At first glance, eBay (EBAY +1.48%) and Shopify (SHOP +6.42%) do not seem to compare well. Other e-commerce sites appear to have eclipsed the performance of eBay's once-popular online auction site, while Shopify seems to have transcended the competition as its stock levels off near recent highs.
However, eBay has returned to double-digit growth amid new leadership and a different approach. The internet and direct marketing retail stock has surged to all-time highs. Given this change, some might wonder whether eBay could potentially become a more lucrative investment than Shopify.
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The state of Shopify
Within a competitive field of e-commerce software, Shopify became the second most popular platform behind the WordPress add-on WooCommerce. According to Builtwith, Shopify claims an 18% market share versus WooCommerce's 30%. A reasonable price point, an easy-to-use platform, and vast user resources have boosted Shopify's popularity. Moreover, partnerships such as its recent deal with social media giant TikTok could drive additional sales.
Nonetheless, even as platforms such as Squarespace and Adobe's Magento have also become increasingly popular, Shopify is still just getting started in one key respect. Thanks to the Shopify Fulfillment Network (SFN), it has transcended its competition by becoming more than just a software provider.
The SFN can fill, package, and send its clients' orders through a growing network of order processing centers. Such an advantage will likely make Shopify the platform of choice for those e-commerce companies that depend heavily on product shipments.
This growing popularity helped it earn $2.1 billion in revenue in the first half of 2021. This is a 78% increase compared with the first half of 2020. Not counting a $2 billion unrealized gain from equity and other investments, Shopify reported a net income of $109 million in the first two quarters of 2021. This came in well above the $5 million reported in the first half of 2020. Shopify achieved this profit by keeping the growth in the cost of revenues and operating expenses well below the pace of revenue increases.
Nonetheless, the outlook called for rapid but slowing growth compared with 2020, declining to offer specific figures. Moreover, Shopify's 48% stock growth over the last year has taken its price-to-sales (P/S) ratio to about 50. This is well above the P/S of four for Amazon, or the P/S of five for eBay.
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How eBay compares
Additionally, investors may have more reasons to consider eBay than simply a low P/S ratio. E-commerce executive Jamie Iannone returned to eBay in April 2020 after improving the performance at Walmart's Sam's Club and Walmart eCommerce.
Iannone made several changes to make eBay more user-friendly. He reduced the steps required to add listings and also added QR coding for pick-ups. Other improvements included enabling storefronts on mobile devices, adding filtering to improve the search tool, and introducing managed payments to create a digital wallet experience.
Such changes allowed eBay to prosper during the pandemic. Net income surged 25% in 2020 compared with year-ago levels after having increased by only 5% in 2019 versus 2018.
During the first half of 2021, revenue grew by 28% compared with the first two quarters of 2020 to $5.3 billion. However, by Q2, the increases slowed to 14% versus the second quarter of 2020 after experiencing a 12-month growth rate of 42% in Q1.
When not counting the $10.5 billion in income from discontinued operations, eBay earned $862 million in the first half of 2021 on $5.3 billion in revenue. Earnings from continuing operations fell from $1.1 billion in the year-ago period as higher interest costs in 2021 weighed on profits.
Nevertheless, most e-commerce companies have either seen or prepared for slowing revenue growth amid offline reopenings. Also, revenue growth remains well above the year-over-year increase of 1% in 2019, indicating that much of this growth is sustainable.
Such improvements prompted a 42% increase in the stock price over the last year, taking it to all-time highs. And this growth likely has not factored in eBay's improvements, as its aforementioned P/S ratio remains consistent with historical levels. Assuming eBay can maintain growth independent of the pandemic's influence, the stock could easily continue to set new records.
Shopify or eBay?
Although Shopify appears to hold more growth potential, valuations indicate eBay is the better buy. Admittedly, the fact that Shopify grows revenue at four times the rate of eBay makes this seem like a strange call.
Nonetheless, Shopify's sales multiple is more than 10 times higher than eBay's. Additionally, eBay generated about 2.5 times as much revenue as Shopify in the first half of 2021. Hence, even if Shopify's revenue catches up to eBay's in the foreseeable future, eBay can still attract new investors and remain a significant force in the e-commerce industry.
