If you’re like 92% of U.S. consumers recently polled by Feedvisor, Amazon.com (NASDAQ: AMZN) is your go-to choice when shopping online. In fact, odds are good that you shop at the behemoth of web-based marketplaces on a rather regular basis. Digital Commerce 360 estimates that Amazon alone accounts for about a third of the country’s total e-commerce. Amazon’s numbers aren’t too shabby outside the United States either.
The company’s commanding control of the space, however, is slipping. Online sellers growing weary of Amazon’s limitations — and competition — are finding other means of selling their wares. They’re even finding ways of building their own online stores from the ground up. Many are turning to an outfit called Shopify (NYSE: SHOP), which provides a variety of online-selling services to over 1.7 million businesses.
The thing is, Shopify is still just getting started.
There’s no denying Amazon.com is still the king of e-commerce. But now over 20 years old, the site is suffering from the predictable impact of age and size. That is, in an effort to manage a few million merchants selling a few billion products every year, the company’s selling platform isn’t exactly flexible. Never mind the fact that many of its merchants aren’t thrilled about the fact that Amazon itself competes with these sellers by offering similar goods out of its own inventory.
Given this backdrop, the arrival of an alternative to Amazon was inevitable; Shopify simply filled a void. Launched in 2006, it’s now filling that void in a big way. Revenue in the third-quarter soared 46% year over year to $1.1 billion and totaled $3.2 billion for the first three quarters of the year. That’s despite a swell of new Shopify sellers who came on board during last year’s shutdowns which left small retail businesses with few other ways of surviving.
Look for more of the same sort of growth going forward too — and for longer than you might expect. Two reasons support this thesis.
For one thing, despite how much business is done online these days, the majority of retail consumption still takes place within stores. Digital Commerce 360 estimates that still only a little less than 20% of last year’s U.S. retail sales were done online. That leaves a little more than 80% of it up for grabs — even if an existing brick-and-mortar retailer simply shifts this business away from one of its stores to its own e-commerce platform.
Shopify can certainly help established businesses with this transition. In fact, it already has. Consumer-facing brands ranging from Staples to Heinz to Molson Coors have already tapped Shopify for help with a web presence.
The other reason investors can anticipate sustained, above-average growth is that even with 1.7 million sellers already on board, that’s only a fraction of 31.7 million small businesses counted by the U.S. Small Business Administration as of the end of 2020. And, that’s just within the United States — and just small businesses. Shopify peddles its platform in most parts of the world, where there are at least another 300 million more small businesses that may lack the right internal resources to build an online-shopping site of their own.
Clearly, not all of these small enterprises will want or need an e-commerce website, but if even only a minority of these operations tap Shopify, that still portends huge growth ahead.
Pricey but worth it
If you’re compelled, you should also be warned: Shopify shares aren’t cheap. The stock is currently trading at nearly 200 times this year’s projected earnings. That’s rich, yet rooted in the anticipation that this company’s platform is a big part of e-commerce’s future.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. James Brumley has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Shopify. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon, long January 2023 $1,140 calls on Shopify, short January 2022 $1,940 calls on Amazon, and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy.