The internet has revolutionized global e-commerce, and new AI tools are boosting consumer spending, strengthening the internet sector's growth. More people are using the internet for online activities like social media, streaming, and shopping. This increase in online activity is driving the rise of e-commerce and fueling the digital shopping trend.
As e-commerce capitalizes on these trends, investors could consider buying fundamentally strong e-commerce stocks such as Shopify Inc. (SHOP), MercadoLibre, Inc. (MELI), and Etsy, Inc. (ETSY).
As of 2023, the number of digital buyers is 2.64 billion. In recent years, e-commerce has become an essential part of global retail. The pandemic boosted online shopping, and that habit persisted even after the pandemic ended, fueling e-commerce growth. Now, e-commerce has improved loyalty programs, eco-friendly practices, security measures, and personalized subscriptions, meeting changing consumer preferences.
Smartphones are now the preferred device for online shopping worldwide. At the beginning of 2024, they made up almost 80% of all retail website visits globally. In the first quarter of 2024, adjusted U.S. e-commerce sales increased by 2.1% from the previous quarter, totaling $289.2 billion, with e-commerce accounting for 15.9% of total retail sales.
Furthermore, continued innovations and technology adoptions such as augmented reality (AR) shopping and blockchain for transparency, coupled with advancements in data analytics, security tech, AI tools, and robust data strategies, further boost the prospects of e-commerce. The global e-commerce market is poised to hit $6.3 trillion in 2024, showcasing the sector's rapid growth and potential.
Considering these conducive trends, let’s examine the fundamentals of the above-mentioned e-commerce stocks.
Shopify Inc. (SHOP)
SHOP is a commerce company that provides a commerce platform and services in Canada, the United States, Europe, the Middle East, Africa, the Asia-Pacific, Australia, China, and Latin America. The company's platform enables merchants to display, manage, market, and sell their products through various sales channels and manage products and inventory, process orders, and payments.
Today, Avalara, Inc., a leading provider of cloud-based tax compliance automation, announced an expanded partnership with SHOP. By joining the Shopify Tax Platform, Avalara enables Shopify merchants of all sizes to easily manage and automate their global tax compliance needs.In terms of its trailing-12-month Return on Total Capital, SHOP’s 3.44% is 31.2% higher than the 2.63% industry average. Likewise, its 10.43% trailing-12-month levered FCF margin is 3.4% higher than the 10.09% industry average. Furthermore, the stock’s 0.67x trailing-12-month asset turnover ratio is 9.1% higher than the 0.62x industry average.
For the first quarter ended March 31, 2024, SHOP’s revenues increased 23.4% year-over-year to $1.86 billion. Its non-GAAP gross profit rose 30.4% over the prior-year quarter to $962 million. SHOP’s adjusted net income and adjusted net income per share attributable to shareholders came in at $256 million and $0.20, representing significant year-over-year increases, respectively.
For the quarter ending June 30, 2024, SHOP’s EPS and revenue are expected to increase 45.8% and 18.6% year-over-year to $0.20 and $2.01 billion, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past month, SHOP’s stock has gained 9.4% to close the last trading session at $65.45.
SHOP POWR Ratings reflect this optimistic outlook. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has an A grade for Growth and a B for Sentiment. SHOP is ranked #17 out of 27 stocks in the Internet – Services industry. To access the additional grades of SHOP for Value, Momentum, Stability, and Quality, click here.
MercadoLibre, Inc. (MELI)
Headquartered in Montevideo, Uruguay, MELI operates online commerce platforms in Latin America. It operates in two segments: Mercado Libre Marketplace and Mercado Pago FinTech platform. The company offers an automated online marketplace for buying and selling, as well as a financial technology platform for online transactions and payments.
In terms of the trailing-12-month gross profit margin, MELI’s 56.49% is 53.8% higher than the 36.74% industry average. Its 3.62% trailing-12-month Capex / Sales is 19.9% higher than the 3.02% industry average. Also, the stock’s 5.93% trailing-12-month Return on Total Assets is 40.6% higher than the 4.22% industry average.
During the fiscal first quarter that ended March 31, 2024, MELI’s net revenues and financial income increased 36% year-over-year to $4.33 billion. The company’s gross profit rose 25.4% over the prior-year quarter to $2.02 billion.
For the same quarter, its income from operations stood at $528 million, up 26.3% year-over-year. Also, its net income and EPS rose 71.1% and 70.8% from the year-ago value to $344 million and $6.78, respectively.
Street expects MELI’s EPS for the quarter ending June 30, 2024, to increase 61.2% year-over-year to $8.32. Its revenue for the same quarter is expected to grow 37.6% year-over-year to $4.70 billion. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 27.6% to close the last trading session at $1,599.34.
MELI has a B grade for Growth, Momentum, Sentiment, and Quality. Within the B-rated Internet industry, it is ranked #24 out of 51 stocks. To see MELI’s ratings for Value and Stability, click here.
Etsy, Inc. (ETSY)
ETSY and its subsidiaries operate two-sided online marketplaces that connect buyers and sellers in the United States, the United Kingdom, Germany, Canada, Australia, and France. Its primary marketplace is Etsy.com, which connects artisans and entrepreneurs with various consumers.
In terms of the trailing-12-month net income margin, ETSY’s 10.75% is 126.2% higher than the 4.75% industry average. Likewise, its 13.28% trailing-12-month EBIT margin is 73.1% higher than the 7.67% industry average. Moreover, the stock’s 1.10x trailing-12-month asset turnover ratio is 10.8% higher than the 0.99x industry average.
ETSY’s revenue for the fiscal first quarter that ended March 31, 2024, increased marginally year-over-year to $645.95 million. The company’s services revenue grew 3.2% from the year-ago value to $178.97 million. Its gross profit rose 3% over the prior-year to $458.82 million. In addition, the company’s net income stood at $63 million.
Analysts expect ETSY’s EPS for the quarter ending September 30, 2024, to increase 6.1% year-over-year to $1.14. Its revenue for the quarter ending June 30, 2024, is expected to grow marginally year-over-year to $629.44 million. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past month, the stock has lost marginally to close the last trading session at $61.51.
ETSY has an A grade for Quality and a B for Momentum. It is ranked #35 in the Internet industry. Beyond what we have stated above, we also have given ETSY grades for Growth, Value, Stability, and Sentiment. Get all the ETSY ratings here.
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SHOP shares were trading at $64.82 per share on Thursday afternoon, down $0.65 (-0.99%). Year-to-date, SHOP has declined -16.79%, versus a 14.54% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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