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So here is a very large *disclaimer before I share this article with you, our Start My Car faithful follower, I am by no means a trader or an expert when it comes to trading stock or giving ‘advice’ on where you should spend/invest your money. (Well on your car is never really a bad thing right? )
I am however an avid e-commerce/tech enthusiast and for that reason am constantly reading and researching current trends and noteworthy news.
This week I thought I would share with you an article that found its’s way into my inbox and well, in the unstable world we live in, caught my attention.
“E-commerce stocks were all the rage during the pandemic, but now they are among the most out-of-favor stocks in the whole market. That's spells opportunity.
Certainly, many e-commerce stocks have reported soft fourth-quarter earnings, as the receding pandemic caused people to flock back to brick-and-mortar stores. Yet e-commerce is going to take up more and more retail spending over time. And if you think about it, higher oil prices could actually spur consumers to order more through e-commerce channels rather than driving to a store.
In that light, here are three top e-commerce names that are screaming buys for investors focused on the long term.
Amazon
The Nasdaq fell 3.6% on Monday, and Amazon.com ( AMZN 5.41% ) fell an even greater 5.6%. Yet even on that terrible day, JPMorgan Chase analyst Doug Anmuth named Amazon as his "Top Internet Idea" for 2022.
Why is that? Amazon's stock has been battered recently by slowing e-commerce sales and rising costs, resulting from well-known supply chain problems and labour shortages. However, Anmuth sees both those pressures receding in 2022, saying, "AMZN has caught up on fulfilment capacity after doubling its network since the pandemic began, and we expect AMZN to reap the benefits of its [roughly] 2.5 year investment cycle in 2022."
Anmuth also said e-commerce should continue to grow as a percentage of overall U.S. retail in the years ahead -- perhaps even doubling from 20% or so today to 40% in the future. Remember, vaccines were widely distributed through the first half of 2021, and Amazon's e-commerce growth slowed in the second half of the year. So the company will have much easier comparisons in the second half of 2022. In addition, Amazon has gone on a torrid hiring spree over the past two years, but it will probably slow those investments in capacity and personnel this year.
When you combine that favourable e-commerce setup with an increase in the price of Amazon Prime and torrid growth in Amazon Web Services, Amazon's profits should inflect upward as we go through the year. With the stock down more than 21% of its all-time high and management repurchasing shares for the first time in 10 years, now would be a great time for investors to initiate or add to an Amazon position.
Meta Platforms
Is Meta Platforms ( FB -1.66% ) an e-commerce stock? I'd argue yes. A large portion of its ad revenue comes from small businesses and merchants who take advantage of Meta's targeted advertising capabilities and vast reach. In fact, management mentioned on the recent call with analysts that recent underwhelming results were a result of moderation in e-commerce activities. That, combined with IDFA changes to the iOS operating system, which hurt Meta's targeting capabilities, is largely why the company gave underwhelming guidance and why the stock is down now more than 50% from all-time highs.
But Facebook is also rolling out more innovative e-commerce tools for small merchants to sell directly through Facebook and Instagram. In May of 2020, the company introduced Shops, which help small businesses set up a quick and easy online store across its platforms, and through which customers can ask questions and communicate through messaging or WhatsApp. COO Sheryl Sandberg noted increased engagement with new features such as Live Shopping, in which small businesses can promote products through a live Instagram event, not unlike a "Home Shopping Network" type of experience on Instagram. And Meta just purchased Kustomer, a customer relationship management software startup that helps businesses communicate with customers through a variety of online channels, including WhatsApp and Instagram. So Meta is clearly looking to integrate its social platforms more and more with e-commerce.
The stock's sell-off seems far overdone, and it's incredibly cheap at just 13.6 times trailing earnings. Keep in mind, that low P/E multiple may actually be overstated, since Facebook is spending multiple billions on its Metaverse venture with no immediate payoff, and the company also had an extra $48 billion in cash at the end of last quarter -- nearly 10% of its market cap. When you take out the cash and add back Metaverse losses, the core business is trading even cheaper than that.
It's rare to get a chance to buy a business-like Meta at this kind of multiple, which basically discounts no value from the Metaverse initiative and continued struggles in the core business. I believe Meta's innovative team can improve its targeting capabilities over time in spite of the IDFA rule changes, and that its newer commerce tools will bear fruit. It's a strong buy at these levels.
Sea Limited
Finally, Southeast Asian giant Sea Limited ( SE -0.05% ) is down a stunning 75% from all-time highs set back in November. But over time, I'd expect the stock to slowly but surely get back to those levels.
Sea has three separate businesses: its Garena mobile gaming division, its Shopee e-commerce platform, and its SeaMoney fintech business that is closely tied to Shopee. The recent sell-off has partly to do with concerns over inflation and higher interest rates, which have hurt loss-making businesses like Sea. Another part had to do with Sea's underwhelming guidance this year for Garena, which is predicted to decline after several years of torrid growth.
However, Sea also predicted very strong growth for Shopee, which it guided for 76% growth this year on top of 136% growth last year. SeaMoney's growth looks even better, with management projecting 155% growth after 673% growth in 2021. Management also projects Shopee to become profitable on an EBITDA basis (earnings before interest, taxes, depreciation and amortization) this year in the core markets of Southeast Asia, although newer high-growth Latin American markets will still generate losses. Management also said SeaMoney should become profitable by next year, and both companies should become self-sustaining by 2025, even including capital expenditures. With over $10 billion in cash on its balance sheet, Sea is under no pressure to generate immediate profits, which means it can freely invest to capitalize on both Shopee's and SeaMoney's large growth opportunities.
I wouldn't count out Garena and its star game Free Fire. Although management projects bookings to fall from $4.6 billion last year to $3 billion this year, there was bound to be some hangover as the pandemic receded. Garena should still generate over $1.5 billion in operating profits even at those lower bookings figure as well. Furthermore, Sea's management has a history of guiding conservatively, and it has a decade-long track record of growing its gaming business, which was the company's original business. Free Fire was also recently banned in India because of the country's ban on Chinese games, but that could reverse, since Sea is a Singapore-based company and not Chinese.
Investors should relish this opportunity to buy this high-growth company at this bargain-basement price of less than four times 2022 projected sales.” (source – The Motley Fool)
Now, I am not running to my broker to invest in the above stocks, but I did find it very inciteful how these giants of our e-commerce world will continue to grow, post the slowing of Covid’s impact and how e-commerce will still add value to the way almost every person on this planet lives.
One thing I can advise however, is to pop into our online garage and pick up a few of this week’s top sellers.
Stay Safe, Stay Connected.
