Strong competitive positions make Shopify and Uber no-brainer buys in November.
November has been the strongest month of the year for the U.S. stock market in the last decade. Specifically, the S&P 500 index (^GSPC 0.41%) returned an average of 3.8% during November over the last 10 years, while its next best month was July with an average return of 3.4%. Moreover, the index produced a positive return in nine of the last 10 Novembers.
Of course, past performance is never a guarantee of future results, and investors should never focus on short-term returns. But there is no harm in leaning into historical patterns, provided the goal is long-term capital appreciation. Shopify (SHOP 1.00%) and Uber Technologies (UBER 1.67%) are worthwhile investments today, and both stocks cost less than $100 per share.
Here are the important details.
1. Shopify
Shopify provides a turnkey solution for retail and wholesale commerce. Its platform lets merchants manage sales and inventory across physical and digital storefronts from one dashboard. Its software integrates with online marketplaces like Amazon and social media like TikTok, but also supports the construction of custom websites.
Shopify also provides adjacent merchant solutions for marketing, payments, and logistics, as well as back office tools for money management, accounts payable, and tax reporting. The company has also introduced a suite of artificial intelligence (AI) features called Shopify Magic that automate workflows (like drafting product descriptions) and surface insights for merchants.
Additionally, its enterprise-grade platform Shopify Plus includes more sophisticated tools for data analytics and wholesale e-commerce. That last point is particularly important, because the wholesale e-commerce market is about three times larger and growing two times faster than the retail e-commerce market, according to Grand View Research.
Recently, consultancy Gartner named Shopify a leader in digital commerce, citing robust functionality across retail and wholesale channels, and its ability to innovate rapidly. Similarly, Forrester Research recognized Shopify as a leader in its most recent report on wholesale commerce solutions, citing its broad functionality and new AI tools as key strengths.
Shopify reported encouraging financial results in the second quarter despite a somewhat uncertain economic backdrop. Revenue increased 21% to $2 billion, and non-GAAP net income increased 85% to $0.26 per diluted share. Importantly, management highlighted momentum with large merchants, international merchants, and offline merchants, three areas where Shopify has focused its resources.
Going forward, Wall Street expects Shopify’s adjusted earnings to increase at 26% annually through 2027. That consensus estimate makes the current valuation of 75 times adjusted earnings look tolerable. Let me be clear — Shopify is not cheap at its current price, but I still think the stock can outperform the market over the next five years.
2. Uber Technologies
Uber operates the largest ride-share platform in the U.S. and globally (outside of China), and it operates the second-largest food delivery platform in the U.S. The company has a key advantage in its ability to blend those services into a single mobile app because it creates cost efficient cross-sell opportunities. For instance, 31% of first delivery trips come from mobility users, and 22% of first mobility trips from delivery users.
Scale affords Uber a data advantage that supports continuous improvements in ride dispatching, routing, and pricing. The company also uses its scale and data to help advertisers reach consumers with relevant offers through the mobile app. In June, Piper Sandler analyst Tom Champion called Uber a “sleeping giant” because its scale lays the foundation for a booming advertising business.
Uber reported strong financial results in the third quarter, beating estimates on the top and bottom lines. Monthly active users climbed 13% and total trips rose 17%, meaning consumers engaged with the platform more frequently. Revenue increased 20% to $11.2 billion and GAAP net income increased 12-fold. But adjusted EBITDA, a better metric because it eliminates unrealized investment gains, increased 55% to $1.7 billion.
On the earnings call, CEO Dara Khosrowshahi told analysts Uber One memberships soared 70% to 25 million over the past year. He also mentioned that advertising revenue increased 80%, and spoke optimistically about the company’s expanded partnership with Alphabet subsidiary Waymo. Specifically, Uber and Waymo have partnered to bring autonomous ride-sharing to Atlanta (Georgia) and Austin (Texas) next year.
Wall Street expects Uber’s earnings to increase at 22% annually through 2027. Compared to that consensus, the current valuation of 36 times earnings looks reasonable. Patient investors should feel comfortable buying a position in Uber stock today, though it would be prudent to start with a small position and build over time.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon and Shopify. The Motley Fool has positions in and recommends Alphabet, Amazon, Shopify, and Uber Technologies. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
