Shopify, not Walmart, is the threat to Amazon's reign as king of e-commerce

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There aren't many credible threats to Amazon's reign as the king of e-commerce. Shopify, however, is a very legitimate one. Last year, it crushed earnings expectations and doubled its revenues... again. So why is its stock trending down?

It's simple! In 2020, Shopify set records as the whole world shifted to eCommerce. These numbers will be hard to reach in 2021 and many investors are and will likely have a hard time accepting negative YoY growth rate and hence the stock is taking a hit in 2021. I do think at it's current pricing, Shopify is expensive and hence I will be looking for the stock to dip further to add more to my portfolio. I really think it's a strong long term investment and it will continue to gain market share. Even Amazon took note and is taking them very seriously. Last month Amazon quietly acquired Selz, an Australian tech company that "helps customers sell digital products, physical products and services all from one simple platform"... which sounds a lot like Shopify.

At first glance, Shopify isn’t an Amazon competitor at all: after all, there is nothing to buy on Shopify.com. And yet, there were hundreds of millions of people that bought products from Shopify without even knowing the company existed- eMarketer estimates that Shopify stores processed a little under 9% of all retail e-commerce in the US last year, second only to Amazon, which had 39% market share. How did Shopify do it?

Everything-as-a-service

Shopify is a platform: instead of interfacing with customers directly, over a million third-party merchants sit on top of Shopify and are responsible for acquiring all of those customers on their own. In layman's terms, Shopify is doing a lot of the "boring" and "complicated" parts of selling online for its customers — for a fee of course. That can include storefronts, taking payments, marketing, analytics, shipping, inventory, packaging and more. They have been adding these at a phenomenal rate.

Like Amazon's Marketplace, Shopify offers merchants the tools and logistics to sell online but it also allows merchants to control the end-to-end experience and relationship with customers. So, unlike on Amazon, where merchants are commoditized and can only compete on price and simply offer the lowest one, Shopify enables them to earn customers’ attention through a differentiated product, social media advertising, etc.

Takeaway   

With Shopify, it's on merchants to stand out and acquire customers. They can't rely on hundreds of millions hitting up Shopify.com daily. This is risky for merchants but then again.. no rewards without taking risks. Many, to be sure, will fail at this: Shopify does not break out merchant churn specifically, but it is almost certainly extremely high. That, though, is the point. As an investor, don't be alarmed if you see that net merchants adds are not growing exponentially. because many will fail. You should constantly focus on the adds. The antidote to commoditization is differentiation, and that's what Shopify offers to merchants.

I like Shopify's strategy and think it's better than that of Walmart. Unlike Walmart, which is spending billions trying to attack Amazon head-on - with a binary outcome of success or failure, - Shopify is massively diversified. In my opinion, it remains a solid long term investment. 


Disclaimer: This post is merely my own assessment and is not an investment recommendation. For professional advice, seek input from a licensed investment advisor.

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