Introduction
With the introduction of new competitors in the e-commerce platform space, the entire market needs to take a critical look into what will actually rock the boat and which will sink. Shopify is a rising small-to-large business marketplace, aimed at providing a platform for companies to sell their wares to customers over their app; OfferUp and LetGo were unique competitors in the secondhand user sales e-commerce platform space until OfferUp acquired LetGo¹ in early 2020 to increase revenues and better their economies of scale, now serving 20 million monthly customers and continuing to increase value through investor funding rounds. What is the future of these two completely different e-commerce platforms who rise above lesser competitors in their respective markets and shift the balance of their existing giants, like eBay and Amazon?
Why Did I Pick These Companies?
Simply put, these 2 companies are some of the most interesting rising e-commerce platform competitors of the new wave. Shopify is the biggest rising star of the e-commerce platform industry with an 11% share of the total market (Datanyze)¹, and Offerup is a popular secondhand goods platform making big moves, backed by various² famous venture firms like Andressen Horowitz (a16z).
Why's it All About Shopify?
Shopify is currently the most promising e-commerce platform out there. While the total e-commerce market share as provided by the data site, Datanyze, ² lists WooCommerce as the biggest & most widely used e-commerce platform, it is actually a plugin (not standalone like Shopify) for those that already have sites on WordPress. Also, the private company that created WooCommerce, Automattic, is worth 2 orders of magnitude² less than the public Shopify. Automattic was valued at $3B in 2019 while concurrently Shopify was worth $40.3B, which is more than eBay was valued at the time; additionally, Shopify launched its IPO in 2015 which cements its position of market share and public reputation compared to the private Automattic.
Shopify is a venture-backed startup that, while founded in 2006, grew from $23 per share to $149 per share almost linearly over 3 years (2016-2019). (Google Finance)¹ That 215% per year of growth in such a short span of time, which topped even many of the best online businesses of the time, is remarkable for any business. One specific factor of this 3-year growth is their integration with Amazon³ so that business owners on Shopify's marketplace can sell on Amazon's massive A-Z platform. However drastic this growth seems, Shopify actually made most of its astronomical growth in the latest years. If one looks from the perspective of valuation, one can see that Shopify steadily rose by 3.6 basis points or 356% from $149 to $531 per share, during the short time-span of January 19th, 2020 to February 14th, 2020.
A very lucky Valentine’s Day indeed. However, this growth was not a freak occurrence and it was grounded in very real action: Shopify was very active and critically successful over the year, proactively attracting big businesses onto their marketplace platform, and integrating with Mailchimp and simultaneously integrating and advertising on Snapchat’s platform among actions detailed later. According to the Guardian¹, “Research from eMarketer showed that Shopify [in 2019] overtook eBay’s share of e-commerce sales in the US, leaving it second only to Amazon.” These actions made their growth seem natural, but yet there’s more: then, from February 14th to the beginning of April 2020, the company’s shares dipped shortly, then came to an erratic and sharp rise from then on until the current $1,100-1,200 per share in January of 2021. This constitutes a shocking 225% rise in share value of a 15-year-old e-commerce company. (Google Finance) ²
These stats mean that over the 1-year period of January 19th, 2020 to January 19th, 2021, their value has increased 800%! (Google Finance) ³
Where did all of this value come from?
The primary reasons for the majority of Shopify's past growth is that they benefited from steady company acquisitions that improved features, integrated with various platforms (e.g. Amazon, Snapchat, Mailchimp) which increased functionality of their own, launched their own competitive initiatives (e.g. their Shop App and Fulfillment Network for shipping), grew a responsive and large network of employees, worked fast with exquisite timing, and most importantly gained reputation as a favored platform among businesses. As for the staggering 800% rise on the NYSE, necessity was retroactively the mother of invention: their capitalization of the pandemic of 2020's positive effects on business digitalization drove the valuation sky-high. During this period, the net worth of Shopify rose over 3x in enterprise value in 1 year, from ~$43B on January 1st, 2020 to ~$141B as of January 28th, 2021. (Yahoo Finance) Their growth model is next to none, other than Amazon. According to² Sirin Kale from the Guardian, “if you’d invested $5,100 in Shopify in 2015, when the company went public, your initial investment would be worth around $111,000: an astronomical 2,076% return on your investment”.
Additionally, Kale makes an inference on what she believes drives its popular growth among businesses in the e-commerce space:
“Because it is affordable, Shopify is favoured by small- to medium-size brands that can’t afford to pay for costly, custom website builds. Basic packages start at £29 per month. About 1m brands use its services, including major names such as Pepsi and Fashion Nova, and 80,000 of those merchants are based in the UK.” ³
That sounds to me like a favorable and future-ready business model that works in the U.S. and globally.
Meanwhile eBay is a sitting duck in the e-commerce space with fluctuations in market cap at around $30B. They haven’t made any big moves like Shopify since their disastrous share drop after their split with PayPal in 2015. Kale's evidence shows that even retail giants like Amazon have to watch out for the competitive offerings of Shopify in the e-commerce platform space, though it flourishes in its own e-commerce retail space at a post-$1.5-trillion valuation. Shopify is not a fluke: they have steady growth through integrations, innovations, and continual acquisitions of software companies.
They also have a business model that is successful in the long-term. For example, Shopify was gifted an opportunity to grow from business going online last year. They made big profits even through the chaos of 2020, due to a greater market of businesses trying to digitize their product and reach the online market. Online business is a long-term market that was expanded through the rapid shift online due to the pandemic crisis; with the revelation of its usefulness to myriad businesses, Shopify will also grow with the market.
Shopify didn't rise to their present state just by sheer luck of the draw. As a company and investment opportunity, Shopify (and their stock SHOP) stood out among competitors to capture the lions share of the e-commerce market in a more exaggerated manner than any others. Their growth trumps most other online shopping markets and tops even online restaurant brands like Domino’s (DPZ) who made record profits⁴ during the chaos of 2020. Basically, it is a new and improved, reborn rival that is making the biggest rounds in the e-commerce industry.
What's Up with OfferUp?
I first discovered the OfferUp and LetGo platforms before they even merged, as I used to use their platforms to buy products from other users back in 2018 and before that. Honestly, it was unexpected news to me when I learned that— in early 2020— OfferUp gobbled up its e-commerce competitor LetGo entirely pre-IPO (both companies were private) with an undisclosed amount that their funders raised. OfferUp must have seen the asymmetry of their market share and valuation heavily favoring them, but I never saw much of a galvanizing difference between the two platforms as a user. It's likely the case that since OfferUp was founded in 2011, 4 years before LetGo, they gained a headstart which gave them a more solid userbase and market share that couldn’t be shaken by the competitors.
As the ownership changed hands, OfferUp has subsumed Letgo’s application on the Google Play store and Apple’s App store. This has led to a change in title on the app stores: “Offerup: Buy. Sell. Letgo. Mobile marketplace”. The combined app has 50M+ downloads in the Google Play store and is #1 top grossing in shopping and #9 in the shopping category. In Apple’s app store, it has the 5th top spot for shopping apps.
As for the financials, OfferUp is a private company currently valued at over $1 billion, establishing a firm position as a tech unicorn that has increased its durability from a great deal of funding: it’s previously been backed by all of the biggest venture firms including GGV Capital, Andreessen Horowitz, T. Rowe Price, Allen & Company, High Line Venture Partners, Coatue Management, Max Levchin, Tiger Global Management, Altimeter Capital, Warburg Pincus, Vy Capital, Jackson Square Ventures, Third Kind Venture Capital, OLX Group. (Craft.co)³ Among these funders, OLX group seems to be the biggest ¹ shareholder of OfferUp’s private holdings.
OfferUp’s main model is allowing users to sell and trade goods secondhand on their platform, in a manner that provides security, verifiability, and accountability from each seller or buyer. Their vision is to "empower people to connect and prosper", and they make plain how they plan to achieve that goal:
"Americans spend trillions of dollars each year on new stuff, billions each year on storage units, and every day, they throw tons of their stuff away. In all that buying, storing, and tossing, Nick Huzar and Arean van Veelen saw opportunity. Could a new kind of local marketplace bring people together to get more value out of all that stuff?" (Offerup.com)
According to their site, their vision is to connect people to each other in a unique C2C (customer to customer) format that makes everyone their own marketplace. An ambitious and noble goal. LetGo's founders had a similar plan, and made their own unique and competitive app, however OfferUp was the winner in the end. OfferUp was successful in acquiring their market share through the acquisition, without even having to wait for public funds from their IPO. With limited information, I can't really be sure if either company was ever truly more valuable because the stocks were private— but clearly OfferUp shareholders’ capital was more than enough to take over the immediate competition. Other major competitors in the secondhand goods space include Facebook Marketplace, eBay, Poshmark, and Craigslist, according to a 2019 article by Kirkland Reporter. With the popularity and market share of its competitors, the underdog OfferUp has a lot of growing to do if they want to move up the ladder and prove that their business model is more successful than these competitors. Nowadays, they seem to be making the right growth moves, like Shopify, in order to further their lead in the industry.
For example, in a 2018 GeekWire article about OfferUp’s competition with these major competitors, the columnist Nat Levy writes,
“In recent months, OfferUp has been busy, putting out new features and safeguards for its customers. Most recently, OfferUp unveiled a new Autos section for buying and selling used cars, doubling down on one of its most popular categories.
In May, OfferUp launched a new shipping feature that expands its service beyond local deals. The company had been limited to facilitating buying and selling items in a given location, but the new shipping feature allows sellers to reach anyone in the continental U.S. for products that meet USPS regulations and other requirements. Last year, OfferUp debuted a series of features designed to give buyers and sellers more information about each other, allowing them to better trust the process. That followed the introduction of the Community MeetUp Spots program, a network of more than 1,300 designated meeting places for users to safely exchange goods.” (GeekWire)²
Making features and innovations will always be the primary driving force for e-commerce companies, whether private or public.
That has been the engine for Shopify's continued growth, just as it is the key to unlocking the potential of OfferUp. The confidence of investors and the interest of users interlock in their ability to make value happen, and I believe that OfferUp has illustrated a likelihood to bring about both in the next few years. Their existing business model will only produce even better outcomes and a rise in valuation once they decide to finally go public.
The Outlook of these E-Commerce Platforms
I don't predict that either Shopify or OfferUp will sink if they continue what they have already done— their innovative, tried and true business model. Most likely, they will rock the boat and give their established competitors a run for their money.
This second-hand goods e-commerce unicorn, as well as Shopify, the biggest and most innovative e-commerce marketplace, are both disruptors that one should put their full focus on in the future.
Citations (with reference count):
Datanyze: https://www.datanyze.com/market-share/e-commerce-platforms--6 (1-2)
Craft.co: https://craft.co/offer-up/funding-rounds ( 1-3)
WebsiteToolTester: https://www.websitetooltester.com/en/blog/wocommerce-market-share/ (1-3)
Google Finance (SHOP Stock NYSE): https://www.google.com/finance/quote/SHOP:NYSE (1-4)
Google Finance (DPZ Stock NYSE): https://www.google.com/finance/quote/DPZ:NYSE
Kirkland Reporter: Kirkland Reporter
OfferUp: https://about.offerup.com/our-story/