Could it be that Shopify's Shares Surpass Amazon's Value by 2035?
Could it be that Shopify's Shares Surpass Amazon's Value by 2035?
Shopify's (SHOP -0.59%) stock might have found its footing for a full-blown recovery, following a strong third-quarter earnings report on Nov. 12. This propelled the software-as-a-service stock to its highest level since early 2022. Although it's still 38% below its 2021 peak, a 21% boost in the trading session post-report indicates a shift in sentiment.
This stock is arguably one of the most influential e-commerce players in North America, second only to Amazon's (AMZN -0.66%) mammoth market cap of over $2.2 trillion, compared to Shopify's approximate $140 billion.
However, Amazon's online sales growth has slowed down as Shopify touched new highs for years. This doesn't necessarily mean Shopify will overtake Amazon's market cap by 2035.
Shopify vs. Amazon
It's crucial for investors to comprehend that Shopify and Amazon aren't direct rivals, mainly. Shopify offers an e-commerce platform and an ecosystem for online sellers, primarily functioning as a software provider for independent online merchants.
On the other hand, Amazon generates most of its revenue through online sales and operates a logistics network to transport goods. Initially, Shopify ventured into logistics, but later realized it wasn't profitable and reverted back to software sales.
The area of Amazon that competes closely with Shopify is its third-party seller services. It allows merchants to list items on its site and charges a fee or a percentage of sales revenue for each item sold. Although merchants benefit from Amazon's website to sell goods, high fees can be discouraging, making independent platforms like Shopify's more attractive.
Despite that advantage, Shopify is significantly smaller when compared to Amazon's market cap. Shopify's revenue was $6.1 billion in the first nine months of 2024, a 23% increase over the previous year. Amazon, meanwhile, reported $371 billion in North American and international revenue for the same period, albeit with a more moderate 10% growth.
Shopify also reported an operating margin of around 10%, surpassing Amazon's segments by a considerable margin due to higher fixed costs.
Why Amazon might have the edge
Amazon's powerful AWS, its cloud computing sector, gives it an edge. AWS revolutionized the industry, despite competitors like Microsoft and Alphabet. Amazon holds the largest market share in cloud computing.
Moreover, the surge of AI has bolstered this advantage, with Amazon investing heavily to keep up. AI-driven workloads are handled by AWS, making it a critical component in the thriving tech industry.
During the first nine months of 2024, AWS revenue was almost $79 billion, with an operating margin of 38%. This contributed $29 billion to Amazon's $47 billion operating income.
Consequently, when you compare the operating margins of the two companies, Amazon marginally outperforms Shopify's 10% margin with 11%. This indicates that Amazon's substantial size hasn't hindered its growth, even as it needs to produce more to achieve higher growth percentages.
Will Shopify surpass Amazon by 2035?
Despite Shopify's impressive growth and increased influence in the e-commerce landscape, investors shouldn't expect it to surpass Amazon's market cap by 2035.
A smaller enterprise like Shopify has the potential to grow faster. Shopify could possibly surpass Amazon's growth pace on a percentage basis and encounter faster stock price growth over the next 11 years.
However, Amazon's massive size serves as a barrier, and it won't just stay put. Furthermore, AWS, a major contributor to Amazon's growth, continues to thrive, substantially expanding Amazon's overall business. These factors indicate that Shopify is unlikely to overtake Amazon in the near future.
- Considering Shopify's strong financial performance and potential for faster growth compared to Amazon on a percentage basis, some investors might choose to allocate their finance towards investing in Shopify stocks.
- Despite Shopify's growth in the e-commerce sector, the financial leverage and diverse business segments, particularly Amazon Web Services (AWS), give Amazon an edge in maintaining its market dominance, making it less likely for Shopify to surpass Amazon's market cap by 2035.