E-commerce stocks won big during the pandemic due to forced closures of public places, like brick-and-mortar stores, but as physical retail shops reopened, the exodus out of e-commerce names has been dramatic. Surging inflation has presented a set of concerns around consumer spending habits that has investors spooked, leaving some of these once-coveted names down 70% plus from their highs.
Considering recent data, the sell-off could be overdone. Studies are showing that many who began shopping online out of necessity during shelter-in-place are continuing to do so. According to eMarketer, e-commerce sales will exceed $5.5 trillion worldwide in 2022 and account for 21% of all retail sales.
The industry clearly has substantial growth potential moving forward, making right now a good time to start considering some of these battered names. After close examination, our team has spotted a few tickers that stand out from the rest. In this list, we’ll explore a few of the most attractive e-commerce names right now, including one under-the-radar name with enthralling 2022 prospects.
Israel-based, direct-to-consumer e-commerce platform provider Global-E Online (GLBE) has been getting attention since it blew past consensus estimates during its recent Q4 earnings call. The company reported $83 million in revenue for the fourth quarter, an astonishing year-over-year increase of 54%. Going by the strong guidance that management provided during the call, this is just the beginning.
One reason GLBE has been able to keep up such solid growth in Q4 is that since most of its revenue comes from Europe, the company has been minimally impacted by U.S. economic turmoil. GLBE’s low level of exposure to the U.S. means it’s been somewhat shielded from concerns around how surging inflation is impacting American spending habits. It also means plenty of untapped market.
Less than 25% of GLBE’s $245 million in 2021 revenue was from the U.S. But with American businesses rapidly adopting its services, the company saw more than 100% growth year-over-year in the United States. The U.S. is a major market opportunity for GLBE to expand into. Meanwhile, Global-E is also making pushes into other countries. The company has been making efforts to expand into Australia — where it already has its first merchant — and Japan. Plus, its recently announced partnership with Shopify also opens Global-E’s services to merchants from 175 different countries. As the company expands internationally and in the U.S., growth could be substantial. The company is backing up this idea with guidance for almost 70% revenue growth for the full-year 2022.
The online marketplace for crafts and handmade goods, Etsy (ETSY), saw its business soar during the pandemic. However, due to concerns about slowing growth and stretched valuation amid the broader market sell-off, the stock is now down 50% from its November peak.
Revenue soared to $617 million in Q4 2020, increasing 129% year-over-year. While growth has slowed over the past three quarters as the company laps the blowout pandemic performance, demand for one-of-a-kind and vintage items is up. Plus, ETSY’s loyal customers are spending more and shopping more often. Sales per buyer jumped from $39 in the third quarter of 2020 to $47 in the third quarter of 2021, setting the stage for the holiday season. ETSY investors are eager for Q4 results, slated for Feb 24th.
The number of buyers and sellers on Etsy, the fourth largest e-commerce site by customer visits, surged during the pandemic. Due to impressive customer retention, the number of active Etsy users has nearly tripled over the past two years. At present, Etsy connects more than 7.5 million active sellers with 96 million active buyers on the unique platform.
For both buyers and sellers, there isn’t a similar marketplace offering the vast customer base or the breadth of unique products that Etsy has. In a survey of customers who use Etsy’s platform, 88% said the company offers items not found elsewhere. Customization is also a strong competitive edge as it allows buyers to search for or create something extra special. According to the company, searches for personalized items are about 20% more likely to result in a purchase decision.
Growth has been tremendous, placing Etsy in an excellent financial situation. During the past 12 months, it had a 73.3% gross margin and a 23.3% operating margin, both of which have improved remarkably over the years. The business also generated $583 million in free cash flow (on revenue of $2.2 billion) during the trailing-12-month period.
KeyBanc analyst Ed Yruma recently upgraded Etsy to Overweight with a $200 price target. The analyst said the company has some of the most compelling long-term secular growth opportunities in his coverage and that management set guidance reasonably for Q4. Adding that, his firm’s Key First Look Data has pointed to stable to improving quarter-over-quarter trends.
Of the 27 analysts offering recommendations for ETSY stock, 20 rate the stock a Buy, 6 call it a Hold, and only one says to Sell ETSY. A median price target of $245 implies a 67% upside for the stock.
Last on the list, we have a great set it and forget it solution for anyone looking for exposure to e-commerce while cutting back on some of the risk associated with investing in a single company. The ProShares Online Retail ETF (ONLN) tracks an index of global companies that mainly sell online or through other non-store sales channels, such as mobile or app purchases, and excludes online travel companies. ONLN has $581 million in assets under management and holds 39 stocks. It is heavily concentrated, with Amazon (AMZN) making up 25% of the portfolio and Alibaba Group Holding Ltd. (BABA) the second-largest holding at 13.6%. The third-largest holding is eBay Inc. (EBAY), at 4.5%.
The fund is reasonably priced, with a 0.58% expense ratio, and comes along with a 1% yield. So far this year, the fund is down 17%.
Should you invest in ETSY right now?
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But you have to act now, because a catalyst coming in a few weeks is set to take this company mainstream... And by then, it could be too late.
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