Shopify (SHOP 2.69%) and Wayfair (W 4.45%) are both high-growth e-commerce companies that have flourished in recent years.
Shopify provides merchants with e-commerce tools for maintaining websites, processing payments, running marketing campaigns, and more. Wayfair sells furniture and home goods online through its eponymous platform, as well as its Joss & Main, AllModern, Birch Lane, and Perigold marketplaces.
Shopify went public at $17 per share in May 2015, and the stock now trades at nearly $1,000. Wayfair went public at $29 per share in Aug. 2014, and its stock now trades above $250.
Shopify clearly generated bigger post-IPO gains than Wayfair, but will the high-growth darling continue to outperform the online furniture marketplace over the next few years? Let's dig deeper to decide.
The differences between Shopify and Wayfair
Shopify is the second largest e-commerce platform in the U.S. after Amazon (AMZN 4.44%), but it mainly operates from behind the scenes. Unlike Amazon, which runs a large online marketplace, Shopify processes orders, payments, and shipments for over a million merchants worldwide.
Earlier this year, Shopify launched a consumer-facing app called Shop, which unifies its merchants' listings on a single searchable platform. That move highlighted its ability to challenge Amazon and eBay in unified marketplaces, but Shopify's main competitors are still e-commerce service companies like Adobe's Magento and BigCommerce.
Wayfair is the largest online-only retailer of furniture and home goods in America. It works with over 12,000 global suppliers to provide over 18 million products across its marketplaces, and it fulfills its orders with a dozen fulfillment centers across North America and Europe.
Wayfair faces competition from Amazon, Walmart, and other retailers, which are selling more furniture and home goods online. But it still enjoys a first-mover's advantage in its market, and it's been reinforcing its brand with pop-up shops and a single brick-and-mortar store over the past two years.
Which e-commerce company is growing faster?
Shopify's revenue rose 47% to $1.58 billion in 2019, as its GPV (gross merchant volume) surged 49% to $61.1 billion. However, its adjusted net income fell 22% to $34.3 million as it ramped up its investments in new services and bought 6 River Systems to strengthen its newly launched Shopify Fulfillment Network.
In the first nine months of 2020, Shopify's revenue rose 82% year-over-year to $1.95 billion as the pandemic forced companies to ramp up their e-commerce investments.
Its GMV rose 46% year-over-year in the first quarter, 119% in the second quarter, and 109% in the third quarter. It posted an adjusted net profit of $292 million during the first nine months, compared to a loss of $16 million a year ago, even as it continued to expand its fulfillment network ahead of the busy holiday shopping season.
Wayfair's revenue rose 35% to $9.1 billion in 2019, with double-digit growth in both its domestic and overseas businesses. However, its adjusted net loss more than doubled from $366 million to $741 million as higher tariffs and marketing costs dragged down its margins.
But in the first nine months of 2020, Wayfair's revenue jumped 59% year-over-year to $10.5 billion as the pandemic caused people to make more purchases online. CEO Niraj Shah noted the crisis caused customers to "reprioritize their spending on where and how they live and away from other experiences like travel, entertainment, and dining."
That robust revenue growth, along with cost-cutting measures and the improved efficiency of its logistics network, enabled Wayfair to generated an adjusted profit of $388 million in the first nine months -- compared to a loss of $479 million a year earlier.
The valuations and verdict
Analysts expect Shopify's revenue to rise 81% this year and for its adjusted earnings to surge twelvefold. But next year, they expect that growth to cool off with 32% revenue growth and a 4% dip in earnings.
Investors should be skeptical of analysts' long-term estimates, but those estimates suggest Shopify's growth should decelerate and stabilize after the pandemic ends. Unfortunately, it's still impossible to tell if the pandemic will end next year even as new vaccines are approved.
Analysts expect Wayfair's revenue to rise 59% this year and for its earnings to stay in the black. Next year, they expect its revenue to rise 13% but for its earnings to decline 46% as the pandemic-related tailwinds dissipate.
Assuming those forecasts are accurate, Shopify's stock trades at over 250 times forward earnings, while Wayfair has a forward P/E ratio of 125. Neither stock is cheap relative to its growth, and both stocks are pricier than Amazon, which trades at nearly 60 times forward earnings.
But if I had to pick one over the other, I'd still buy Shopify, because it's better diversified, operates a less capital-intensive model, and generates stronger growth in revenue and earnings than Wayfair. Shopify's expanding ecosystem -- which includes Shopify Payments, Shopify Capital, and its Plus tier for large enterprise customers -- also gives it more directions to expand than Wayfair over the long term.