E-Commerce in COVID-19: The Gains of Amazon & Shopify

What has happened?

With second-quarter earnings now released, Amazon surprises investors by doubling its quarterly profit. Likewise, on Wednesday 29th July 2020, Shopify’s revenues were revealed to be 97% higher compared to the same time last year with purchases through its network of e-commerce websites doubling in the second quarter. 

These impressive figures are the result of the subsequent lockdowns of the coronavirus pandemic which drove shoppers online at unprecedented rates.

Whilst the gains of Amazon were somewhat expected due to its profound presence within the market controlling 40% of US e-Commerce, Shopify’s progress is stronger than what most anticipated. Analysts at Citigroup stated in a research note that Shopify’s ‘strong transactional revenue, [is] far ahead of even the highest expectations. In particular, the GMV (gross merchandise volume) reported by Shopify rose to $30.1bn; higher than that of eBay’s $27.1bn.

Why has it happened?

As a result of the pandemic limiting the revenue of physical real-life stores, there has been a ‘rapid shift to online commerce’ as noted by Tobi Lütke, Shopify’s chief executive and co-founder. Thus, the surge and increase in revenue and share price of e-Commerce titans were expected, albeit not at this level.

The importance of e-Commerce has been highlighted with the collapse of INTU into administration, the pandemic has caused many retail stores to struggle with paying rent due to the substantial decline in revenue. 

It has been speculated for a few years now that all shopping will move online as retail e-Commerce sales have increased at a steady rate from 2014 onwards, this transition has been aided massively by the outbreak of COVID-19 and the lockdowns that were imposed globally. 

The Future

There has been a 71% increase of new stores created on Shopify compared to the first 3 months of 2020, this is seen as a key metric for future growth. Likewise, Amazon has been going from strength to strength remaining as the most prominent e-Commerce giant with the company hiring 175,000 new employees due to extra business and expanding its delivery capacity by 160%. Shopify is now seen as the largest e-Commerce platform after Amazon in the US following its shares tripling in value during the past 12 months.

However, there is still much uncertainty regarding the future. Shopify, in particular, did not provide any further guidance or suggestions for the rest of 2020. This is partly due to the anticipation that the shift to e-Commerce by the pandemic is to be counterbalanced by an increased likelihood of an extended global recession which appears more likely than Morgan Stanley’s initial suggestion of a ‘V-shaped’ recovery.

Furthermore, Amazon has been in the midst of controversy following allegations that Amazon utilises information provided by third-party sellers to create and tailor the company’s own products to compete with them. Additionally, Amazon founder, Jeff Bezos, was one of the tech industry CEOs facing Congress after being accused that they had too much control over the market as they are ‘too big and powerful’.

Therefore, the future of these businesses is still uncertain. Nevertheless, it seems unlikely that there will be any disruption to the continued growth of the e-commerce industry. Notably, Amazon’s outstanding surge in profits came despite the costs of COVID-19; such as spending on protective equipment and bonuses for employees, indicating the sector’s profound strength. 

By Bobby Zhu