E-Commerce: Shopping For Investments

The retail landscape has been shifting from brick-and-mortar to ones-and-zeroes for the best part of the past three decades. Today, online shopping is an integral, ever-growing part of the retail industry, with an increasingly larger percentage of consumers preferring to shop when and where they choose. After Black Friday and Cyber Monday sales volumes reached all-time records despite economic headwinds and an uncertain outlook, it can be established that e-commerce is the future – while it is the present, too.

Commerce Is Efficiently Digitalizing

The advent of the Internet and digital technologies has transformed our methods of working, learning, and communicating, along with altering our shopping habits. Two decades ago, the concept of online shopping was nearly unknown, even in nations with advanced internet infrastructure. However, by now, it has become the favored shopping method for a significant number of consumers.

The swift urbanization worldwide, coupled with rising internet access and mobile device usage for e-commerce platforms, is fueling market growth. This growth is further propelled by the increasing preference for quick, easy, and cost-effective shopping, as well as the influential role of social media on consumer behavior.

For businesses, e-commerce presents the most efficient, economical, and straightforward path to expansion. It allows companies to operate without a physical storefront, significantly reducing infrastructure, communication, and overhead expenses, and also diminishing environmental impacts. Furthermore, the emergence of private-label and direct-to-consumer business models is positively shaping the market’s future. These models enable companies to gather consumer data, offering tailored products and experiences, and enhancing customer satisfaction and engagement.

From “Founding Fathers” To Lockdown Shopping

The beginning of retail online shopping can be traced back to 1995, when Jeff Bezos, from his garage, launched Amazon (AMZN) as an online bookstore. In the same year, the first-ever item sold on an online auction platform was purchased on AuctionWeb, later renamed eBay (EBAY). In 1999, online commerce was immensely helped by PayPal (PYPL), as its electronic payment system allowed consumers to securely shop online.

Since these “founding fathers” of e-commerce started the engines of online shopping, the retail landscape has shifted immensely. E–commerce, together with several generational changes, upended the mall culture, and was expected to overtake brick-and-mortar – but very gradually. However, the Covid-19 pandemic, with its lockdowns and social distancing measures, provided a substantial push to e-commerce activities, multiplying the speed of the expansion of everything digital, including shopping.

In 2021, global e-commerce sales surged by 17% year-on-year after surging over 40% in 2020, at the peak of Covid-19 restrictions. While the pace of growth stabilized after the pandemic subsided, global online sales continue to increase at a healthy pace. Moreover, the pandemic lockdowns have hastened all trends connected to online shopping, such as brick-and-mortar retail shops adding or expanding online sale options, or the expansion of types of online purchases to grocery, furniture, and personal services like fitness or psychology sessions. We have pushed along the existing trend, just much faster than was expected – and things are definitely not changing back.  

The TikTok Generation Shops on Mobile

Today, there are over 26 million e-commerce websites globally; about a third of the world’s population shops online. The accelerating mobile penetration continues to propel e-commerce sales further along, thanks to the proximity and convenience of mobile shopping apps and payments. About 70% of all online purchases globally are made through a mobile device.  

In addition, the younger generations are acceleratingly moving into social commerce, i.e., direct shopping through Meta Platforms’ (META) Facebook and Instagram, through TikTok and other social platforms. In the past several years, social shopping has been growing thrice as fast as the now-traditional online shopping. In 2022, about 30% of consumers reported that they shop based on influencer recommendations seen on social media sites.

Source: Statista

Last year, the U.S. online retail revenues stood at $800 billion; according to estimates, in 2023 this figure will reach almost $1 billion. By 2028, the revenues of online retailers are expected to grow by 70%, reaching $1.5 trillion. This year, approximately 16% of all purchases in the U.S. are made online; this figure is expected to reach 30% within several years. Longer term, as the “digital natives” replace more tradition-leaning generations at the checkout counters, most of these counters will be digital.

As businesses increasingly incorporate cutting-edge technologies into their platforms, those will add to the strong growth factors for e-commerce. Artificial intelligence (AI) shopping assistants, virtual reality (VR) fitting rooms, and instant robo-deliveries are some of the many advancements that will help consumers shop with greater convenience, effectiveness, and pleasure.  

It’s A Buyer’s Market

So, now that we have established that online commerce is a large, fast-growing market, let us look closely at the companies working in this sphere vis-à-vis their investment potential.

Of course, the first name that comes to mind is Amazon, looming large in the U.S. e-commerce landscape, with almost 40% market share in online purchases. eBay, while immensely popular in Europe and many other regions, holds a considerably smaller U.S. market share, with only about 3.5% share among the e-commerce retailers. Another well-known name is Etsy (ETSY), a marketplace for handmade products, which is slowly losing to Amazon and eBay but is still very popular.  

While it’s common for investors to set their sights on large, household names when contemplating an investment, many other companies may provide wonderful investment opportunities.

Some of the best-known e-commerce retailers and their technological enablers, publicly traded on the U.S. exchanges – in addition to those mentioned above – include:

» Shopify (SHOP), a global leader in e-commerce software, provides an e-commerce platform that helps small businesses build an online store and sell online.

» Mercadolibre (MELI), an Argentina-based online commerce platform and payments ecosystem provider.

» Wayfair (W), an e-commerce company selling furniture and home decor goods in the U.S. and globally.

» Sea Limited (SE), a Singapore-based online company that offers digital content, gaming services, and payments, and operates a mobile-centric integrated e-commerce platform Shopee in Asia and internationally.

» Chewy (CHWY), an online-only pet supplies company, sells food, medications, health products, toys, and pet services through its website and mobile app.

» Affirm Holdings (AFRM), which offers a platform for digital and mobile commerce, comprising point-of-sale payment solutions, merchant commerce solutions, and a consumer-focused app.

» Maplebear Inc. (CART), operating as “Instacart,” provides online grocery shopping services to households in North America.

» Global-e Online (GLBE), provides a platform that enables and accelerates global, direct-to-consumer cross-border e-commerce through localization of the shopping experience to make international transactions as seamless as domestic ones.

» Revolve Group (RVLV), an online fashion store for millennials and Gen Z shoppers.

» Solo Brands (DTC), a Direct-To-Consumer platform selling premium outdoor lifestyle brands.

» Alibaba (BABA), a Chinese-founded, U.S.-traded, global e-commerce giant operating AliExpress, as well as several other online retail and B2B platforms.

» PDD Holdings (PDD), another Chinese-founded commerce giant whose shares trade in the U.S., operates several platforms, including the new, fast-growing Temu.com which hopes to compete with AliExpress and Amazon.

» Coupang (CPNG), a South Korean e-commerce company, sells everything from apparel to furniture.

» JD.com Inc. (JD), a Chinese e-commerce and retail infrastructure service provider that specializes in online direct sales of electronics, merchandise, and appliances; it is the largest retailer in China.

Of course, this is just a partial list, which includes only pure-play online shopping providers and enablers. Many of the legacy store chains and retail giants now have a significant chunk of their sales online, with the e-commerce proportion rising from quarter to quarter.

Investors Shop for Online Help

While the e-commerce scene is teeming with companies of all shapes and sizes, choosing those that can persist, grow, and reward their investors with significant gains is not an easy task. The vast number of differences in these companies’ financial and business metrics, as well as their prospects, calls for a thorough analysis, which requires digging into the data, analyzing companies’ finances, industry competitiveness, growth prospects and risks, and more.

Thankfully, at TipRanks, investors can leverage the existing analysis, utilizing research done by Wall Street’s leading analysts, collected and made accessible by TipRanks. TipRanks also has several tools, such as a stock screener, stock comparison tool, technical analysis screener, and others, which can help investors employ the vast amounts of data and research stored in its database, to their benefit.

As another option, investors can buy into one of the retail ETFs, utilizing one of the many TipRanks ETF tools to pick the winning fund:

To conclude, e-commerce companies provide their investors with an opportunity to profit from an accelerating shift to online and mobile shopping. However, it is important to take into account the companies’ finances and prospects to pick the winners that can create long-term value for their shareholders.