It’s been a rather confusing year for new investors looking to make their first purchases. With a bear market in the rearview (it’s unclear if we’re out of the woods yet) and other headwinds to keep tabs on, it seems too easy to pass up on the once-loved high flyers, like Shopify (TSX: SHOP) or Amazon.com (NASDAQ: AMZN).
E-commerce has ground to a slowdown in a big way, and things could get worse once the recession finally does touch down. Still, shares of both companies have already taken a beating. At its worst, Shopify stock crumbled more than 80%. Amazon, a cherished disruptive tech titan, also crumbled as low as 55% from peak to trough.
Undoubtedly, investors got too optimistic about the two firms during the worst days of the pandemic and the euphoric 2021 surge. Now that the valuation has been viciously reset, it seems as though both companies are in a bit of a strange spot.
A recession hasn’t even landed yet. But when it comes to markets, it’s all about how actual results will stack up against expectations. Over the past year, expectations have been lowered. While they can always go lower, they will eventually go too low.
Instead of asking oneself when the bottom (or worst) is in, it may be a better idea to ask if the current risk/reward scenario is favourable from a long-term perspective. Undoubtedly, those with five- to 10-year investment horizons can more comfortably scavenge the market wreckage for some sort of deep-value bargain.
With rates as high as they are, it’s really hard to value the growth kings of yesteryear. Times may have changed, but expectations about how long the difficult conditions will last range. With so much pessimism in markets right now, I’d argue that today’s slate of multiples are actually pretty modest.
Shopify or Amazon: The better e-commerce bet to play right here
Shopify has had its way with Amazon for quite some time. In a way, Shopify has carved out a really nice niche for itself in the SMB (small- and medium-sized business) space. Heck, you could say Shopify has formed a moat around its slice of the e-commerce market.
Just because Shopify has brushed off Amazon in the past, though, doesn’t mean Amazon won’t keep trying to claw away at the smaller merchants out there. Amazon is a growth beast, and with such deep pockets, it tends to have success with firms, as it looks to drive down prices in an effort to take share.
Still, Shopify is one firm that I don’t think will back down. Even after the painful selloff, the company still has deep enough pockets to make strategic investments to enhance its innovative capabilities.
Whether we’re talking about Shop Pay or fulfillment, Shopify has many paths to take as it looks to continue going after a massive total addressable market. As Shopify manages through a downturn, I think investors are heavily discounting the magnitude of its post-recession comeback.
The bottom line
Both Shopify and Amazon made mistakes (overhiring), but they’re both learning from these mistakes. Moving ahead, I think Shopify will continue to prove that it will not be pushed around by a behemoth like Amazon. As such, I view Shopify as a higher-upside bet for young investors seeking deeper value after a chaotic year.
