Canada’s most valuable tech company has experienced its most dramatic correction since going public. Since November 2021, Shopify (TSX:SHOP) has lost an astounding 73% of its market value. Unsurprisingly, investors have stopped comparing it to American e-commerce giant Amazon (NASDAQ:AMZN) since then.
However, Amazon hasn’t escaped the tech correction. The stock is also down 45% since November 2021. Both stocks are now sitting at multi-year lows. If you’re looking at a way to bet on the sustained growth of online retail, here’s how the two stocks compare now.
Growth rate
Amazon’s annual revenue in 2022 was 9.4% higher than 2021. By comparison, Shopify’s growth rate was 23% over the same period. Put simply, Shopify’s sales are growing at more than double the rate of Amazon. However, much of this difference could be attributed to base effects. Shopify’s growth was on a base of just $4.3 billion while Amazon’s base of revenue in 2021 was a whopping US$469.8 billion.
This is why Shopify’s growth rate is likely to be higher than Amazon’s for the foreseeable future.
Room to grow
Both companies are competing for a piece of a very large pie. Global online retail is expected to be worth US$27.2 trillion by 2027. Amazon has already captured a significant portion of this, but Shopify has more room to grow. Shopify can grow via acquisitions of smaller rivals, new products, international expansion and by taking market share away from Amazon. Investors need to consider this when picking a growth stock for the future.
Valuation
Valuation is perhaps the biggest difference between Shopify and Amazon. Amazon is a well-established, mature company with a track record of free cash flows that stretch back decades. Amazon stock now trades at 1.9 times revenue per share.
By comparison, Shopify is cash flow negative and trades at a much higher valuation. The stock trades at 10.4 times revenue per share. At one point, during the peak of the bubble in 2021, the stock was trading at 60 times revenue per share.
This higher valuation is a reflection of investor expectations. Shopify is expected to grow into its valuation over time. However, expectations are ephemeral, which makes Shopify stock extremely volatile. That’s why the stock dropped so much more than the rest of the tech sector.
Bottom line
Amazon and Shopify are both excellent companies in a rapidly expanding industry. Over the next decade, more retail activity is expected to shift online. However, investors looking for a high-growth bet with more volatility could consider Shopify, while Amazon is better for investors seeking a low-risk, robust blue chip.
The choice between these two stocks depends on your investment style.
