Amazon.com Inc (NASDAQ:AMZN) is one of the most popular stocks on the market because of its impressive share price performance, but what the company has done since its early days is even more impressive.
The reason it’s been so successful has been its ability to disrupt multiple industries. While it started as a bookstore and then an online shopping marketplace, Amazon is now much more.
As many consumers may know, it’s continuously integrating its business. This not only increases revenue, but also helps to reduce costs.
The company now has many of its own products, such as tablets, plus its own web services business. It also makes its own household staples, has a streaming service, and produces its own content—all of these businesses and more combine to make Amazon a massive powerhouse.
What it’s doing now, though, is possible only because of its massive size. And what allows a company to get to this size and dominance, is being able to disrupt a sector and consistently execute to perfection.
A top disruptor
Companies that can disrupt major sectors have the potential to be massively successful. In addition to what Amazon has done to retail, look at what Apple has done to the smartphone industry.
Having the ability to disrupt not only creates a niche market for the company, but if they are good enough at what they do, that new market will soon become more popular than the existing market it’s disrupting.
Although Shopify is also an e-commerce stock, that has little to do with why I think it’s the next Amazon. Rather, it’s all about disrupting a sector and growing to be the most dominant company in its industry.
It also has to do with the impressive growth and recurring sales each company has and the incredible economies of scale as the businesses grows.
Why Shopify is the next Amazon
Shopify is still a relatively new company, but it’s growth so far has been incredible. E-commerce is always an industry that’s had a tonne of potential.
The cost savings of operating online and saving huge amounts on overhead is driving more and more businesses to go online. We’ve seen that with Amazon in the past, and we’re seeing it again today with Shopify. So as the whole industry scales, naturally, the costs come down too.
Shopify’s business has been so successful because, in addition to offering the platform for these businesses to go online, it also offers a lot of tools to help businesses grow.
The more Shopify can help its merchants to grow their business, the more it will grow its own sales — not only because the companies will get bigger and continue to use the tools to grow their operations, but also because these merchants’ competitors will have no choice but to come online eventually.
The more merchants coming online, the more all businesses will need to make the transition to e-commerce to be competitive.
Investing in Shopify today
Throughout the pandemic, Shopify’s stock, much like Amazon, has seen an incredible rally. That’s earned the stock a premium, making it look a little on the expensive side.
Shopify is one of the best long-term tech stocks on the TSX, though. These tech stocks generally have a high degree of risk until they have built up a significant competitive advantage and proven themselves.
Shopify has done that, which is why it’s earned itself a premium. It’s also why it’s such a great long-term investment that will continue to grow for decades.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Daniel Da Costa has no position in any of the stocks mentioned. David Gardner owns shares of Amazon and Apple. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Amazon, Apple, Shopify, and Shopify and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon.