Shopify (SHOP 0.23%) and Etsy (ETSY -0.86%) both caught Wall Street's attention recently when the companies announced big price increases. Etsy raised the fees that it charges sellers for access to its platform; Shopify said it is boosting its monthly and annual fees by over 30%.
The moves have investors feeling more optimistic about the long-term earnings outlook for these e-commerce specialists. But which is the better buy right now?
Shopify for growth
Shopify easily wins the growth matchup. Even a surprising slowdown in recent quarters has left sales rising by over 20% through late September.
Investors are expecting another 20% boost when the company announces fourth-quarter results in mid-February. Currently, Wall Street pros are looking for about a 20% sales increase for fiscal 2023, although that could change quickly once Shopify announces its outlook in a few weeks.
Etsy, meanwhile, reported just a 1% sales uptick in the most recent quarter after adjusting for currency exchange rates. Merchandise volumes were down 4% compared with Shopify's 11% increase.
Keep in mind that Etsy is still a far larger business than it was before the pandemic. It is also attracting new buyers at a faster rate than rivals like eBay (EBAY 0.88%). Still, Shopify has the more impressive sales trends heading into 2023.
Etsy has the stronger finances
Etsy is the stronger stock when it comes to finances. Both companies are early in their growth stories, and not yet consistently profitable. Yet Etsy's operating margin has remained in solidly positive territory even through the growth hangover period of the last few quarters. The same can't be said for Shopify.
ETSY operating margin (TTM) data by YCharts. TTM = trailing 12 months.
Shopify's operating loss of $345 million last quarter translated into a brutal 25% of revenue. The operating loss was $633 million through the first three quarters of the year compared with a $254 million gain in the year-ago period. That metric alone helps explain why the stock has fallen so hard during the latest market decline.
Minimize your risk
Etsy also is further along in its price-hike journey, having raised fees in early 2022. Its take rate has remained high as a result at nearly 20% of sales in the most recent quarter. eBay, for comparison, has a take rate of closer to 12% of sales.
Shopify could see volatility in its sales and growth rate as existing and new customers all adjust to its latest round of price increases. While these hikes will put the company on a better profitability footing, it's also possible that they slow the pace of new merchant sign-ups. That's especially true if the economy worsens and consumer spending decelerates into late 2023.
Valuation is the final key point to consider in this matchup. You can buy Shopify stock for about 11 times annual sales, down from 60 at the pandemic peak. Etsy is cheaper at 7.4 times revenue, yet that discount doesn't seem as attractive when you consider eBay is trading for less than 3 times sales.
So, both stocks are valued as if they will post solid sales and earnings growth over the next several years. Shopify is more compelling from that growth standpoint, but more-cautious investors should choose Etsy today for its more stable stream of profits.
