Please ensure Javascript is enabled for purposes of website accessibility

2 Top E-Commerce Stocks to Watch in October

By Chris Neiger – Updated Oct 7, 2020 at 10:09AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Investors shouldn't overlook the opportunities that these two companies have.

It may seem like a lifetime ago, but it has only been a little over seven months or so that the coronavirus has been disrupting our daily lives. While most lockdowns are eased or finished in the U.S., many workers are still doing so from home and people are spending more time at home than ever before. 

All of this has caused people to buy necessities from clothes to food (and everything in between) online and has made e-commerce more important than ever. To put this in perspective, consider that in the first quarter of 2019 e-commerce sales accounted for less than 11% of total retail sales in the U.S. That percentage jumped to more than 16% in the first three months of 2020 largely because of COVID-19. 

If you're looking for a couple of great investments that are tapping into this growing move toward e-commerce and that have the ability to continue growing for years to come, take a look at what Shopify (SHOP -2.31%) and Square (SQ 1.21%) are doing. 

A woman sitting at a desk.

Image source: Getty Images.

1. Shopify is a no-brainer e-commerce play 

Shopify is an e-commerce platform that helps businesses set up online stores so that they can sell their products and services. Shopify was already a major e-commerce player before the pandemic, but its growth has accelerated over the past several months. 

In the second quarter of 2020, Shopify's revenue grew 97% and the dollar amount spent on the company's platform, called gross merchandise volume (GMV), spiked 119%. This growth wasn't just the result of more businesses shifting their sales from brick-and-mortar stores to online ones, but also of Shopify adapting its tech to meet businesses' needs. 

Here's what Shopify's president and chief operating officer, Harley Finkelstein, said about the company's evolution in the second quarter:

[F]rom late March through the second quarter, we dialed up our urgency to enable independent businesses to adapt and compete in this new reality. This urgency helped more merchants not just survive, but thrive in a period of major upheaval. I cannot recall a time in our history when we have shipped so many features in such a short period of time, helping so many merchants recover and many others reach new levels of success.  

Many businesses have turned to Shopify's platform as they've had to adapt to a new way of serving their customers, and it's likely that they'll stick with Shopify to keep their online businesses running after COVID-19 is long gone.

2. Square is a different type of e-commerce investment

Square is a payment facilitator that has done an incredible job of focusing its attention on both merchants and users with its array of products and services. 

Square's online payment services for merchants expanded over the past few months, allowing small businesses to adapt to the pandemic. One way it did this was through the company's Square Online Checkout feature, which made it easy for retailers to collect payments online. Additionally, Square partnered with Postmates to help expand delivery services for its merchants. 

As a result of Square's pivot to an online focus, management said in the second quarter of 2020 its gross payment volume from online channels was up by more than 50% year over year.

But the company is also benefiting from individual users turning to online services to pay each other and businesses through its Cash App. The app had more than 30 million monthly active customers in June (the last month reported in the second quarter) and revenue from the app skyrocketed 140% to $325 million in the quarter.

With Square firmly in the peer-to-peer payment space and the merchant payment solutions market, the company is rapidly solidifying itself as a key player in nearly every aspect of digital transactions. And as e-commerce continues to expand in the U.S., Square's lead as a payment facilitator should help the company grow right along with it. 

E-commerce is here to stay

While the pandemic has accelerated the adoption of e-commerce, investors should view the increase of online shopping as a catalyst, and not just a one-off event, because e-commerce was already steadily growing long before lockdowns and social distancing became commonplace. That means that while the stock market, and Square's and Shopify's stock, may react to the daily news about the pandemic and the economy, investors should keep a long-term view on how these companies will benefit from e-commerce's growth. 

Chris Neiger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Shopify and Square. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Shopify Stock Quote
$37.15 (-2.31%) $0.88
Block, Inc. Stock Quote
Block, Inc.
$62.11 (1.21%) $0.74

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.