Shopify (NYSE:SHOP) is one of the best-performing stocks of the last five years, up over 4,000% since its initial public offering (IPO) in 2015. This backbone of many e-commerce companies has done phenomenally well for shareholders, and for good reason, as its revenue has grown more than tenfold since 2015.

But with the stock trading at a price-to-sales ratio (P/S) north of 50, way above the market average, investors looking for exposure to e-commerce platforms may want to search elsewhere. Enter Wix.com (NASDAQ:WIX). The professional website builder has recently entered the e-commerce market with a full head of steam and is ready to take on Shopify, the market leader. Here's how.

A person putting a label on a shipping box.

Image source: Getty Images.

Wix's model

Last June, Wix announced it had supercharged its e-commerce solutions to help its subscribers deal with the tumult of the COVID-19 lockdowns. Like Shopify, Wix now can serve its customers anything they might need to help run an e-commerce business, with tax solutions powered by Avalara (NYSE:AVLR), drop-shipping, and access to Wix Payments, Wix's internal payment solution.

These investments enabled Wix to grow its business solutions revenue by 76% in 2020 and an astounding 107% in the fourth quarter of last year. Wix is also targeting specific verticals like restaurants with its SpeedETab acquisition and new point-of-sale (POS) solution, potentially stepping on the toes of not only Shopify but Square (NYSE:SQ), too.

Wix's business solutions now look to be on par with Shopify's. But if both products are equal, and Shopify has the first-mover advantage, how can Wix win over the long term?

Established user base

The key differentiator for Wix is its 200 million established users and over 5 million paying subscribers. The majority of its revenue still comes from creative solutions, which means most of these customers are not using Wix's e-commerce solutions or Wix Payments. This bodes well for cross-selling opportunities.

For example, if a yoga studio is already using Wix to power its website and online bookings for classes, it is likely that they would stick with Wix if the owner decided to expand the business and start selling things like leggings and workout apparel. All things equal, and assuming Wix's e-commerce solutions are equivalent to Shopify's (which it seems they now are), why would anyone use Shopify if they are already a Wix customer? This is why Wix is aiming for Wix Payments to hit $10 billion in gross payment volume (GPV) in 2021, up from $5.4 billion in 2020. For reference, Shopify Payments did $53.9 billion in GPV last year.

Valuation

At a market cap of $16.3 billion, Wix trades at a trailing P/S of 16.5. This is fairly expensive, but still a lot less than Shopify, which, as I mentioned above, trades at a P/S above 50. However, with Wix, revenue doesn't tell the whole story. Since it has to recognize revenue over the life of its subscriptions even if it gets all the money upfront, its non-GAAP (adjusted) "collections" metric gives a better sense of how its top line is doing. Wix hit $1.1 billion in collections in 2020 and is guiding for $1.45 billion in 2021. With this forward collection multiple of 11.2, the stock doesn't look overly expensive. 

Shopify has been a stock market darling the last few years, and for good reason. If you like Shopify's business model but can't wrap your head around the valuation, it may be time to take a good hard look at Wix as a potential addition to your portfolio.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.