Etsy (ETSY -1.80%) and Shopify (SHOP -3.10%) stock have withstood the COVID-19 pandemic better than the broader market. Etsy's stock has risen about 5% since the beginning of the year as of this writing, while Shopify's stock has dipped 2%. The S&P 500 as a whole has plunged nearly 20%.

Etsy and Shopify have both survived the sell-off because their e-commerce businesses are insulated from the pandemic's impact on brick-and-mortar stores. Etsy is an online marketplace for artisans, and Shopify brings businesses online with its e-commerce tools. Let's see which resilient stock will fare better in this wobbly market.

Tiny parcels in a toy shopping cart on a notebook keyboard

Image source: Getty Images.

How do Etsy and Shopify make money?

Etsy generated 73% of its revenue from its core marketplace business, which charges transaction fees, last year. The remaining 27% came from services, which include fees for ads, more prominent listings, shipping labels, and other add-on tools.

Etsy's number of active sellers rose 28% to 2.7 million last year, its number of active buyers grew 18% to 46.4 million, and its gross merchandise sales (GMS) -- the value of all goods sold across its platform -- climbed 27% to $4.97 billion.

Shopify serves over a million merchants worldwide, including massive companies like Hasbro and Red Bull. Its merchants generated 5.9% of all U.S. e-commerce sales last year, according to eMarketer, making it the country's second-largest e-commerce company after Amazon, which held a 37.3% share.

Shopify's merchant solutions segment, which includes payment and transaction fees for online orders, generated 59% of its revenue last year. The remaining 41% came from its subscription solutions, which generate recurring revenue from its core platform and add-on services.

How fast are Etsy and Shopify growing?

Etsy and Shopify both consistently generate double-digit revenue growth, but their growth rates have cooled off over the past five years.


Revenue Growth (YOY) 2015

Revenue Growth (YOY) 2016

Revenue Growth (YOY) 2017

Revenue Growth (YOY) 2018

Revenue Growth (YOY) 2019













YOY = year-over-year. Source: Company annual reports.

Etsy withstood competition from Amazon's Handmade marketplace and smaller rivals over the past few years. It also expanded into the musical instruments market with its acquisition of Reverb last year. Shopify's growth decelerated at a steeper rate than Etsy's, due to market saturation and competition from rival platforms like Adobe's Magento. Some merchants are also directly opening stores on Amazon's marketplace instead of digitizing their businesses with Shopify's web design, e-commerce, and analytics tools.

Back in February, Etsy issued guidance for 25%-29% GMS growth and 27%-30% revenue growth for 2020. But in early April, it withdrew that guidance in light of the COVID-19 outbreak. It generated 41% GMS growth in January and February before the outbreak accelerated, but that rate dropped to negative 2% in the third week of March. That decline reduced its GMS growth rate to 32% in the first quarter, and that deceleration could continue in the second quarter -- although it saw some strength in self-care, puzzles, and beauty products after the crisis began.

In February, Shopify estimated that its revenue would grow 35%-37% in 2020, but it also recently suspended that forecast. Shopify didn't provide exact numbers like Etsy, but it noted that "early signs" indicated that brick-and-mortar merchants were "pivoting to online as consumer demand shifts."

It noted merchants were "heavily leveraging discounts to boost sales," and its sales trends were "aligning to specific industries based on the evolving environment, consumer concerns and needs." It's also offering extended free trials, gift cards across all plans, in-store and curbside pickup tools, and more funding options at Shopify Capital to help merchants through the pandemic. Both companies should provide clearer guidance when they report their first-quarter earnings in May.

Which company is more profitable?

Etsy is consistently profitable by GAAP measures, but Shopify isn't. Etsy's GAAP net income rose 24% to $95.9 million last year, even as it integrated Reverb's marketplace. Meanwhile, its adjusted EBITDA rose 34% to $186.3 million. Etsy had originally expected its adjusted EBITDA to grow 18%-26% in 2020.

Shopify's GAAP net loss widened from $64.6 million to $124.8 million last year, as its acquisition of 6 River Systems (which bolstered its logistics capabilities) weighed down its bottom line. Its non-GAAP net income declined 22% to $34.3 million. Shopify originally expected to post another GAAP net loss in 2020.

Both companies' bottom lines will be impacted by the pandemic, but Etsy's consistent profits (which may waver and dip throughout the crisis) arguably make it a more stable business than Shopify, which has no clear path toward GAAP profitability.

The winner: Etsy

Etsy is more profitable, trades at lower valuations, and faces less direct competition than Shopify. However, Shopify has a better diversified merchant base and arguably benefits from the shift to online stores.

It's a tough call, but I'd stick with Etsy. Its base of artisans will inevitably lose business throughout the pandemic, but its growth could rebound after the crisis passes and discretionary spending warms up again. I'd like to see narrower losses and a wider moat at Shopify before I pull the trigger on its high-flying stock.