Shopify Vs Facebook Stock: As two of the best performing stocks over the past decade, SHOP and FB have attracted enormous investor interest, but if you had to choose between them, which comes out on top?
For Shopify, there is ample cause for concern after Facebook launched its new initiative, Shops. No doubt, this is a shot across the bow at Shopify because it aims to let businesses seamlessly create an online presence – just like Shopify.
With a gorilla competitor like Facebook on its heels, the question is what does the future hold for Shopify, and who will win?
Shopify Powers 1,000,000+ Businesses
Shopify, Inc. [NYSE:SHOP] is a Canadian multinational e-commerce company which provides a cloud-based commerce platform designed for small and medium-sized businesses in in Canada, the United States, the United Kingdom, Australia, and internationally.
A leading omni-channel commerce platform, Shopify’s software allows business owners to design, create, and manage their stores across multiple sales channels, including web, mobile, social media, marketplaces, brick-and-mortar locations, and pop-up shops.
The platform also offers a powerful back-office and a single view of the business which, in turn, help merchants simplify the process of running an online store and adequately showcasing their brand.
The Shopify platform offers retailers a suite of services enabling them to manage products and inventory, process orders and payments, build customer relationships and leverage analytics and reporting.
The company founded by Tobias Albin Lütke, Daniel Wein and Scott Lake on September 28, 2004 was formerly known as Jaded Pixel Technologies Inc. and changed its name to Shopify Inc. in November 2011.
Tobi Lutke, Shopify’s CEO and one of the founders, dropped out of high school at 16. The German-born tried to sell snowboards online in 2004, but found the software “incredibly expensive, unnecessarily complex, and infuriatingly inflexible.”
He wrote some better code himself, and in 2006, Shopify was launched as a platform for businesses to set up a homepage, sell goods and grow their brand. Shopify was named “Canada’s Smartest Company” in 2012 by Profit Magazine.
Facebook Is Much More Than A Mobile App
Facebook, Inc. [NASDAQ: FB] is an American social media conglomerate, counted amongst one of the Big Five technology companies in the world along with Microsoft [NASDAQ: MSFT], Amazon [NASDAQ: AMZN], Apple [NASDAQ: AAPL], and Google [NASDAQ: GOOG].
Often called the face of social media, the Menlo Park, CA-headquartered company was founded in February 2004 by Harvard student Mark Elliot Zuckerberg and his friends as an online version of the Harvard Facebook.
The company’s primary product is Facebook which enables users to connect with people (old friends and new), create, discover and share opinions, messages, ideas, photos, videos, and other activities online through mobile devices, personal computers, and other surfaces.
Other highly-popular products of the social networking giant include: Instagram, a free photos, messages and video sharing social networking service; Messenger, an instant messaging service for people to connect with friends, family, groups, and businesses across platforms and devices; and WhatsApp, a messaging app that lets users text, chat, and share media, including audio and video, with individuals or groups.
Its virtual reality Oculus division consists of hardware, software, and the developer ecosystem, which produces virtual reality headsets, including the Oculus Rift and Oculus Quest lines.
With more than 2.5 billion monthly active users, Facebook is comfortably the world’s largest social media platform.
In the second quarter of 2020, the social media titan stated that 9 million active advertisers were using its social networking platform to promote their products and services compared to 7 million active advertisers in the prior year quarter.
The company generates almost all of its revenue through advertising, with mobile accounting for 92 percent of its total advertising revenue of nearly $70 billion.
Over 50% of its revenue is generated from outside of the US with majority of its international business coming from customers located in China, Canada, Western Europe, Australia, Brazil, and India.
In a move that underlines the rising standing of the products and services it offers beyond its core social media platforms, the company has also been investing heavily in new-age technologies such as artificial intelligence, augmented and virtual reality, and connectivity efforts.
The company went public in 2012. At $38 a share, it was worth a staggering $104 billion which made it one of the largest IPOs in US history.
Should You Invest In Facebook?
The social networking juggernaut continues to roll on even as it grapples with bad press, annoyed advertisers and fuming public over the social media giant’s handling of issues related to privacy, racism, security, and fake news to name a few.
More than 3 billion people are active users of Facebook and its sister concerns. It means more than half of the world’s population is on Facebook or the company-owned social media sites.
And to top it all, WhatsApp, Instagram and, of course, Facebook itself is counted amongst the six most popular social media platforms in the world.
With the pandemic bringing the world to a screeching halt, the popularity of Facebook grew by leaps and bounds as people turned towards it to stay connected with their family and friends. This was reflected in the company’s stellar performance in its latest quarterly results, where it came out firing on all cylinders.
The social networking company reported $1.80 EPS for 2Q 2020, comfortably overtaking a consensus estimate of $1.44. Total revenue came at $18.69 billion for the quarter. Facebook’s revenue grew 11% year over year; it was its slowest revenue growth since the company went public in 2012, but still well above estimates of $17.29 billion.
The largest social media company in the world continued to expand, with Facebook’s daily active users, referred to as DAUs, increasing 12% year over year to 1.79 billion people against consensus estimate of 1.7 billion. Meanwhile, Facebook’s monthly active users, or MAUs, increased by 12% as well to 2.7 billion, beating the estimate of 2.6 billion.
The number of active users is a key metric that is keenly watched by investors as well as by advertisers. Facebook derives 98% of its revenue from advertisements and to bring in more companies, it needs to actively showcase its ability to bring in new users and keep them on its platforms. The data collected from the users is passed on to the advertisers to help them develop ads specific to their customers.
The company also reported better-than-expected average revenue per user (ARPU), amply demonstrating its pricing power when it comes to big brands advertising on the site.
Additionally, Facebook said its family monthly active people, known as MAP, increased from 2.99 billion to 3.14 billion people, an upswing of 14% across its family of main apps, Instagram, Messenger and WhatsApp. The company attributed this growth in its user base to increased engagement from people spending more time at home.
The remaining 2% of the total revenue of Facebook came in at $366 million for the quarter, an augmentation of 40% from last year. This includes sales of Oculus virtual reality headsets and the portal’s video-chatting devices. While these sales may not move the needle for Facebook, they, nevertheless, show the company’s intentions of broadening its horizon.
The company forecast revenue growth of about 10% for the third quarter, higher than the analysts’ expectations for growth of around 8%.
Facebook And Its Growth Strategies
Facebook has been really prescient when it comes to finding “up and coming” companies with commensurate services.
The company acquired the free photo and video sharing app, Instagram, for $1 billion in August 2012. It had around 100 million registered users, which today has swelled to more than 1 billion users and counting.
The purchase of WhatsApp has a more interesting story behind it. Facebook announced in 2014 that it would pay $19 billion to acquire WhatsApp, a move that left many flummoxed, as back then a majority of American pundits were still unaware of it.
This happened after Tencent, the Chinese tech behemoth and the world’s largest gaming company, missed buying WhatsApp just by a whisker. The acquisition, which would have made the Asian giant a global power player overnight, was delayed because the company’s founder Ma Huateng, (fondly called Pony Ma), had to undergo back surgery.
Mark Zuckerberg somehow got wind of the move and the panicked billionaire moved at lighting speed, tabling an enormous $19bn competing bid – by far Facebook’s biggest deal in history and more than twice of what Tencent was willing to offer – to see off the threat.
The rest as they say is history. With over 1.5 billion monthly active users, WhatsApp is the most popular mobile messenger app worldwide by a wide margin. In the US alone, the chat app is projected to have over 86 million active users by 2023.
Should You Invest In Shopify?
The COVID-19 pandemic has fundamentally altered our lives and the way society functions.
Pharma companies across the globe are tirelessly focusing resources and efforts to find a cure for the deadly virus which has so far infected more than 30 million people and killed over one million.
As the dangerous virus makes it incredibly difficult to carry on with the routine work from office, as was the norm before the pandemic struck, sky has become the limit for companies engaged in e-commerce.
While we keep hearing about stocks of big pharma companies involved in vaccine research, little is heard about companies taking care of the immense logistical problems that the pandemic has instigated.
This despite the fact that e-commerce companies have been big winners of late, presenting abundant opportunities for making money.
As the coronavirus lockdowns shuttered stores and widened the gap between brick-and-mortar and online commerce, pushing customers fully online, companies like Shopify [NYSE:SHOP] benefitted tremendously by helping pandemic-battered retail businesses move their sales channels online as well.
This was amply reflected in its second quarter results where Shopify Inc. nearly doubled its revenue, whipping analysts’ estimates by a wide margin. Shopify’s sales were up 97% year over year to $714.3 million as a sharp decline in revenue from brick-and-mortar storefront sales during the coronavirus pandemic forced large number of merchants to take their businesses online. Analysts had expected revenues of about $512 million.
Over 30,000 users recommended Shopify’s platform to their fellow merchants in the past 12 months, and overall, stores on Shopify generated 1.5 times more revenue in the second quarter of 2020 in comparison to the fourth quarter of 2019.
Gross merchandise volume soared to $30.1 billion, a massive jump of 119% from a year earlier. Analysts were expecting this key metric, which represents the value of all goods sold through Shopify’s platform, to increase by 49% to $20.6 billion.
Sales of food, beverages and tobacco doubled over the first quarter, the company said. Moreover, as a proof of its financial strength, the company, by the end of June, had lent more than $1.2 billion to merchants in need of money to kick-start their businesses.
Many analysts predict this boom will be lasting. New stores created on the Shopify platform witnessed a growth of over 70% in the second quarter as compared to the first quarter. Part of it could be attributed to the company’s decision to extend the free-trial period on standard plans from 14 days to 90 days.
Additionally, Shopify is keen on extending its expertise beyond retail stores with the company now working with food services, businesses, and grocery-chain clients to assist with deliveries, as well.
This year, Shopify entered into a partnership with Walmart (WMT) to expand its third-party marketplace site. It also formed a partnership Affirm Inc. to allow consumers to make large purchases and pay in installments — moves aimed at becoming more competitive with e-commerce giant Amazon Inc (AMZN).
It remains clear that Shopify is at the right place and the right time as the leading e-commerce software and services platform enables the ‘digital transformation’ for thousands of businesses.
Shopify shares are up over 160% this year. It is amply clear that sky is the limit for Shopify with its leading e-commerce software and services platform enabling thousands of businesses to sell more and sell more efficiently.
Facebook vs Shopify: Which Is Best?
In spite of the uncertainty surrounding Covid-19, change in consumer spending habits and a soggy economy outlook, both Shopify and Facebook have delivered beyond expectations.
As such shareholders of both the companies have had an exceptionally good year with shares of Shopify rising above 160% and that of the social media giant jumping over 25% this year so far.
Over the long term, experts predict that these technologists will continue with their winning streak. It should not come as a surprise as both companies are enjoying a dream run as the pandemic forces massive small business migration to the internet and gives rise to heightened digital engagement.
Will Shopify Attack Amazon
With the en masse exodus of the retail industry from the real to the online world, Shopify was already growing at a healthy pace.
The Ottawa, Canada-based company reported revenue increase of 47% year over year to $470 million. This growth exploded with the pandemic shutting down large swathes of the economy.
Large scale migration to online retail and heathy dollops of federal stimulus money caused Shopify’s revenue in Q2 to soar by 97% to $714 million.
Gross merchandise value sold on the Shopify platform was over $30.1 billion, an upswing of 119% from a year ago.
The company reported an astonishing turnaround in its fortunes as it generated a $36.0 million profit compared to a $28.7 million loss just a year ago.
In the U.S., which is the world’s biggest e-commerce market (the largest is China) any purchase not made on Amazon.com Inc. is probably done via a website powered by Shopify.
It claimed it took 5.9% of U.S. online retail sales last year as compared to Amazon’s 37.3% share. All these factors go a long way in explaining the explosive growth in Shopify’s share price this year.
And now with a market cap of just over $120 billion (which exceeds that of heavyweights such as Uber Technologies and General Electric) Shopify has plenty of opportunity to grow even bigger than it is now in another decade or so.
Facebook Growth Continues Despite Controversies
The raging pandemic was supposed to give the social media behemoth a torrid time. The logic for such thinking was pretty simple. Facebook derives almost all of its revenues from advertising, and with the economy in the doldrums, it was expected to take a significant hit.
During periods of economic slowdown, consumers tend to hold their purse strings tighter, which, in turn, force organizations to cut their advertising budget. This scenario did play out to some extent as Facebook’s revenue growth in second quarter slid to 11% as compared to 18% year over year in the first quarter.
For such a large business, which hogs a lot of limelight but hasn’t always walked away from it looking good, it’s a more than respectable figure.
With the hashtag #StopHateForProfit gathering pace, a large number of megabrands such as Unilever (UL), Verizon Communications (VZ), Starbucks Corp. (SBUX), among others, announced they would cease advertising on Facebook until the company showed more resolve in countering hate speech on its platform.
Ad spending did, in fact, take a hit, but Mark Zuckerberg appeared unperturbed by it all stating in prepared remarks that “some also seem to wrongly assume that our business is dependent on a few large advertisers.
While we value every single one of the businesses that use our platforms, the biggest part of our business is serving small businesses.” He seemed to be right, at least for the time being, as small businesses (on which Facebook is heavily dependent for ad spending) increased their online presence and advertising to give Facebook a respectable quarter.
While the #StopHateForProfit campaign does not seem to deal a major blow to Facebook’s second-quarter earnings, investors would watch closely how far this stretches into the third quarter to get a clearer picture.
Also, Facebook benefitted a lot from skyrocketing social media engagement from stuck-at-home people during the pandemic-induced lockdown. This caused “family monthly active people” (a user of Facebook, Instagram, WhatsApp, or Messenger) to surge 14% to 3.14 billion.
Again, this growth will likely get watered down a bit going forward with easing lockdown measures, but, on the other side, rebound in ads is likely to compensate for it.
As mentioned earlier, Facebook derives 98% of its revenue from advertising. This means Facebook has most of its eggs in one basket. A global decline in advertising as such is likely to hit the company hard. Facebook understands it well and this is the reason it has been diversifying into other fields.
There’s the Oculus virtual reality business, making the rest 2% of the total revenue.
Facebook Shops could deepen the company’s relationship with small merchants. WhatsApp Pay, an in-chat payment feature, is being tested in India as part of a UPI-based payments service that allows you to both, send and receive money.
This year, Facebook finalized a deal to invest $5.8 billion in Jio Platforms for a 9.99% stake in an all-cash deal that will help Facebook integrate a lot of services Jio platform offers with WhatsApp, which is one of the most popular apps in India.
With close to half of the world’s population as its user base, Facebook’s presence looms large in the global economic ecosystem. Add to that its massive cash reserve of $58 billion and you know why the future holds a lot of promise for the most dominant social media company in the world.
Facebook Vs Shopify: The Bottom Line
Facebook’s second-quarter earnings blew away Wall Street estimates. Sales registered double digit growth despite the battering the global economy took because of the pandemic. Even pressure piled up on Facebook by a high-profile ad boycott in July did not seem to significantly dent Facebook’s ad revenue.
Facebook still has plenty of untapped potential and room to grow that is keeping investors excited. The social media behemoth launched its new Shops social media mall in May.
Now, it is trying to carve its own niche in the short-form video sharing space by launching Instagram Reels. It is trying to take advantage of the Trump administration’s move against China’s Byte Dance, the owner of TikTok.
How much Trump’s decision is going to help Facebook is a subject of discussion though, as Oracle Corp (ORCL) and Walmart Inc. (WMT) take stakes in the short-video app’s business to address U.S. security concerns. Additionally, the company has recently initiated its long-term efforts to monetize the colossal WhatsApp user base.
Facebook generates 92% of its revenue through mobile. This holds no surprise given the dominance of Facebook’s namesake platform app along with Facebook Messenger, Instagram and WhatsApp.
Facebook’s global ad revenue is expected to grow to almost $95 billion by 2021, while its advertising revenue in the US during the same period is projected to amount to $39.4 billion.
The Effect Of Ad Boycott
More than 1,200 businesses, non-profits and a large number of consumers joined an ad boycott against Facebook started by civil rights groups in the US, under the banner #StopHateForProfit.
As much as 98% of Facebook’s $70.7 billion in revenues comes through advertising and the boycott initially created some ripples, knocking off 8% of its market value amounting to US$72 billion.
Yet, even with the high-profile campaign and with big names such as Adidas, Coca-Cola (KO), Diageo, Verizon (VZ), Unilever, and Starbucks (SBUX) on board, the likelihood of it causing major financial impact and, subsequently, force a change in Facebook’s attitude is still slim.
This is because Facebook has a vast cash cushion that easily absorbed the initial shock. Additionally, the balance of power between Facebook and the advertiser is titled more towards the former given the need for digital advertising and the dominance Facebook enjoys in this space.
And the most important factor working in Facebook’s favor is that about 90% of the company’s revenue comes from small businesses. This explains CEO Mark Zuckerberg’s chutzpah, and the little impact on its stock price despite big corporations joining the boycott bandwagon.
Analysts currently expect Facebook EPS to jump 29% as the economy recovers post-Covid. New e-commerce, Reels and WhatsApp monetization initiatives are seen as primary growth drivers for the social media goliath. And the company still has a long way to go in tapping its massive international user base.
All in all, big advertisers are boycotting Facebook, but the company is not losing sleep over it given how huge and well-established it already is.
Size matters in the world of social media, and the company which boasts the largest number of users is sure to win advertising dollars, even if it does a shoddy job of winning advertisers’ hearts.
Facebook has received a lot of backlash in recent years for misuse of user data, privacy abuses, anti-competition policies and failure to moderate hate speech to name a few. But the clairvoyant steps it took early in its history, which firmly established it as a social media powerhouse, is likely to keep it insulated from all the negative publicity it continues to generate.
Shopify: E-commerce Giant In The Making
Shopify Inc. is being compared to the American e-commerce giant, which in fact attests to the growing importance and value of the Canadian tech company.
Shopify, of course, is still much smaller than its gigantic U.S. counterpart; but the ‘Amazon Junior’s’ stellar run has left pundits baffled, although investors are happily running to the bank. The Canadian e-commerce software stock was a huge winner in 2019, with its shares quadrupling.
With brick-and-mortar businesses gravitating to the online space, Shopify has become the platform of choice for merchants wanting to get online quickly and cheaply. Its merchant-centric approach has led to its incredible growth.
New customers start with a free trial and can move to a paid subscription for as little as $9 per month. In response to the uncertainty sparked by the coronavirus, Shopify extended its free trial period from 15 to 90 days, allowing merchants to get a better understanding of the platform before opting for subscription services.
The pandemic is further accelerating e-commerce growth. According to Chief Technology Officer Jean-Michel Lemieux, Shopify was seeing “Black Friday-level traffic every day” in April. Goldman Sachs forecasts that global e-commerce will grow 19% annually over the next three years as more and more retailers turn to online selling during the pandemic.
With its stock price zooming past the stratosphere, Shopify blew past Royal Bank of Canada this year to become the most valuable company in Canada’s S&P/TSX Composite Index. The company did not provide a financial outlook for Q3 or for full-year 2020, citing coronavirus uncertainty.
However, Shopify’s ever-improving and easy-to-onboard platform and its focus on what small businesses needed most to survive, have proven to be an incredible recipe for growth.
Analysts expect Q3 EPS to zoom 254% to 46 cents as sales climb 63% to $634.6 million. As the pandemic forced brick-and-mortar stalwarts such as J.C. Penney Co. and Neiman Marcus Group Inc. into bankruptcy, Shopify continued to bask in its unabated popularity. As the pandemic causes a gigantic shift towards e-commerce adoption, sky is the limit for Shopify.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.