Top Online Retail Stocks to Buy in 2017

By Joe

Even after two decades of torrid growth, the rise of e-commerce is still in its early innings. Online sales comprise less than 10% of retail sales, with research firm eMarketer estimating that retail e-commerce sales will increase to more than $4 trillion in 2020, up from about $1.5 trillion in 2015. With millions more people gaining access to the Internet every year, e-commerce appears set to grow at a rapid pace for at least another decade, and likely much longer. Read on to see why (NASDAQ: AMZN) and Shopify (NYSE: SHOP) stand to benefit from this megatrend perhaps more than any other companies.

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The titan

No discussion of online retail can take place without mentioning the mighty The company dominates e-commerce -- and, increasingly -- retail as a whole.

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Amazon's awe inspiring rise has come at the expense of many traditional brick and mortar retailers, as the online juggernaut has left retail carnage in its wake. In fact, with Amazon's stock up more than 20 times in value over the past decade -- and many of its major rivals down sharply during that time -- Amazon was worth more than eight of the largest retailers combined by the end of 2016.

With its unmatched value proposition -- built on low prices, a wide selection of goods, inexpensive shipping, and excellent customer service -- Amazon should only continue to gobble up retail market share in the years ahead. As such, investors who buy shares today should be well rewarded, just as those who've invested in Amazon at any time in its history -- and held their shares -- have been rewarded to date.

Image source: Shopify.

The challenger

One of the rare companies that's been able to withstand Amazon's onslaught is multi-channel commerce platform, Shopify. In fact, after originally competing with Shopify, Amazon decided to close down its Webstore service and recommended that its merchants migrate to Shopify's platform. Since that time, Shopify has grown at a torrid pace, with the number of merchants using its platform rising to more than 325,000 in the third quarter, up from 200,000 in the prior year period.

Co-founder and CEO Tobi Lutke has positioned the company as an invaluable provider of cloud-based commerce solutions to small- and medium-sized businesses, along with a growing number of larger enterprises such as Tesla Motors and Procter & Gamble. Shopify helps users sell their goods across multiple channels, including online retail marketplaces such as and eBay, social media giants such as Facebook and Pinterest, and standalone websites and brick-and-mortar stores. In addition, Shopify provides crucial back-office services such as sales tracking, payment processing, and inventory management. It's a comprehensive commerce platform that, along with a growing list of integrated third-party apps, provides users pretty much everything they need to run their business.

"Shopify is exactly this: the only platform you need to build your empire," reads a letter from Lutke on Shopify's investor-relations website. "Shopify is the first thing our merchants log into in the morning and the last thing they log out of in the evening. It's at the heart of their business -- a responsibility that we take very seriously."

Moreover, Shopify has only just begun to fulfill its massive growth potential. The number of businesses using its platform is still just a tiny fraction of the 10 million merchants with fewer than 500 employees in its key markets, as estimated by consulting firm AMI Partners, and the 46 million such merchants worldwide. With so much growth still to come, Shopify appears poised to deliver strong gains to investors in the years ahead.

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Joe Tenebruso has no position in any stocks mentioned. The Motley Fool owns shares of and recommends, eBay, Facebook, Shopify, and Tesla Motors. The Motley Fool has a disclosure policy.