Earlier this year, Shopify (NYSE:SHOP) surpassed eBay (NASDAQ:EBAY) as the second-largest e-commerce platform in the U.S. by sales volume after Amazon (NASDAQ:AMZN).

That was a humbling blow for eBay, the world's first online auction platform for person-to-person transactions. It also explains why Shopify stock has soared more than 3,700% over the past five years. During that same period, eBay stock rose 76% and Amazon stock advanced 375%.

A miniature grocery cart in front of an open laptop.

Image source: Getty Images.

Investors might be reluctant to buy Shopify stock right now, since it trades at over 290 times forward earnings. Meanwhile, eBay stock trades for 14 times forward earnings, which might make it look tempting as a value play. Nevertheless, it's smarter to pay a premium for Shopify than a deep discount for eBay, for three simple reasons.

1. Old e-commerce vs. new e-commerce

eBay's platform was once considered revolutionary. But today, it faces stiff competition from Amazon's third-party sellers, Etsy, and other similar marketplaces. Social media platforms like Pinterest and Facebook's Instagram are also integrating online purchases into their sponsored posts.

Today, Shopify's services are considered disruptive. Instead of providing a centralized marketplace, Shopify's e-commerce tools help over a million merchants set up online stores, process payments, manage marketing campaigns, fulfill orders, and access other services. 

In other words, Shopify operates behind the scenes to help companies establish their own online presence without relying on big marketplaces like Amazon and eBay. Shopify also launched Shop, a consumer-facing app that provides searchable listings for its merchants, earlier this year.

Shopify's decentralized approach enables merchants to expand online without diluting their identity, and it's easy to scale as a business grows. By contrast, merchants usually need to buy promoted listings to stand out in eBay's crowded marketplace.

2. Fortune favors the bold

eBay shrank its business over the past five years. It spun off PayPal in 2015, shut down its fixed-price subsidiary Half.com in 2017, sold its online tickets platform StubHub this February, and plans to sell its online classifieds platform by the first quarter of 2021.

eBay also reduced its marketing spending last year. The goal was to boost its profit and take rate -- the percentage of each sale it retains as revenue -- instead of maximizing gross merchandise volume (GMV). Its prioritization of profit over growth, along with its dividends and buybacks, strongly suggest that eBay is a mature tech company with limited growth prospects.

eBay's campus in San Jose, California.

Image source: ebay.

Shopify has expanded significantly since its IPO in 2015. It acquired the digital consulting and product development firm Boltmade in 2016, the drop-shipping platform Oberlo in 2017, and the warehouse automation company 6 River Systems last year.

The company has partnered with Amazon to let merchants sell products on Amazon from their Shopify stores. It has added similar integrations with Facebook, Alphabet's Google, Snap's Snapchat, and ByteDance's TikTok. It also beefed up its premium Shopify Plus tier for larger merchants.

Shopify has also expanded its own payments platform, Shopify Payments, which processed nearly half of its GMV last quarter. It launched its own fulfillment network last year. Finally, it offers additional services via its own app store for online stores.

All those aggressive moves indicate that Shopify is still expanding. It's eager to reinvest its cash into itself instead of divesting businesses and cutting costs to protect its bottom line.

3. Shopify is growing a lot faster

eBay's revenue rose just 1% last year as its GMV dipped 5%. It blamed that sluggish growth on the reduction of its marketing expenses and higher internet sales taxes in several U.S. states. Its adjusted net income rose just 5%, but big buybacks boosted its earnings per share 22%.

This year, eBay expects its revenue to rise 19%-20% after excluding its divested businesses and currency headwinds. Adjusted EPS is on track to grow 18%-20%.

Those growth rates look impressive, but they're mainly attributable to a temporary acceleration in online sales during the pandemic. Looking past that growth spurt, analysts expect eBay's revenue and earnings to grow 7% and 9%, respectively, next year.

Last year, Shopify's revenue rose 47% and its GMV surged 49%, but its adjusted EPS fell 30% as it integrated 6 River Systems into its new fulfillment network. However, analysts expect pandemic-related tailwinds to boost its revenue 81% this year, while adjusted EPS could jump more than tenfold.

Next year, analysts expect Shopify's revenue and earnings to rise 32% and 2%, respectively. Investors should expect Shopify to continue generating high double-digit sales growth, but its earnings growth could remain unpredictable due to the ongoing investments in its ecosystem.

Why Shopify is a better buy than eBay

The e-commerce market is rapidly evolving, and it arguably favors disruptive players like Shopify instead of legacy marketplaces like eBay. Shopify lets merchants build their own online brands and optionally link them to Amazon and social networks. eBay wants to trap them in a walled garden filled with low-priced competitors.

Investors seem to believe Shopify's vision for the future justifies its premium valuation, while eBay deserves a lower valuation. Shopify stock will likely remain volatile, but it should keep attracting more bulls than eBay.