Shopify (SHOP -1.74%) and Coupang (CPNG -0.88%) represent two very different ways to invest in the e-commerce sector. Shopify, which is based in Canada, provides self-serve e-commerce tools that enable merchants to set up their own online stores, process payments, fulfill orders, and manage their own marketing campaigns without joining a large online marketplace like Amazon. Coupang owns South Korea's largest online marketplace. It also delivers meals and groceries, and it operates a streaming media platform called Coupang Play.
Shopify and Coupang both saw their shares hit record highs last year. But both stocks subsequently collapsed as investors fretted over the e-commerce market's post-pandemic deceleration, inflationary headwinds, and rising interest rates. As of this writing, shares of Shopify and Coupang now trade down roughly 70% and 35%, respectively, on the year. Let's take a fresh look at both beaten-down e-commerce stocks and see if either one is worth buying again.
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Shopify: Slowing growth with lots of red ink
Shopify's revenue surged 86% in 2020 as the pandemic drove more merchants to its platform. It also posted a full-year net profit compared to its a net loss in 2019. In 2021, Shopify's revenue grew another 47%, even after it lapped the pandemic's initial impact, and its net income soared 809%.
But in the first nine months of 2022, its revenue only rose 20% year over year. That slowdown was caused by softer online sales in a post-pandemic market, the impact of inflation on discretionary spending, and currency headwinds (especially from the strong U.S. dollar). That slowdown wasn't surprising, but Shopify also racked up a whopping net loss of $2.84 billion during those nine months as it integrated several recent acquisitions.
That mix of slowing growth and widening losses made Shopify a risky stock to hold as interest rates rose. For the full year, analysts expect its revenue to rise 19% to $5.5 billion as it posts a staggering net loss of $3.07 billion.
Shopify clearly established an early-mover's advantage in its niche market, but it still faces stiff competition from similar e-commerce service platforms like BigCommerce, Adobe's Magento, and Amazon's Selz. All that competition could ultimately limit Shopify's pricing power and force it to make more margin-crushing investments and acquisitions.
Coupang: Slowing growth with rising profits
Coupang's revenue surged 93% in 2020 as the pandemic drove more shoppers to its online marketplace, and its revenue rose another 54% in 2021. It remained unprofitable during both years, but it continued to gain new shoppers. Its total number of paid subscribers for Rocket Wow -- its Prime-like service which offers expedited shipping, discounts, and access to its streaming videos on Coupang Play for about $4 a month -- -- grew 50% to nine million at the end of 2021. It ended its latest quarter with nearly 18 million active customers.
But in the first nine months of 2022, Coupang's revenue increased just 14% year over year to $15.26 billion as it grappled with tough comparisons to the pandemic and inflationary headwinds. However, it also narrowed its net loss from $1.14 billion to $194 million -- and actually posted its first quarterly profit (of $91 million) in the third quarter of the year.
Coupang doesn't expect its top-line growth to accelerate anytime soon, so it's focusing on boosting its margins and profits instead. Analysts expect its revenues to rise 15% to $23.88 billion this year as it narrows its net loss from $1.54 billion to just $128 million. They also expect it to turn profitable on a full-year basis next year.
We should take those estimates with a grain of salt, but they indicate that Coupang's prior investments in its first-party logistics network -- which now operates fulfillment centers within seven miles of 70% of South Korea's population -- are paying off as economies of scale kick in. By comparison, Shopify only rolled out its first-party logistics network three years ago -- and it's still in the process of expanding its reach with hefty investments and big acquisitions.
The valuations and verdict
Shopify trades at seven times next year's sales, which is a bit pricey considering that higher-growth e-commerce companies like MercadoLibre trade at less than four times next year's sales. Coupang trades at just 1.5 times next year's sales. That discount valuation, along with its improving financials, indicate that Coupang has a much better shot at recovering than Shopify -- which probably won't shake off the bears until it exercises much tighter financial discipline.
