Square Stock Vs Shopify: Which Is Best?

Square Stock Vs Shopify: PayPal (PYPL) might have been a pioneer in digital payment solutions twenty years ago, but it has heavy competition in today’s rapidly growing market. Companies like Venmo, Stripe, and Zelle have become popular in recent years, and PayPal faces direct challenges from both Square and Shopify. 

The good news for all of these services is that demand is large enough to support any number of high-quality digital payment platforms. In 2020, the global digital payment market is estimated at $910 billion, and that is likely to reach $1.5 trillion by 2024. 

Square (SQ) and Shopify (SHOP) differentiate themselves from their peers by catering to the needs of micro, small, and medium-sized businesses. Both make it possible for companies of any size to accept payments online, which is a must in today’s mobile-centric world. 

Both have seen massive growth in recent years, and the COVID-19 pandemic didn’t seem to hurt much at all. As consumers have limited their activities outside the home, they have turned to e-commerce options more often than ever before. That means more revenue for both Square and Shopify, which in turn pushes stock prices up. 

Since both Square and Shopify are benefitting from a rise in consumer use of digital payments, investors have a conundrum. Square stock vs Shopify: which is best? 

SQ Has 30 Million Active Users & Growing

With SQ share price gains topping 165 percent, many investors are looking hard at Square stock. After all, there aren’t many companies that can say they thrived during the pandemic, and there is no reason to think that the winning streak will end in the foreseeable future.

The pandemic will end, but e-commerce is here to stay. The rapid increase in use of online shopping options wasn’t an anomaly. It simply compressed the timeline of a trend that was already well in progress. 

Square made its mark with simple, affordable options for businesses of all sizes to accept digital and credit card payments. Through distribution of small square-shaped accessories, Square used its technological savvy to transform any mobile device into a point-of-sale. 

However, the company didn’t stop with its merchant services product line – it has moved into digital payment solutions for individuals to pay each other. This is accomplished through a separate app known as Cash (or the Cash App), which connects users for the purpose of passing money back and forth. 

Trying to keep the right amount of cash on hand to split a tab is all-but-obsolete with the Cash app, and consumers are delighted with the change. Square’s most recent quarterly results noted a total of 30 million active users each month. 

Industry analysts agree that Square is a leader among FinTech stocks, and the growth seen thus far is just the beginning.

Digital payments will continue to increase in coming years, and Square has the right technology to be in the right place at the right time to profit. That makes Square a smart buy. 

Shopify Revenues Up Almost 100% YoY

While a variety of early digital payment platforms simplified the process of accepting online payments from shoppers, Shopify was the first to offer a start-to-finish solution.

Businesses of any size can use the service to build and promote an online storefront, take payments, and analyze data to develop an effective strategic plan.

During the pandemic, Shopify was instrumental in protecting a wide variety of companies from total loss. When brick-and-mortar stores were closed and consumers turned to online options, Shopify made it fast, easy, and affordable to take the business online.

During the third quarter earnings call, Shopify’s management team reported that revenues increased 96 percent year-over-year for a total of $767 million. 

While COVID-19 might have pushed merchants and consumers to move a little faster towards e-commerce, this growth is likely permanent. In fact, the trend is expected to continue in coming years, which makes Shopify a solid buy. 

Square Serves Both Sides Of Digital Payments Market

There is some discussion of Square’s fate if investors continue to move away from tech stocks. However, the consensus among analysts is that such a trend would be unlikely to cause more than a temporary dip in SQ stock price. 

Square is well-positioned to continue its leadership position in the coming cashless economy, because it is going after both sides of the digital payment solution equation.

It serves merchants by making it simple to sell through digital channels, and it is simultaneously developing technology to benefit consumers.

Between the two, Square is more likely to experience little or no negative effects from a change in investors’ perception of tech stocks. 

Shopify PE Ratio Sky High

The biggest concern among new investors is that Shopify is expensive, and it is unclear whether earnings and prospective growth can support the current stock price.

In early November, shares traded at a price-to-earnings ratio of 583.55, which is relatively high given Shopify isn’t in first place among direct competitors. 

If, in fact, Shopify stock is overvalued, it could be some time before investors see results. According to a discounted cash flow forecast analysis, the fair market value for the company (aka SHOP intrinsic value) is $630, which is a long way south of the current share price. 

Of course, the issue isn’t that demand for Shopify services will decrease, but that it could take time for profits to catch up with the premium included in the current SHOP share price.

Shopify Vs Square Stock: The Bottom Line

While both Shopify and Square are expected to grow long-term, Square has an edge over Shopify. It is far less expensive, which means investors are likely to see returns sooner, and it is better-protected against future market volatility. 

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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.