A big obstacle for Shopify (SHOP 1.23%) in the past has been that it often finds itself competing head-to-head against tech giant Amazon. But a recent development suggests that it could actually benefit from Amazon's vast legion of Prime members. Shopify merchants will soon be able to offer the same benefits to Prime members that they receive on many other sites. And that could be huge for Shopify.
Shopify merchants will soon be able to offer "Buy with Prime"
Last week, Shopify announced that its merchants will soon have the option to offer Amazon's "Buy with Prime" service to their customers. Through an app that Amazon will soon release, Shopify merchants in the U.S. who also use Amazon's fulfillment network can offer the option to their checkout, allowing Prime members to benefit from fast and free delivery. The payments will be processed on Shopify's platform.
NASDAQ: SHOP
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For Shopify, it's a move that makes more sense after the company divested its logistics platform earlier this year. Since it's no longer competing head-to-head on fulfillment with Amazon, it can leave that part of the transaction to the tech giant, which is known for its speedy deliveries. There are over 200 million Amazon Prime members in the world.
And that's a customer base that Shopify wants to entice to spend on its platform because they spend a lot more on purchases. According to a survey that Upgraded Points conducted earlier this year, Prime members spend nearly three times as much on Amazon ($110 vs. $38) each month compared to non-members.
If Shopify can tap into that user base and give them more of an incentive to spend on its merchants' websites, it could give the e-commerce company's revenue a boost.
Shopify's growth rate is down but has been improving of late
Like many companies, Shopify benefited from a boost during the early stages of the pandemic, with consumers spending more on online purchases. But since mid-2021, the business has been slowing down, unable to sustain the monstrous growth rate it was achieving up until that point.
SHOP Revenue (Quarterly YOY Growth) data by YCharts.
The growth rate has been picking up in recent quarters, but at 30%, it's still well below Shopify's five-year average. Being able to sustain a 50% growth rate, however, is no easy task. But with a potential boost from more traffic on its platform and more fees to process, thanks to this new agreement with Amazon, Shopify's top line could look a lot better in the near future.
Shopify's stock surged on the news
Year to date, Shopify's stock is up over 90%, rising sharply in recent days due to these developments. Investors clearly like what they see with a potential big growth opportunity opening up for Shopify, as it benefits from its merchants being able to rely on Amazon's robust fulfillment network.
Shopify's stock is trading at 13 times its revenue, which is high, but it's still well below what investors were paying for the business before the pandemic.
SHOP P/S Ratio data by YCharts.
Should you buy Shopify's stock?
Shopify's stock is rallying, but with the company slashing costs over the past year and now with a potential growth catalyst to help its top line, it may still be an excellent buy at its current valuation. For long-term investors, e-commerce is a great place to invest in, and a company like Shopify has established itself as a top platform for merchants to rely on. While there may be some short-term risk ahead for the company depending on how the economy performs, the tech stock does look like a no-brainer buy for the long haul.
