Online retail sales in the U.S. will grow 9% to more than $1 trillion this year. And by 2026, over 20% of all retail purchases will be made via e-commerce channels, up from 15% today.
YouTube knows this -- and it's taking steps to capture a bigger slice of this massive and still rapidly growing pie. To do so, the online video sharing giant and Alphabet (GOOG -1.10%) (GOOGL -1.23%) subsidiary is working with e-commerce leader Shopify (SHOP 0.23%) to bolster its online shopping capabilities.
Strengthening ties with influencers
Every day, millions of people discover and evaluate things to buy on their favorite social media channels. Content creators are increasingly influencing their decisions. They serve as curators of fashion and friendly assistants who try on and display items to help viewers make better shopping decisions. They've also become valued confidants, with 89% of viewers saying that creators give recommendations they can trust, according to a study conducted by Google.
YouTube wants to further this trend. It's rolling out live shopping tools for content producers and partnering with Shopify to make it easier for them to link and operate their e-commerce stores on YouTube. By enabling influencers to offer their products directly to their fans, the video-sharing titan hopes to become a major shopping destination, rather than just a discovery engine.
The two companies will also work together to deliver a seamless checkout experience to viewers that can be completed without leaving YouTube. Additionally, Shopify will provide real-time inventory management tools to help creators avoid product shortages.
"We believe creators are the next generation of merchants, and YouTube has been a longtime leader in powering this new cohort of entrepreneurs," Shopify vice president Kaz Nejatian said in a blog post. "We're excited to partner with YouTube and help scale the creator economy into its next phase of growth."
Battling the mighty Amazon
YouTube and Shopify aren't the only ones trying to court creators. Amazon.com (AMZN -2.56%) is reportedly stepping up its efforts to entice more influencers to join its e-commerce platform, including offering signing bonuses and vacations to popular promoters.
The online retail juggernaut views the initiative as a key growth driver. "Livestream shopping is the future of retail," Amazon vice president Wayne Purboo said during an interview with the Financial Times.
Purboo leads Amazon Live, the company's livestream shopping site where celebrities and other influencers offer up deals on their most popular products. Amazon wants to dominate livestream shopping the way it dominates traditional e-commerce shopping. Yet YouTube and Shopify also want to stake their claim in this burgeoning market. Investors should watch this battle closely, as it could have a material impact on these e-commerce competitors' growth rates.
So, is it time to buy shares of Alphabet and Shopify?
Like many growth stocks, Alphabet's and Shopify's stocks have been hit hard in 2022. Their stock prices are down more than 22% and 75%, respectively, so far this year.
After soaring during the early stages of the pandemic, e-commerce sales have slowed. Health restrictions have been lifted, and more people are returning to traditional retail stores. Demand for Alphabet's digital advertising offerings and Shopify's e-commerce services, in turn, has moderated.
Fears that stubbornly high inflation -- and the Federal Reserve's moves to tame it -- will drive the economy into a recession are also weighing on Shopify's and Alphabet's stock prices. A severe and prolonged recession would likely dent e-commerce sales and result in a further decline in demand for digital marketing and other online retail services.
Yet these fears have also driven Alphabet's and Shopify's valuations to much more attractive levels than their stocks were trading at just a few months ago. Although it could take some time for their shares to rebound to the lofty heights they reached in late 2021, their risk-to-reward profile is now far more attractive for patient, long-term-minded investors.
Moreover, Alphabet and Shopify are competitively dominant in their respective core markets of digital advertising and e-commerce merchant services. Even if a recession causes these markets to pull back in the short term, their long-term prospects remain attractive. Thus, investors may wish to use the recent downturn in their stock prices to initiate or add to a position in these proven winners.
