Shopify Is The Poster Child Of New E-Commerce

E-commerce is on fire this year as the pandemic kick-started a behavioral shift in consumers and accelerated online retail. Stitch Fix SFIX saw its shares rise nearly 50% this week after reporting stellar results, along with accelerated customer growth and upbeat outlook. But it is the e-commerce behemoth Shopify SHOP that surpassed eBay EBAY this year, as the second-largest e-commerce platform in the U.S. by sales volume after Amazon AMZN. This was quite a blow for eBay, the world's first online auction platform for person-to-person transactions. This explains why Shopify stock has soared more than 3,700% over the past half of a decade, with Amazon stock growing 375%, leaving eBay far behind at 76% increase. Here is a deeper look into Shopify's success story.

1. New e-commerce is decentralized

eBay's platform could have been revolutionary back at its days, but today, it has been overrun by Etsy ETSY as well as social media platforms like Pinterest PINS and FacebookFB Instagram who have integrating online purchases into their ecosystems.

Shopify gathers over a million merchants helps them set up online stores, process payments, manage their marketing campaigns and fulfill orders. In other words, Shopify operates behind the scenes to help companies establish their own online presence without being dependant on Amazon or eBay. Earlier this year, Shopify also launched Shop, a consumer-facing app that provides searchable listings for its merchants.

2. Fortune favors the bold

Over the past half of a decade, eBay's business has been shrinking. Back in 2015, it spun off PayPal PYPL and shut down its fixed-price subsidiary Half.com in 2017. This year, it sold its online tickets platform StubHub and it plans to sell its online classifieds platform. It also reduced its marketing spending last year in an effort to boost its profit and the percentage of each sale it retains as revenue. By prioritizing profit over growth, eBay is confirming it is a mature company which therefore implies, its growth prospects are limited.

On the other end, since its IPO in 2015, Shopify has expanded significantly by acquiring the digital consulting and product development firm Boltmade in 2016, the drop-shipping platform Oberlo in 2017, and the warehouse automation company 6 River Systems last year. It has partnered with Amazon to let merchants sell products on Amazon from their Shopify stores. It has added similar integrations with Facebook, Google from Alphabet GOOGL, Snap SNAP, and TikTok.

Shopify has also expanded its own payments platform, Shopify Payments, which processed nearly half of its gross merchandise volume (GMV) last quarter. It launched its own fulfillment network to offer additional services via its own app, along with tweaking its premium Shopify Plus tier for larger merchants.

3. Emphasis on continuous growth

eBay's revenue's sluggish growth of 1% last year was blamed on reduced marketing expenses and higher internet sales taxes in several states across the US. Adjusted net income rose just 5%, but its earnings per share were boosted 22% by big buybacks. This year, eBay expects its revenue and adjusted EPS to rise approximately 20% but these favourable growth rates are attributable to the overall acceleration in online sales due to the pandemic. This will no longer be the case next year, revenue and earnings are expected to grow only 7% and 9%, respectively, next year.

Last year, Shopify's revenue rose 47% and its GMV surged 49%. Its adjusted EPS did drop 30% but this is due to 6 River Systems being integrated into its new fulfillment network. But this year, analysts expect revenue for the full year will be boosted 81% with adjusted EPS expanding more than 10x. Analysts expect Shopify will continue generating high double-digit sales growth, but its earnings growth could remain unpredictable due to the ongoing investments to expand its ecosystem.

A rapidly evolving market

The pandemic gave online retail a push greater than any other in history. COVID-19 has accelerated the e-commerce industry's growth and more and more businesses are embracing this business revolution. Companies that previously embraced the e-commerce trend are experiencing expansion while traditional retail was struggling just to stay afloat.But as the market keeps evolving at a rapid face, it arguably favors disruptive players like Shopify that lets merchants build their own online brands and optionally links them to Amazon and social networks as opposed to trapping them in a walled aquarium filled with price wars.

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