plenty of upside if things go right, but it's naturally riskier than Amazon. Shopify will always be vulnerable to another platform operator that rolls out a better mousetrap at a better price point. It's easy to set up an online shop on Shopify, but it's just as easy to port it somewhere else. Shopify shoppers belong to the merchants, and they will follow them elsewhere without realizing that Shopify is no longer in the picture.
Amazon's hold on the customer is far stronger. There are now more than 100 million Amazon Prime customers, and they are tangled in the juicy ecosystem in which a single flat price offers speedy shipping at no additional cost and a growing array of digital goodies including streaming video and audio services.
Both stocks have the right ingredients to continue beating the market, but if we're choosing between the two, Amazon seems to be the more prudent pick at this time. As volatile as it may be, Amazon stock is not as risky as Shopify shares. Amazon also seems better situated for a potential economic slowdown, as consumers will gravitate to its low-priced wares and digital services when money's tight. The outlook would be gloomier at Shopify, especially given the likely shakeout among merchants on the platform.
Both stocks have been winners and will likely continue to deliver gains, but Amazon's the better buy for the year ahead.