ContextLogic's (WISH 8.58%) Wish and Amazon (AMZN -0.48%) are two very different e-commerce companies. Wish is a discount third-party marketplace that promotes visual shopping over text-based searches, while Amazon's massive retail business includes a first-party marketplace, third-party marketplace, and brick-and-mortar stores.
Wish serves more than 100 million monthly active users across over 100 countries, and it was the most downloaded shopping app globally over the past three years, according to Sensor Tower.
Amazon hosts over 300 million active customer accounts worldwide, including 200 million paid Prime members. It also owns Amazon Web Services (AWS), the world's largest cloud infrastructure platform, and the third-largest digital advertising platform in the United States.
Image source: Amazon.
Wish went public last December at $24 per share, but its stock dropped below its IPO price on the first trading day and is now only worth about $8. Amazon's stock rallied about 30% over the past 12 months, and has stayed roughly flat since Wish's public debut.
Why did investors shun Wish and stick with Amazon? Let's compare these two growing e-commerce companies and see if Amazon is still a better all-around investment.
Wish's problems overshadow its strengths
Wish's platform hosts roughly half a million merchants, but most of them are located in China. Those merchants enable Wish to sell its products at low prices, but they can also inadvertently expose its shoppers to counterfeit goods. It also usually takes a long time to receive and return orders.
Wish's revenue, which mainly comes from its transaction, logistics, and advertising fees, rose 10% to $1.9 billion in 2019. Its revenue increased another 34% to $2.5 billion in 2020 as the pandemic sparked more online purchases.
Image source: Getty Images.
But Wish is still unprofitable due to its dependence on aggressive discounts, flash sales, and cross-border shipping. Its net loss narrowed from $208 million in 2018 to $129 million in 2019, but widened again to $745 million in 2020.
In the first quarter of 2021, Wish's revenue rose 75% year-over-year to $772 million, but it benefited from an easy comparison to pandemic-related disruptions a year ago. For the full year, analysts expect its revenue to rise just 24% to $3.2 billion.
Wish's net loss also widened year-over-year, from $66 million to $128 million, in the first quarter. Analysts expect it to remain unprofitable for the full year.
Wish's top-line growth remains weaker than that of many larger e-commerce companies, including Amazon. Its losses are widening, and its troubling dependence on Chinese merchants leaves it exposed to the trade war, tariffs, and stiffer penalties in the U.S. for marketplaces that peddle counterfeit products.
Amazon's strengths outweigh its weaknesses
Amazon generates most of its revenue from its online marketplaces, but the lion's share of its operating profits come from AWS' higher-margin business. In other words, AWS' profits subsidize the growth of Amazon's lower-margin marketplaces -- which enables it to aggressively expand its e-commerce ecosystem with discounts, loss-leading strategies, and low-margin hardware devices like the Echo.
Amazon's revenue increased 38% to $386.1 billion in fiscal 2020, with 38% growth at its North American business, 40% growth at its international business, and 30% growth at AWS. Its third-party seller services business, which can be compared to Wish, grew its revenue 50%.
In other words, Amazon is still growing at a much faster rate than Wish despite generating over 150 times more revenue last year. Amazon is also much more profitable than Wish -- its net income surged 84% to $21.3 billion even as it spent billions of dollars on COVID-19 safety expenses.
In the first quarter of 2021, Amazon's revenue rose 44% year-over-year to $108.5 billion as its net income more than tripled to $8.1 billion. Analysts expect its revenue and earnings to grow 27% and 33%, respectively, for the full year.
Amazon's core e-commerce and cloud businesses are still firing on all cylinders, and it remains the clear leader in both markets. AWS will continue to support the retail segment's growth, and it will continue pouring its excess cash into its newer businesses -- like advertising, gaming, and streaming media -- to expand its ecosystem and widen its moat.
The clear winner: Amazon
Wish's stock might seem cheap at 1.7 times this year's sales, but it's trading far below its IPO price for obvious reasons. It's not growing fast enough for investors to forgive its losses, and its marketplace is too dependent on Chinese merchants and sluggish cross-border shipments.
Amazon trades at 45 times forward earnings and three times this year's sales. Those valuations are reasonable relative to its growth rates, and its e-commerce and cloud businesses will continue expanding for years to come. Those strengths clearly make Amazon a better long-term investment than Wish.
