The stocks of Shopify (SHOP 3.75%) and Alibaba (BABA 2.12%) both lost more than 50% of their value over the past 12 months. Investors dumped both e-commerce darlings amid concerns about their decelerating growth, and the broader sell-off in higher-growth tech stocks exacerbated the pain.

Should investors consider buying either beaten-down stock right now? Let's review their business models, challenges, and valuations to decide.

A tiny shopping cart in front of a notebook computer.

Image source: Getty Images.

Shopify: A solid business with shaky valuations

Shopify's services enable smaller merchants to easily launch their own online stores, process payments, fulfill orders, and manage their own marketing campaigns. Those self-service tools are attractive options for sellers that don't want to join a massive online marketplace like Amazon, Etsy, or eBay.

Shopify's revenue rose 86% to $2.93 billion in fiscal 2020, which aligns with the calendar year, as the pandemic forced more merchants to open online stores. Its gross merchandise volume (GMV) soared 96% to $119.6 billion as its gross payment volume (GPV) jumped 110% to $53.9 billion. Its adjusted net income skyrocketed more than 14 times to $491 million.

Those jaw-dropping growth rates turned Shopify into one of the market's favorite stocks during the pandemic. But as more businesses reopened, Shopify's growth cooled off. In fiscal 2021, its revenue rose 57% to $4.62 billion, its GMV grew 47% to $175.4 billion, and its GPV increased 59% to $85.8 billion. Its adjusted net income rose 66% to $491 million.

Analysts expect that slowdown to continue with 31% growth in 2022 and 33% growth in 2023. They also expect its adjusted earnings to decline 47% in 2022 as it ramps up its investments, then possibly rebound 49% in 2023.

That slowdown doesn't seem too severe, but Shopify's stock is still richly valued at 250 times forward earnings and 10 times this year's sales. Amazon, which is growing a bit slower than Shopify, trades at just 54 times forward earnings and three times this year's sales.

Like Amazon, Shopify recently announced a stock split that might stir up some fresh retail interest in its shares. But the 10-for-1 split won't actually make Shopify's stock fundamentally cheaper, and it arguably masks the introduction of a new "founder" share class that permanently locks in a 40% voting stake for CEO Tobi Lütke, his family, and close associates.

Alibaba: A shaky business with bargain valuations

Alibaba is the largest e-commerce and cloud company in China. It generates all of its profits from its sprawling commerce ecosystem -- which includes its e-commerce websites, brick-and-mortar stores, logistics unit, and overseas and cross-border marketplaces -- to support the expansion of its unprofitable cloud, digital media, and "innovation initiatives" divisions.

Alibaba's revenue rose 35% to 509.7 billion yuan ($72 billion) in fiscal 2020, which ended in March of the calendar year, with 15% GMV growth across its Chinese retail marketplaces. Its adjusted net income rose 42% to 132.5 billion yuan ($18.7 billion).

In fiscal 2021, Alibaba's revenue grew 41% to 717.3 billion yuan ($109.5 billion) as the GMV of its Chinese retail marketplaces increased by 14%. Its growth remained stable -- but didn't accelerate significantly like overseas e-commerce marketplaces -- throughout the pandemic. Its adjusted net income grew 30% to 172 billion yuan ($26.3 billion), but only after excluding a record antitrust fine of $2.8 billion that it incurred after a lengthy probe.

That government crackdown -- which banned Alibaba from locking in merchants with exclusive deals, using aggressive promotions to gain new customers, and making unapproved investments -- spooked the bulls. To make matters worse, regulators in the U.S. are still threatening to delist Chinese companies that don't comply with tighter auditing standards.

Those headwinds were already troubling, but Alibaba then dropped the ball in fiscal 2022 with three quarters of decelerating growth. It mainly blamed that slowdown on macroeconomic and competitive headwinds in China.

As a result, analysts expect Alibaba's revenue to grow 21% in fiscal 2022 and rise just 13% in fiscal 2023. They also expect its earnings to dip 20% this year as it increases its dependence on its lower-margin brick-and-mortar, logistics, cross-border, and overseas marketplaces to support its top-line growth. In fiscal 2023, they expect its earnings to grow a mere 4%.

Alibaba's stock looks dirt cheap at 12 times forward earnings and two times this year's sales. Those low valuations initially attracted a big investment from Charlie Munger's Daily Journal (DJCO 0.71%), but the company recently sold half its stake in Alibaba at a steep loss.

The winner: Shopify

I'm not a big fan of either e-commerce stock right now. But if I had to choose one over the other, I'd stick with Shopify because its platform is disruptive, it's still growing like a weed, and it doesn't need to deal with regulatory headwinds on both sides of the Pacific like Alibaba.

Alibaba's stock could certainly rebound if those headwinds fade and it generates stable growth again. But between the resurgence of COVID-19 in China and The Daily Journal's big sale, it just doesn't seem like the right time to buy more shares of this Chinese tech giant.