Shopify Inc. (SHOP) and eBay Inc. (EBAY) are two established players in the e-commerce space. SHOP provides a cloud-based, multichannel commerce platform designed for small- and medium-sized businesses. EBAY operates marketplace platforms that connect buyers and sellers worldwide. Its multi-screen approach offers downloadable applications for the iPhone operating system and android mobile devices that allow access to some of its websites and vertical shopping experiences.
The e-commerce industry took off last year as people’s dependency on e-commerce services increased with their need to spend most of their time at home. While economies are reopening this year with solid progress on the vaccination front, the online commerce trend is expected to continue in the foreseeable future due to its convenience and the increasing adoption of the internet and smartphones. According to Globe Newswire, the global e-commerce market is expected to grow at a 22.9% CAGR between 2020 - 2027. Consequently, both SHOP and EBAY should benefit.
Click here to check out our E-commerce Industry Report for 2021
While SHOP has gained 68% over the past year, EBAY has returned 33.4%. However, in terms of six months’ performance, EBAY is a clear winner with 24.9% returns versus SHOP’s 23.6%. But which of these two stocks is a better pick now? Let's find out.
Latest Movements
On June 15, 2021, SHOP announced that its one-click checkout service—Shop Pay— will be made available to any U.S. merchant that sells on Facebook or Google even if they don’t use the company’s software to power their online stores. This move is expected to expand SHOP’s consumer base.
EBAY introduced its improved advertising dashboard this month, which includes an improved user experience for sellers using Promoted Listings in Seller Hub, and access to additional advertising metrics, such as click-through rates, average sold ad rates, and sales conversion rates, among others.
Recent Financial Results
SHOP’s total revenues increased 110.3% year-over-year to $988.65 million for the first quarter, ended March 31, 2021. The company’s net income came in at $1.26 billion compared to a $31.43 million loss in the year-ago period. Its non-GAAP EPS came in at $2.01, up 957.9% year-over-year.
For the first quarter, ended March 31, 2021, EBAY’s total revenue was $3.02 billion, which represents 42% year-over-year growth. The company’s non-GAAP net income increased 45.2% year-over-year to $758 million. EBAY’s non-GAAP EPS came in at $1.09, up 58% year-over-year.
Past and Expected Financial Performance
SHOP’s revenue has grown at a 65.5% CAGR over the past three years. Analysts expect SHOP’s annual revenue to increase 51.7% in its fiscal year 2021 and 32.9% in 2022. Its EPS is expected to grow 11.8% in 2021 and 12.1% in 2022. Also, its EPS is expected to grow at a 27.4% rate per annum over the next five years.
In comparison, EBAY’s revenue has grown at a 3.1% CAGR over the past three years. EBAY’s revenue is expected to increase 17.2% in its fiscal year 2021 and 6.6% in its fiscal 2022. The company’s EPS is expected to grow 15.8% in 2021 and 14.4% in 2022. Also, EBAY’s EPS is expected to grow at a 13.2% rate per annum over the next five years.
Profitability
EBAY’s $11.17 billion trailing-12-month revenue is 3.24 times SHOP’s $3.45 billion. And EBAY is more profitable, with a 74.98% gross profit margin versus SHOP’s 53.46%.
EBAY’s ROE and ROA of 91.08% and 10.02%, respectively, compare favorably with SHOP’s 26.42% and 3.17%.
Valuation
In terms of forward EV/Sales, SHOP is currently trading at 39.75x, which is 916.6% higher than EBAY’s 3.91x. In terms of forward EV/EBITDA also, SHOP’s 360.02x is 3,011.7% higher than EBAY’s 11.57x.
So, EBAY is the more affordable stock.
POWR Ratings
SHOP has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. However, EBAY has an overall B rating, which represents a Buy. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Both SHOP and EBAY have a C grade for Momentum. This is in sync with SHOP’s 20.9% returns over the past month and 32.1% gains over the past three months, and EBAY’s 5.5% gains over the past month and 28.2% returns year-to-date.
SHOP also has a C grade for Quality. This is justified given its 53.46% trailing-12-month gross profit margin, which is slightly higher than the 48.95% industry average. However, EBAY has an A grade for Quality. This is consistent with its 74.98% trailing-12-month gross profit margin, which is 116.9% higher than the 34.57% industry average.
Of the 71 stocks in the Internet industry, EBAY is ranked #9. SHOP is ranked #25 of 43 stocks in the Internet-Services industry.
In addition to the POWR Ratings grades we’ve just highlighted, we’ve rated both EBAY and SHOP for Growth, Value, Sentiment, and Stability. Click here to see the additional ratings for EBAY. Also, get all of SHOP’s ratings here.
The Winner
Both SHOP and EBAY are expected to benefit because the demand for e-commerce services is expected to be sustained in the foreseeable future given its numerous advantages. However, EBAY seems to be the better bet because of its discounted valuation and higher profitability.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to learn about other top-rated stocks in the Internet industry. Also, click here to see top-rated stocks in the Internet-Services industry.
Click here to check out our E-commerce Industry Report for 2021
EBAY shares were trading at $64.76 per share on Tuesday afternoon, up $0.36 (+0.56%). Year-to-date, EBAY has gained 29.68%, versus a 13.37% rise in the benchmark S&P 500 index during the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand.
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