Owners of Shopify Stock Shouldn’t Be Afraid of Amazon

A few days ago, Shopify (NYSE:SHOP) CEO Tobias Lutke gave an interview that was both enlightening and alarming to current and prospective owners of Shopify stock. Simply put, Lutke conceded that Amazon.com (NASDAQ:AMZN) was moving into Shopify’s space with a service called Storefront that is targeted at small businesses.

It’s a terrifying thought for owners of Shopify stock. Amazon is arguably the most disruptive force on the planet, and nobody wants to be forced into competing with it. For several reasons, however, this may be one battle that Amazon ends up losing.

The Secret Sauce Behind the Roaring Success of Shopify Stock

Setting up an e-commerce platform is difficult, which is why more small businesses don’t do it.

But Shopify makes it simple to develop an online-shopping presence and though similar tools have been made available before, for whatever reason it has been Shopify’s secret sauce that has gotten traction. SHOP’s revenue is projected to grow more than 50% this year and then jump another 39% next year to $1.4 billion. Meanwhile, the Shopify stock price is up more than 800% since its 2015 initial public offering.

That’s impressive. It’s so impressive, in fact, that it has attracted the attention of Amazon. While the e-commerce giant probably doesn’t see Shopify as a major near-term threat, the smaller rival has in many ways shown that helping small businesses launch e-commerce platforms is indeed a viable business model.

It wouldn’t be the first time that Amazon has copied a rival. In late 2015. the company unveiled a website called Handmade at Amazon, taking a direct shot at Etsy (NASDAQ:ETSY). It launched its own brand of basic consumer goods, ranging from batteries to bedding, after it realized how well other suppliers were doing selling the same kinds of goods on Amazon. It even tried to develop a Shopify-like platform called Webstore, but it ultimately shut down that venture back in 2015, most likely due to a lack of demand.

It’s the failure of Webstore, in fact, that should provide some solace to owners of Shopify stock who are worried about Storefront.

Amazon Is Too Big for Its Own Good

Credit has to be given where it’s due. Amazon.com’s presence is pervasive, but the company has earned every bit of its market share by being willing to try anything.

There’s a pro and a con to every single business decision ever made, though, and the downside to Amazon’s quest for dominance is the creation of a machine that doesn’t embrace nuance and unique individual needs. Webstore and Storefront — and everything else Amazon has done, for that matter — were built on the assumption that they would support thousands of retailers which would be selling goods to millions of buyers. Such a platform won’t work as quickly as possible if it’s too complex. In other words, bigger is slower and clunky, while smaller is nimble and fast. Shopify’s smaller size is an advantage for it.

Amazon Competes With Small Businesses

It’s not just a slow-moving Amazon that has enabled the boom of SHOP stock. There’s also the reality that Amazon, when all is said and done, doesn’t really want anybody else to sell goods on its site if it can sell the same or similar goods itself.

Third-party merchants selling on Amazon.com have complained for a long time about AMZN’s introduction of its own merchandise and the fact that it often gives its own products the best positioning. These merchants contend that Amazon frequently takes their customers. That complaint came to yet-another head recently, when it became apparent that Amazon was boosting sponsored listings to the top of its website, pushing unsponsored listings further down the page and out of view.

That’s a problem for merchants, simply because most consumers tend to click and buy what they see first.

Storefront may be handled differently, but Amazon has repeatedly demonstrated that it ultimately puts its own top and bottom lines first. Small businesses tend to notice rather quickly when they’re being put at a disadvantage.

Bottom Line for Shopify Stock

Shopify isn’t entirely immune to the advent of Storefront. Certainly, some small businesses will give it a shot, and some of them may even do better with Storefront than with Shopify.

By and large though, Amazon and small businesses haven’t been a great fit. That’s in stark contrast with Shopify’s platform, which was built from the ground up to serve the smaller merchants that Amazon doesn’t truly want. That divergence may not be a reason in and of itself to buy Shopify stock, but it’s certainly not a reason to sell it.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.

Article printed from InvestorPlace Media, https://investorplace.com/2018/10/shopify-stock-amazon-storefront/.

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