The global economy has been transitioning online for decades, and eCommerce stocks have increased in desirability. The pandemic exacerbated the trend in many ways.
The eCommerce market took off while physical stores were closed. This is an example of how shutting down one form can create opportunities for another type of business model, in this case, online shopping. Hence, it was no surprise that eCommerce stocks did tremendously well in this environment.
Whether you’re a long-term investor looking to diversify your portfolio or someone looking for quick gains, there are plenty of companies that will benefit from the traditionally strong fourth quarter.
The recent trend of increasing retail spending is encouraging, with the Census Bureau reporting that it grew 13.9% year-over-year in September, adjusting for inflation. Brick and mortar stores will continue to thrive in the face of economic recovery, with people increasingly venturing out thanks to Covid-19 cases on the decline.
However, we still predict that eCommerce players will have a bright future given their convenience and wide selection at great prices.
So, without further ado, here are seven eCommerce stocks trading at a steep discount:
- Etsy (NASDAQ:ETSY)
- Wayfair (NYSE:W)
- Carvana (NYSE:CVNA)
- PayPal Holdings (NASDAQ:PYPL)
- Amazon (NASDAQ:AMZN)
- Alibaba Group (NYSE:BABA)
- JD.com (NASDAQ:JD)
Ecommerce Stocks: Etsy (ETSY)
The popular platform for buying and selling handmade items, Etsy had an incredible rise in gross merchandise sales during Covid-19. Like most eCommerce stocks, the fear is that Etsy cannot replicate its success in a post-pandemic world. However, for buyers on the lookout for unique items, Etsy is becoming the preeminent option.
Etsy’s profitability is sky-high, with margins reaching 20% during the first nine months of this year alone. Management deserves a pat on the back for a job well done. To give you an idea of how popular the platform is, we’ll share some statistics on what’s been going down with users lately.
In just Q3 alone, the take rate came in at 17% as active shoppers rose 38% to almost 96 million during the quarter, while active sellers jumped 103%.
The company is having an especially successful year, with revenue growing 18% to $3.1 billion and the value of merchandise sold on their platform increasing by 18%. Advertising was the second-best performing segment, jumping 28% compared to the year-ago period.
With machine learning and other technologies, the company can more effectively target shoppers with relevant advertising. It is a potential gold mine for Etsy as it improves its ad platform and extends what’s learned from here to other marketplaces like Elo7 or Depop.
Looking ahead, Etsy is expected to see 10% year-over-year growth at the midpoint of its fourth-quarter revenue guidance range of $660 million to $690 million. Adjusted EBITDA profit margin is expected to come in at approximately 26%.
During the last holiday season, sales growth came in at a whopping 129%. Although it will be hard to match that number, expectations are to do well. Considering the membership numbers, that is not far from happening.
Wayfair, the eCommerce company that sells furniture and home goods, saw its profits grow by leaps and bounds as consumers began sheltering at home more.
The growing demand for renovation led them to shift advertising towards this sector of sales which helped make Wayfair one of if not “the” go-to site when it comes time for new carpets or window replacement.
Last year, its growth caused its stock price to soar, but it has slowed in recent quarters due to supply chain issues and tough year-ago comparisons. But it can pick up momentum heading into the holiday season.
Wayfair has a selection of products and warehouses that are perfect for handling bulky items. It sets them apart from the competition. And sets them up nicely for a great fourth quarter.
Revenue declined 18% year over year in the third quarter — inventory shortages hurting it badly. Nevertheless, Wayfair’s long-term growth prospects remain promising due to its confidence as an innovative brand.
You also have to factor in reopenings when discussing the results. Consumers are shifting spending towards travel and entertainment when their communities reopen. They are also pulling back on online shopping – preferring to do all of those things in person or go offline.
CEO Niraj Shah, commenting on the results, said, “Demand and interest in the home remain resilient, but it will take a few more quarters for our growth – and eCommerce growth in general – to get back to normal.”
The good thing, though, is that you get to purchase this stock when it has lost a bit of steam. Ecommerce stocks usually trade at a premium, and Wayfair is no different. However, in the last month, shares have been down 25.6%. That means there is an upside to exploit as we head into the Christmas season.
Ecommerce Stocks: Carvana (CVNA)
The demand for used cars has skyrocketed since Covid-19. As people are looking to avoid public transport, they turn towards eCommerce and buy online instead of going in person.
The move to digital is a secular trend. However, the pandemic exacerbated it greatly. Hence, disruptors had a great time, with solid top-line and bottom-line growth.
Carvana’s business model is unique in the auto industry. They’re taking on all of these traditional dealerships by bringing their inventory to customers instead of showing what cars are available at a dealership first-hand like most other companies do today.
With the help of Carvana, users can browse and buy vehicles with complete peace of mind. The app also allows for hassle-free delivery throughout most parts of America. One of the unique aspects about Carvana is that customers can test drive or pick up a vehicle from one of their 28 physical “vending machines.”
Carvana uses machine learning algorithms that monitor used car auctions to keep up with the latest trends in consumer behavior and provide its customers with what they want. This helps them identify hot sellers and thus ensures an inventory of vehicles for sale at any given time.
This year, the company has sold approximately 400 thousand cars. This makes them not only one of America’s largest used vehicle dealers but also second only to CarMax (NYSE:KMX) in terms of sales.
In the fiscal year ended February 28, CarMax sold just over 750,000 used vehicles – 10% less than the year-ago figure. So, while one company is on the ascendency, the other is declining.
However, shares are not trading at a premium despite this impressive performance. Shares have been down 25.9% in the last three months. So, it is the perfect time to purchase this one.
PayPal is the most popular way to get paid digitally. In 2020, the payment provider’s annual volume of transactions reached nearly a trillion dollars.
Apart from its existing business model, there are other things the company is doing very well. The move to allow users to buy and sell select cryptocurrencies will help exponentially grow volumes on the platform.
Crypto-users are now using PayPal’s app in droves, as noted during the company’s third-quarter earnings call. Considering the gains crypto traders made this year, can you blame them?
PayPal is always making some major improvements to its apps. It recently overhauled the PayPal app with new shopping features and announced other upcoming developments, including savings accounts for users. However, the markets are not biting.
The global payment processor missed estimates on third-quarter revenue and slashed its outlook for the current year. If that wasn’t enough, the company said it expects fiscal 2022 to grow almost 18%, equal to approximately $30 billion. That markets were looking for a better number.
“We are seeing the impact of global supply chain shortages in our merchant base, consumer confidence is weakened with the absence of stimulus payments, and with the economy reopening, more people may be likely to do their holiday shopping in-store,” PayPal President and CEO Dan Schulman said on an earnings call.
It took all the steam out of PayPal’s new partnership with Amazon to allow Venmo users the ability to buy on Amazon.com and the Amazon mobile shopping app.
Nevertheless, it’s not often seen PYPL trading at a discount. For value investors, it can not get any better.
Ecommerce Stocks: Amazon (AMZN)
Andy Jassy, Amazon’s CEO, personally oversees this year’s holiday season. In previous quarters, it has never disappointed its customers and investors with blockbuster sales.
So, it will be difficult for them not to do well again this time around-especially considering how many great deals you can find on their site right now.
The eCommerce behemoth took a cautious tone, noting that it was still lapping the tough competition last year. The tech behemoth emphasized slow growth for its eCommerce sales and pointed out this was caused by weakness in customer demand and an unfortunate reopening cadence pattern.
Amazon invests massive resources to ensure that the current supply-chain challenges won’t disrupt its most crucial quarter. To prepare for the overwhelming influx of customer orders, Amazon is making massive investments in its fleet.
They will be expanding by adding more drivers and warehouses along with planes to fly business-critical packages around faster. Amazon is sparing no effort to give it the edge against its competitors this holiday season. The eCommerce giant runs a massive logistics and infrastructure network covering nearly every part of America, ensuring customers receive their goods quickly without delivering or damaging them during transport.
AMZN stock has not had the best year. It is rare for this tech giant to miss a step. Astoundingly, shares have a one-year return of just 6.3%. Meanwhile, EV stocks and SPACs are laughing all the way to the bank. However, an excellent fourth quarter can reverse this momentum.
Alibaba is a Chinese eCommerce company that focuses on making it easy for buyers and sellers of all sorts to connect. Established in 1999, Alibaba currently has more than 1.18 billion active members worldwide.
It is often called the “Amazon of China” and is one of the countries biggest employers.
Due to its ubiquitousness, there is a “too big to fail” aura surrounding the company. However, that image took a battering this year, thanks to regulatory activity in China. In recent years, China’s internet giants have found themselves on the wrong side of regulators, with President Xi Jinping tightening his control over all aspects of economic life.
In a move seen as the beginning of regulators’ efforts to rein in China’s rapidly growing internet industry, local officials fined Alibaba an unprecedented $2.8 billion for suspected anti-competitive practices – making it one of the largest such fines ever imposed by Beijing on any business entity or individual.
The State Administration for Market Regulation is a government agency that can regulate and penalize companies. In this case, they imposed a fine equal to 4% of Alibaba’s domestic sales in 2019 due to their market integrity rules violations.
Compounding problems is a slowdown in the Chinese economy, severely impacting the eCommerce giant’s bottom line. Hence, analysts did not have high expectations going into the quarter.
Alibaba’s core commerce business grew 31% last year, but it missed expectations by a wide margin. Customer management revenue, or CMR, increased just 3% yearly. This was due to slower market conditions and increased competition from different companies around China.
Ecommerce Stocks: JD.com (JD)
JD.com is a Chinese eCommerce company making waves in recent years with its aggressive international expansion and investment into technology, despite being one of the country’s two major B2C online retailers by transaction volume (Alibaba also counts as such). The company’s strong financials are a testament to the hard work and dedication of its management.
Net revenue jumped to 218.7 billion yuan in the third fiscal quarter, surpassing analysts’ expectations of 216.24 billion yuan by a healthy margin.
JD.com’s Logistics revenues were up 43% from last year, which is a strong showing as they strive to make their eCommerce platform even more global in scope and reach with items available around the clock thanks to 24/7 freight shipping services.
Despite the excellent results, the company cautioned higher input costs and sluggish growth would impact results in the second half of the year. The world’s second-largest country economy is recovering from a pandemic that has hurt productivity, but power shortages and supply chain woes have also had some effect.
Hence, it is important to temper your excitement. However, before the holiday season, JD.com is in a prime position to succeed. That makes it a thoroughbred among eCommerce stocks.
On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. You can check out his analysis on InvestorPlace and TipRanks.