The e-commerce industry has been a hot starting point for investors seeking explosive growth in recent years, and no company in the space has been a bigger winner than Shopify. The company has also delivered incredible returns for shareholders, with its stock rising roughly 4,000% over the last five years.
As impressive as Shopify's performance has been, investors should know that the overall e-commerce market is still young in the grand scheme of things, and growth is far from tapped out. With that in mind, this panel of Motley Fool contributors has identified three stocks with promising outlooks in the e-commerce space. Read on to see whether they think these companies have what it takes to be the next Shopify.
Baozun: The Shopify of China
Keith Noonan (Baozun): Chinese e-commerce company Baozun (NASDAQ:BZUN) is sometimes referred to as "the Shopify of China." Both companies provide online retail website creation tools and maintenance services, but there are some major differences between the two despite the frequent comparison.
While Baozun does have a platform that caters to the needs of small- and medium-sized businesses, the overwhelming majority of its revenue and profits come from serving large brands. Baozun mostly helps large Western companies launch and scale their e-commerce businesses in the Chinese market with additional warehousing, order fulfillment, and customer management services. However, the long-term potential to grow its services for small domestic businesses is part of Baozun stock's appeal.
After being the only major economy to grow its GDP in 2020, China's economy is expected to increase an impressive 8.1% this year, according to the IMF. The country is on track to see huge economic growth over the next decade and beyond, and rising per-capita spending power and an explosion of small business formation could prove to be huge tailwinds for Baozun. If the company is able to continue expanding with Western brands and also tap into an explosion of new business formation in China, it might be able to match Shopify's incredible returns.
However, while the Chinese market presents a huge runway for long-term growth, those who invest in Chinese stocks have some unique risk factors to consider. Many companies based in the country, including Baozun, do not adhere to the Securities and Exchange Commission's reporting standards despite being listed on U.S. stock exchanges. Regulators and legislators have made moves to delist some Chinese stocks, and continued political tensions between the two economic powers mean added uncertainty for investors.
Baozun looks attractively valued, trading at roughly 27 times this year's expected earnings, but it's a high-risk, high-reward play.
Paysafe has huge potential
Joe Tenebruso (Paysafe): An often-overlooked aspect of Shopify's success is its payment processing platform, which helps its merchant customers quickly and easily accept credit cards and other payment methods. A similar dynamic could help another fast-growing payments platform -- Paysafe (NYSE: PSFE) -- deliver market-beating returns to investors.
Paysafe came public this past week after its $9 billion merger with special purpose acquisition company (SPAC) Foley Trasimene Acquisition Corp. II. Paysafe provides payment processing, digital wallet, and online cash solutions. Major customers include sports betting leader DraftKings and Amazon-owned game-streaming platform Twitch.
Paysafe is particularly well-positioned to benefit from the growth of the iGaming market, which is projected to exceed $127 billion by 2027, up from less than $60 billion in 2020, according to Grand View Research. Nearly three out of every four online betting companies use Paysafe for their payment processing needs.
The merger with Foley Trasimene will allow Paysafe to pay down debt and bolster its cash reserves. The combined company is also on the hunt for acquisitions in the iGaming space that could help to accelerate its growth in this booming market.
With Paysafe, investors have the opportunity to buy into a leader in a rapidly expanding industry that's still early in its growth cycle, which, as Shopify has shown, can be highly lucrative.
Coupang is destined for long-term success
Jamal Carnette (Coupang): The South Korean e-commerce company has only been publicly traded for a month, but Coupang (NYSE:CPNG) has a multi-decade runway for growth. In fact, the "Jeff Bezos of South Korea" has out-executed Amazon.com in its home country and is well situated to take advantage of the unique advantages that make South Korea a perfect market for e-commerce growth.
The first benefit South Korea has is population density: Nearly 20% of the country lives in the capital city of Seoul, and the population density is five times higher than in the U.S. This is important because it makes it easier for a company to set up a strong distributional and logistical network. Coupang notes that nearly 70% of all Koreans live within seven miles of one of its logistical centers, which is why Coupang's Rocket service can deliver 99% of its products in one day.
South Korea also has a higher internet penetration rate than the U.S. (96% vs. 90%), a well-educated populace, and the 12th-largest economy as measured by GDP. Unsurprisingly, South Korea is slated to be the third-largest e-commerce market in the world this year, trailing only the U.S. and China.
Coupang is benefiting from this growth as it recently snatched the title as the largest e-commerce company in South Korea. In its S-1 IPO registration filing the company boasted full-year sales growth of 91%. Despite the strong growth the company trades at 6.8 times sales, which is significantly less than developing economy e-commerce stocks like Jumia Technologies, Mercado Libre, and Sea Limited that trade at 21.9, 17.6, and 23.4 times, respectively.
Growth stocks might currently be out of favor, but smart investors should use this opportunity to snatch up Coupang before Wall Street catches on.