The e-commerce juggernauts have richly rewarded investors who bought them in the depths of the 2020 stock market selloff.
The digital retail kingpins surged to unfathomable heights before peaking out and crashing back to Earth. Indeed, 2022 has been a tough year for Canadian investors who’ve hung onto SHOP or AMZN shares despite the negative momentum.
AMZN vs. SHOP stock: E-commerce kings duke it out
For Shopify (TSX:SHOP) shareholders, the ride down has been horrific. The stock lost more than 82% of its value. Those who bought the name at or around its peak may need to wait years to break even. Just because a return to Shopify stock’s peak is out of sight doesn’t mean decent gains aren’t possible over the next 10 years. Further, those who bought at the peak can improve their recovery prospects by continuing to incrementally buy over time using a dollar-cost averaging approach (DCA).
If you’re still a fan of the company, its management, and its long-term growth prospects, I find few reasons to ditch Shopify stock at these depths. Arguably, you’ve suffered through the worst indigestion. Now that the cathartic puke is (mostly) over, you should be feeling better about adding to your position.
Undoubtedly, higher rates and a recession are two significant factors that have curbed dip buying, not just in Shopify or Amazon (NASDAQ:AMZN) stock but any growth-focused name with an elevated price-to-earnings (P/E) multiple.
In this piece, we’ll see if Amazon or Shopify stock is a better bet for recovery gains in the new year. Without further ado, let’s get into the names.
Amazon is an e-commerce disruptor whose stock seems to be profoundly disrupted by the Federal Reserve’s hawkish monetary policy. Higher rates have weighed on the e-commerce behemoth, dragging the stock down from $183 and change to around $90. That’s a more than 50% cut in the stock price. Now, it’s not just the environment that’s hurt Amazon. The company’s excessive capacity investments and uncertain management moves have made Amazon one of the tougher big-tech stocks to hold.
I think the plunge is overdone, setting the stage up for a prosperous 2023. If a soft landing can be achieved, count me as unsurprised if Amazon stock hits new highs within two years. Amazon is still innovating, and it is poised to disrupt rivals in a recession year.
One of the rivals is Shopify. Amazon’s betting big on fulfillment and with a disruptive “Buy with Prime” button that offers merchants payments and fulfillment together in one package, Shopify will have its work cut out for it.
Shopify has done a great job of carving out a niche in the e-commerce space. The small- and medium-sized business (SMB) part of e-commerce is Shopify’s territory. As Amazon looks to nibble away at Shopify’s turf, while Shopify continues to invest in fulfillment (think the Deliverr acquisition), Amazon and Shopify will be in a fight for e-commerce dominance.
Can two winners walk away from the looming clash?
Possibly. Regardless, going up against Amazon and its profoundly deep pockets will not be easy. Fortunately, Shopify has a great management team and a proven ability to shrug off competitors. It just has a product that’s stuck with small merchants.
Better buy: Amazon or Shopify stock?
I like Amazon stock better here. It’s a $924 billion behemoth that’s using its size to its advantage. As recession hits, Amazon will be able to more easily have its way with peers.
For now, investors don’t like the name. However, I think long-term thinkers shouldn’t discount the original disruptor while it’s down and out. Who knows? The company could walk away from the next recession with sizeable market share gains in hand.
While I’m not against buying SHOP stock, I view it as a riskier holding as it enters choppy waters.