Which of these category-leading e-commerce stocks is the better buy right now?

Amazon ( AMZN -0.02%) and Shopify ( SHOP 0.90%) are leading players in the online-retail industry, and both companies have also seen substantial share price declines across 2022’s turbulent trading. Which of these e-commerce stocks is the better buy at today’s prices? Read on to see why two Motley Fool contributors disagree on which company you should put your money behind. Amazon has incredible competitive advantages

Parkev Tatevosian : Amazon has expanded from a tiny online book retailer to the everything store it is today. The company has made this leap with its focus on the customer experience. With every step in its progress, Amazon has worked to improve the customer value proposition.

This wasn’t an easy task. It required years of experience and billions of dollars of investments in warehouses, logistics, web servers, and more. The effectiveness of those capital investments has helped Amazon grow from $107 billion in sales in 2015 to $470 billion in 2021.

Moreover, the massive capital investment makes it difficult for any competitor to encroach on its business. Amazon can offer free two-day shipping to Prime members for millions of items on its platform, and even next-day shipping in select cities. When people consider buying something online, the delivery window is a significant selling point. Therefore, Amazon’s lead in this arena is a competitive advantage that could serve it well for years.

As Amazon’s revenue grows, it leverages its fixed costs across a broader sales base. In other words, Amazon’s business model demonstrates economies of scale. Between 2015 and 2021, Amazon’s operating profit margin grew from 2.1% to 5.3%.

Of course, Amazon faces headwinds in the near term as consumers decrease online spending and look to spend money on away-from-home experiences they missed out on during the earlier stages of the pandemic. However, online spending as a percentage of overall spending is forecast to continue rising over the next several years.

That longer-run trend is unlikely to reverse because of the fundamental advantages e-commerce offers. Amazon, the largest e-commerce retailer, benefits from that trend. Image source: Getty Images. Shopify’s beaten-down stock has huge potential upside

Keith Noonan : Amazon’s massive scale and infrastructure advantages probably make it more protected from competition compared to Shopify and its merchant-platform services model. The tech giant’s hugely successful cloud services business also looks poised for more strong growth over the long term. I wouldn’t have any qualms with anyone stating that Amazon is the better company , but I also think there’s a strong case that Shopify is the better stock and offers a more attractive risk-reward profile at current prices.

Shopify has admittedly seen growth slow dramatically as it’s lapped periods of blockbuster performance and seen pandemic-related demand tailwinds recede. After posting 57% year-over-year sales growth in the second quarter of 2021, Shopify’s Q2 revenue growth came in at just 16% this year.

Despite the substantial deceleration, the company still has plenty of room for long-term sales and earnings expansion as it attracts new merchant partners, paves the way for increased spending from those already using its services, and builds out supply chain management and fulfillment services that increase the value of its platform.

Shopify’s share price is down roughly 78% year to date and 83% from the lifetime high that it hit last November, and the big sell-off has presented an attractive buying opportunity. Amazon stock has been punished in response to bearish shifts in the broader market and slowdown sin the e-commerce space as well, and I expect that it will eventually bounce back and go on to reach new highs.

Still, Shopify’s pullback looks even more overdone. The company’s market capitalization of roughly $38 billion also represents just a small fraction of Amazon’s $1.3 trillion valuation, and the size difference suggests the smaller company could have an easier time moving the needle and delivering big gains for shareholders. So which of these e-commerce companies is the better buy?

If you’re bullish on the long-term outlook for the e-commerce space, investing in both Amazon and Shopify could be the best play. Both companies are leaders in their respective service categories, and both companies are on track to play important roles in driving the growth of the overall online retail market.

If you’re only interested in owning one of these stocks, go with the one that best suits your risk tolerance and portfolio goals. While both companies have growth-dependent valuations, Amazon’s business is larger, sturdier, and significantly more profitable thanks to its cloud […]

source Better Buy: Amazon vs. Shopify Stock

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