Wall Street fell back in love with both Shopify (SHOP 1.11%) and Amazon (AMZN 3.43%) stocks in 2023. It helped that sales trends have rebounded in the e-commerce industry following the post-pandemic growth hangover. This recovery happened to coincide with falling costs at these businesses, leading to improving profits and cash flow.
Shopify and Amazon stocks are riding that positive momentum as we approach 2024. But which one is the better choice for growth-focused investors right now? Let's dive right in.
Shopify's stronger growth
If you're into quickly expanding businesses, you'll find a lot to like about Shopify. Sales were up a blazing 25% in the most recent quarter thanks to much higher sales volumes on its platform, plus increasing revenue from merchants. Shopify's subscription sales are being lifted by that higher demand and rising prices following recent price hikes. Average contract sizes are benefiting from its growing services portfolio that includes things like payments processing and dozens of other business solutions.
Amazon is growing at a solid pace, too, considering its massive sales footprint. Net sales were up 13% last quarter to $143 billion. Shopify's revenue was $1.7 billion, in comparison. Amazon's services division is the fastest-growing part of its business, and it is likely to keep lifting sales as enterprises spend more on cloud services in the coming years. Still, Shopify has a brighter growth outlook for 2024. Most Wall Street pros are expecting sales to rise about 20% compared to Amazon's predicted 11% boost.
Amazon's financial fortitude
Amazon easily wins this matchup when it comes to financial strength. Its massive global business provides more stability than you'd find with a Shopify investment, meaning lower risk for shareholders. But the tech giant is also improving quickly in this area. Operating profit has soared to $24 billion in the past nine months, up from less than $10 billion a year earlier. This boost seems to confirm a new focus by Amazon's management team on balancing growth with profits and cash flow.
Shopify is improving these key financial metrics as well, yet there's no clarity around where its earnings power will eventually land. The good news is that losses have declined significantly in recent months after the company slashed costs and exited the expensive logistics business. Four consecutive quarters of positive cash flow point to more profitability gains on tap for this software-as-a-service specialist. If you're willing to be patient and endure some volatility, then, Shopify might be your choice here.
Price and value
While both stocks soared in 2023, you've got a better chance to nab a deal with Amazon stock today. Its price-to-sales ratio is below 3, compared to Microsoft's ratio of 13. Sure, that valuation gap is mostly due to Amazon's 4% operating profit margin, which is far below Microsoft's 43% rate. But shareholders should see that gap close over time as Amazon's business tilts further toward its services segment.
There's little doubt that Shopify has the stronger sales momentum heading into 2024. However, Amazon's diversity, various growth opportunities in cloud services and e-commerce, and lower valuation make it the more attractive stock pick today.
