After a stellar performance during the COVID-19 pandemic, e-commerce stocks have trailed the broader markets by a wide margin since the start of 2022. For instance, shares of Shopify and Etsy are down 58% and 68%, respectively, from all-time highs, allowing you to buy the dip.
Given online sales account for just 15% of total retail sales in the U.S., the addressable market for e-commerce companies will continue to expand in the next decade.
So, let’s see which e-commerce stock between Shopify (TSX: SHOP) and Etsy (NASDAQ:ETSY) is a better buy right now.
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The bull case for Etsy stock
Valued at a market cap of US$11.9 billion, Etsy offers handmade and vintage goods globally. Despite single-digit sales growth in 2022, Etsy has increased its top line by 42% annually in the last five years.
But in the past four quarters, Etsy has been wrestling with elevated inflation levels and a sluggish macro environment, driving its net income lower in the first quarter (Q1) of 2023.
Etsy’s gross merchandise sales, or GMS, fell 1% in 2022 while sales rose 10% year over year. In Q1 of 2023, its GMS fell by 5% while net income narrowed by 13% year over year.
However, ETSY is forecast to increase adjusted earnings from $2.36 per share in 2023 to $3.05 per share in 2024. So, ETSY stock is priced at 31 times forward earnings, which is not too steep for a growth stock.
Analysts remain bullish on the tech stock and expect shares to gain 20% in the next 12 months.
Shopify stock
Shopify offers a portfolio of tools and services to businesses to help them sell products online. It aims to empower small and medium businesses by enhancing their online presence over time. The company offers subscription plans starting at $39/month while providing services such as payment processing and digital marketing.
Shopify is the second-largest e-commerce platform in the U.S. after Amazon and generated close to US$6 billion in sales in the last 12 months. Comparatively, its addressable market opportunity is over US$150 billion, providing the TSX tech stock with enough room to grow revenue in 2023 and beyond.
Shopify continues to launch new services, which should help it onboard merchants and improve engagement rates. For instance, it will introduce Markets Pro in the U.S. and U.K., which will enable merchants to sell goods internationally without having to worry about issues such as tax remittances, duties, and much more.
The tech giant will also leverage artificial intelligence (AI) capabilities by helping users search and buy products with Shop.ai, a personalized AI tool.
Shopify will also have to reduce its cost structure to offset decelerating sales growth. In the last four quarters, it reported an operating loss of $822 million. But the company expects to report a positive free cash flow through 2023, providing Shopify with resources to reinvest in organic growth or pursue acquisitions.
Valued at 13 times forward sales, SHOP stock trades at a hefty premium.
The Foolish takeaway
It’s quite difficult to pick a winner between Shopify and Etsy. However, despite Shopify’s steep valuation and lower profit margins, its wide economic moat and higher sales growth make it a better tech stock to buy today.
