In this article, we will look at the 10 Best Internet Retail Stocks to Buy Now.
What’s Happening In The Internet Retail Sector?
According to a report published by FTI Consulting, the United States e-commerce is experiencing a revival after a period of stagnation post-COVID. After 18 months of slow growth, e-commerce sales began to pick up again in early 2023 as consumers resumed shopping habits that had been altered during the pandemic. The report notes that e-commerce sales growth represented 46% of total retail sales growth in 2023 and surged to 57% in the first quarter of 2024, marking its highest contribution since 2017, excluding pandemic spikes.
Consumers have adopted the trend of shopping online as despite the reopening of physical stores, many consumers continue to prefer online shopping. The report indicates that foot traffic in stores remains lower than pre-pandemic levels, with many Americans choosing to shop online rather than visit physical locations. This shift suggests a long-term change in consumer behavior, as evidenced by ongoing declines in in-store visits and increased e-commerce market share.
Talking about the pandemic era from 2020 to 2022 total retail sales in the United States (excluding auto and gas) increased by 31%, compared to only 12.2% from 2017 to 2019. The report suggests this translates to an additional $1.9 trillion in retail spending above pre-COVID norms. This increased spending benefited the e-commerce segment as it was able to capture 87% of the increase in total retail spending during the height of the pandemic lockdowns.
Looking forward, the United States’ e-commerce sales are projected to grow at a sustainable rate of high to mid-single digits annually. This is a significant slowdown from the mid-teens growth rates seen before COVID but still sufficient for continued market share gains against traditional retail channels.
Moreover, the report also highlighted that newcomers including Temu, Shein, and TikTok Shop are entering the US e-commerce market. These newcomers are disrupting the established players through a strategy of becoming low-cost retailers. For instance, Temu achieved $14 billion in global gross merchandise value (GMV) sales in 2023 and is targeting $30 billion for 2024. On the other hand, Shein captured 40% of the fast fashion market domestically and had an estimated global GMV of $42 billion in 2023. Moreover, TikTok Shop was launched in 2023 and is aiming for $50 billion in global e-commerce sales by 2024.
The report suggests that while these platforms may attract budget-conscious consumers, they may not significantly threaten established e-commerce giant’s dominance due to perceived differences in product quality and brand positioning.
Looking ahead as per FTI Consulting the US online retail sales are expected to hit $1.2 trillion in 2024 translating to a 9.8% increase year-over-year. Moreover, the e-commerce market share is also expected to increase from 21.6% in 2023 to 22.7% by the end of the current year.
Moreover, some of the key trends identified by the reports are a sharp increase in the closing of physical retail stores due to increased labor costs, rents, and the feasibility of selling online. In addition to this, another key trend is the use of artificial intelligence among internet retailers, which helps engage with customers more closely and enables a personalized shopping experience.
We have also covered the 7 Best E-commerce Stocks To Buy According to Hedge Funds. Here’s an excerpt from the article:
“E-commerce is growing faster than expected and as new avenues of selling online open up, companies are bound to keep up with trends and innovative strategies. According to a report by Forbes, the e-commerce industry is expected to grow to a valuation of $7.9 trillion by 2027 from $6.3 trillion in 2024. In 2027, 23% of retail purchases are expected to be made online, up from 20.1% in 2024.
In the United States, low-income households, with a yearly income of $50,000 or less, happened to spend the most on online spending compared to other groups. On October 17, Reuters reported that retail sales in September increased, as gas prices fell, allowing consumers to spend elsewhere. Overall, the average consumer in the United States spent mostly on clothing, health and personal care stores, and miscellaneous items. Amid rising consumer confidence and spending, the Atlanta Fed raised its GDP estimates for Q3 to 3.4%, up from a previous guidance of 3.2%. Overall, retail sales grew by 0.4% last month.”
A customer selecting the perfect item on an Internet shopping platforms with a mobile device in hand.
Our Methodology
To compile the list of 10 best internet retail stocks to buy now we used the Finviz stock screener. Using the screener, we shortlisted the internet retail stocks by their market capitalization. Next we used Insider Monkey’s Q2 2024 hedge funds database to rank the stocks by the number of hedge fund holders. Please note that the stocks are arranged in ascending order of the number of hedge funds.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Best Internet Retail Stocks to Buy Now
10. eBay Inc. (NASDAQ:EBAY)
Number of Hedge Fund Holders: 38
eBay Inc. (NASDAQ:EBAY) is a global e-commerce company that runs an online marketplace offering a range of products. It is also one of the best internet retail stocks to buy now and was held by 38 hedge funds in Q2 2024 as per Insider Monkey’s database.
Being one of the pioneers in the industry and having a global reach in more than 200 countries puts the company at a competitive edge over its competitors. eBay Inc. (NASDAQ:EBAY) operates as a mediator platform allowing sellers to list and sell their items in multiple ways while allowing them various advertisement options to promote their listings.
The company has been focused on improving its advertisement revenue and its payment management system. These initiatives are aimed at improving the overall Gross Merchandising Volume (GMV) i.e. the total value of goods sold. While the management has invested in making its managed payments simpler it has also incorporated artificial intelligence to predict user needs, with initiatives including Magical Listing Tool and Personalized Recommendations.
The third quarter of fiscal 2024 came in with a revenue growth of 4% year-over-year to reach $2.6 billion. The growth was on the back of sales efforts and a strong performance in the advertisement segment. Advertisement revenue for the company showed a 15% growth year-over-year to $396 million.
Moreover, during the quarter eBay Inc. (NASDAQ:EBAY) released its AI-powered bulk listing tool to Sports Trading Cards sellers in the United States, enabling sellers to make the processes of listings faster and easier. Management also released the second generation of its Large Language Model (LLM) to its engineers. LiLiuM is a proprietary model that does company-specific tasks including description generation, title creation, aspect extraction, and pricing predictions.
Looking ahead, management expects revenue for the fourth quarter to be around $2.53 billion to $2.59 billion.
9. Wayfair Inc. (NYSE:W)
Number of Hedge Fund Holders: 46
Wayfair Inc. (NYSE:W) is an international online retailer specializing in home goods and furniture, offering a vast selection of products through its e-commerce platform. The company operates a comprehensive online marketplace where customers can browse and purchase a wide variety of home products, including furniture, home decor, home improvement, and outdoor furniture.
The company primarily generates revenue through product sales, where it profits by purchasing products in bulk from suppliers and selling them at a markup. The company also generates revenue by offering services such as shipping and installation. Moreover, it offers advertising services to its suppliers for premium placement of their products on the company’s platform.
The holistic slowdown of the housing sector has created a challenging macro environment for Wayfair Inc. (NYSE:W). As a result of this tight market condition, the total revenue of the company fell by 2% year-over-year to $2.9 billion during the third quarter of fiscal 2024. While the United States revenue was down 2.3% year-over-year, the international revenue of $372 million remained constant.
Moreover, the slowdown in the market resulted in the total active customers of the company falling to $21.7 million, a decrease of 2.7% year-over-year. On the bright side, the Last Twelve Months’ revenue per active customer increased by 1.3% during the same time indicating that its existing customers were placing more orders and these orders were higher-value items.
The CEO, Niraj Shah, highlighted that in the third quarter, the company has remained resilient during tough conditions maintaining its customers. Shah also noted that the company has implemented strict cost discipline, which has allowed the company to achieve a mid-single-digit Adjusted EBITDA margin for two consecutive quarters.
You can read more about the housing market crisis and how it is affecting the furniture industry in 7 Best Furniture Stocks To Invest In According to Analysts. Wayfair Inc. (NYSE:W) ranks as the 9th best internet retail stock to buy now as it was held by 46 hedge funds in Q2 2024, as per Insider Monkey’s database.
White Brook Capital Partners stated the following regarding Wayfair Inc. (NYSE:W) in its Q3 2024 investor letter:
“During the quarter, White Brook Capital sold its position in PetIQ near the takeout price and reinvested proceeds in three new investments: Wayfair Inc. (NYSE:W), Okta, Inc (OKTA), and Krispy Kreme, Inc (DNUT). Wayfair adds to White Brook’s thesis in a housing recovery backed by a still healthy US consumer. There is a perceived risk in the event of a Trump election that Wayfair’s business model is endangered should Trump erect very high tariffs. White Brook believes that risk is overblown, that the business will thrive regardless of the extent of tariffs, and that the company is well positioned to generate significant free cash flow in the near and long term.”
8. Maplebear Inc. (NASDAQ:CART)
Number of Hedge Fund Holders: 56
Maplebear Inc. (NASDAQ:CART) operates as a grocery technology company that connects consumers with local grocery stores through an online platform. It facilitates online grocery shopping by allowing customers to order groceries from various retailers via its app or website. Their services include same-day deliveries and curbside pickup.
It generates revenue from multiple streams including delivery fees, service fees, commission from retailers, advertising revenue, and subscription revenue from Instacart Express, providing benefits like unlimited free deliveries on orders over a certain amount for an annual or monthly fee.
Maplebear Inc. (NASDAQ:CART) is one of the best internet retail stocks to buy now. It was held by 56 hedge funds in Q2 2024, as per Insider Monkey’s database. The company delivered robust financial performance during the second quarter of fiscal 2024. It reached a Gross Total Volume (GTV) of $8.2 billion, up 10% year-over-year and above the high end of the company’s guidance. The increase in GTV was attributed to a strong order volume, up 7% year-over-year, and a high average order value of $116, which was also up 3% year-over-year.
The robust order volume and gross total volumes led the total revenue of the company for the quarter to $823 million indicating a 15% growth year-over-year. Management believes the strategic edge of the company comes from its ability to reach a huge audience. In its second-quarter shareholder letter, management revealed that approximately 25 million people used its services over the past year. For the third quarter of fiscal 2024, the management of Maplebear Inc. (NASDAQ:CART) expects GTV of $8.1 billion to $8.25 billion.
7. JD.com, Inc. (NASDAQ:JD)
Number of Hedge Fund Holders: 59
JD.com, Inc. (NASDAQ:JD) is a leading e-commerce company primarily focused on online retail and marketplace operations in China. It operates through four main platforms including JD Retail, JD Logistics, and New Businesses.
JD Retail is the largest segment, accounting for nearly 90% of the company’s net revenue, and focuses on direct online retail and marketplace services across a wide range of products. On the other hand, the JD Logistics segment has developed a comprehensive infrastructure, including warehouses and delivery networks, which enhances the efficiency of product delivery.
The company like any other e-commerce company generates its revenue from direct sales, marketplace commission, logistics services, and other value-added services. The competitive edge of JD.com, Inc. (NASDAQ:JD) lies in its ability to drive strong revenue growth. As per the company’s statistics, the company has grown its net revenue at a compound annual growth rate of 19% from 2018 to 2023.
Moreover, during the second quarter of fiscal 2024, the company crossed $4 billion in revenue. Its second-quarter revenue came in at 291.4 billion RMB, which is approximately $4.1 billion. During the quarter the revenue grew by 1.2% year-over-year, driven by a robust performance in the logistics segment, which improved 8% during the same time.
Management has expanded its reach outside China as well. On November 1st the company announced expanding its services to Malaysia and Thailand. This move is expected to improve the sales for the retail segment which is the major segment of the company but only grew 1% year-over-year during the second quarter.
JD.com, Inc. (NASDAQ:JD) is one of the best internet retail stocks to buy now and was held by 59 hedge funds in Q2 2024, as per Insider Monkey’s database.
Ariel Global Fund stated the following regarding JD.com, Inc. (NASDAQ:JD) in its first quarter 2024 investor letter:
“We initiated a position in China-based technology-driven E-commerce company, JD.com, Inc. (NASDAQ:JD). The brand has long been known across the region as a superior online shopping channel due to its unique first-party model and unparalleled fulfillment service underpinned by JD Logistics. Yet, a challenging macro environment drove shares lower as shoppers began seeking bargains. In response, the company made significant investments in elevating its third-party merchant platform to enhance its variety of product offerings and price competitiveness for consumers. We believe these actions will yield an improved product mix, stronger top-line growth and margin expansion on a go-forward basis.”
6. Coupang, Inc. (NYSE:CPNG)
Number of Hedge Fund Holders: 62
Coupang, Inc. (NYSE:CPNG) is a leading e-commerce company based in South Korea, often referred to as the “Amazon of South Korea”. It operates primarily in the Korean retail market, providing a wide range of products and services through its mobile applications and websites.
The company mainly operates through two main business segments including Product Commerce and Developing Offerings. The Product Commerce includes core retail offerings, which encompass owned inventory and marketplace sales, as well as Rocket Fresh, which is its fresh grocery delivery service. This segment also generates revenue from advertising. On the other hand, Developing Offerings focuses on newer services such as Coupang Eats (restaurant ordering and delivery), Coupang Play (content streaming), fintech services, and retail operations in Taiwan.
Coupang, Inc. (NYSE:CPNG) on November 5th released its third-quarter results for fiscal 2024. During the quarter net revenue of the company improved 27% year-over-year to reach $7.9 billion and gross profits grew 45% during the same time to $2.3 billion. Revenue growth was led by robust growth across the board. The Product Commerce Segment saw 11% growth in active customers, thereby resulting in a 16% year-over-year increase in segment revenue.
More impressively Developing Offerings segment net revenues were $975 million, up 347% year-over-year. Management believes that this momentum of growth will continue throughout the year. Coupang, Inc. (NYSE:CPNG) is one of the best internet stocks to buy now and was held by 62 hedge funds in Q2 2024, as per Insider Monkey’s database.
Baron Fifth Avenue Growth Fund stated the following regarding Coupang, Inc. (NYSE:CPNG) in its first quarter 2024 investor letter:
“We also added to our position in the Korean e-commerce platform, Coupang, Inc. (NYSE:CPNG), as the company continues to execute at a high level, reporting strong financial results, with accelerating revenue growth – revenues were up 20% year-over-year in constant currency in the fourth quarter, 29% excluding the impact from Coupang’s Fulfillment and Logistics accounting change, driven by growth in its number of customers count (up 16% year-over-year), growth of its loyalty Wow members (up 27% year-over-year) and growth in spending by existing cohorts (with every cohort, including those who have used the platform for a long time, growing at least 15% year-over-year), which suggests continued wallet share gains for the company. While Coupang continues to gain market share, its attractive unit economics are beginning to appear in results, with adjusted EBITDA margins of its commerce segment reaching 7.1% in the fourth quarter (up 190bps year-over-year). Coupang is utilizing the growing profits from commerce to invest in emerging offerings such as Fulfillment and Logistics by Coupang (FLC), expansion into Taiwan (with revenues up 2 times in the last six months) and Coupang Eats, its food delivery network, which saw order volume increase by 2 times as well in the last nine months. In the last week or so, Coupang also announced a material 58% Wow membership price hike, which should flow through nicely to the bottom line, sending the stock higher by close to 20%.”
5. Sea Limited (NYSE:SE)
Number of Hedge Fund Holders: 63
Sea Limited (NYSE:SE) operates a multifaceted business model that leverages the synergies between e-commerce, digital financial services, and digital entertainment. These three business segments of the company are represented by its main platforms including Shopee, SeaMoney, and Garena.
Before diving into the financial performance of Sea Limited (NYSE:SE) it is important to understand each segment. Shopee is the e-commerce platform of the company that facilitates online shopping, providing a platform for both consumers and sellers. It integrates payment systems and logistics to enhance user experience. Whereas, SeaMoney, the digital financial services wing of the company offers various financial services, including digital payments, loans, and insurance products. It operates services like ShopeePay and SeaBank.
Lastly, Garena, which is a digital entertainment platform, is known for developing and publishing online games, with its flagship game being Free Fire, which has gained immense popularity globally.
The second quarter of fiscal 2024 showed that the company grew its total GAAP revenue by 23% year-over-year to reach $3.8 billion. Revenue growth was on the back of exceptional performance in its e-commerce and digital financial services segments. The e-commerce segment revenue grew 40.3% year-over-year, whereas the digital financial services revenue was up 21.4% during the same time.
The digital entertainment segment was also a success story as gross bookings for the segment improved by 21% year-over-year to reach $537 million.
What’s more impressive is Sea Limited’s (NYSE:SE) gross profit, which grew 9.2% during the same time to reach $1.6 billion. Looking ahead, management believes that it will become an adjusted EBITDA-positive company in Q3 and has also improved its Shopee full-year guidance to mid-20% growth. Sea Limited (NYSE:SE) is one of the best internet retail stocks to buy now.
Artisan Developing World Fund stated the following regarding Sea Limited (NYSE:SE) in its Q3 2024 investor letter:
“Top contributors to performance for the quarter included Southeast Asian e-commerce leader Sea Limited (NYSE:SE). Sea rose due to an improved competitive environment in its Shopee e-commerce business that set the stage for commission increases, while a positive inflection in its gaming business surprised market participants.”
4. MercadoLibre, Inc. (NASDAQ:MELI)
Number of Hedge Fund Holders: 84
MercadoLibre, Inc. (NASDAQ:MELI) is a leading e-commerce platform in Latin America, which originated in Argentina and is now based in Uruguay. It operates across 18 countries, providing a wide range of services designed to facilitate online buying and selling.
The company provides various services operating through two main business segments, e-commerce and Fintech.
The range of services provided by the company within its e-commerce segment includes a marketplace platform, where users can buy and sell products across various categories, and classifieds, allowing users to post and search for various listings, and Mercado Ads, an advertising platform enabling sellers to promote their products through targeted advertisements.
On the other hand, the Fintech segment provides digital payment services and credit (loan) services for buyers and sellers based on their transaction history.
MercadoLibre, Inc. (NASDAQ:MELI) released its third quarter results for fiscal 2024 on November 6th indicating a robust financial performance. The company delivered $5.3 billion net revenue up 35% year-over-year and a net income of $397 million with a 7.5% margin. Management attributed revenue and net income growth to solid improvement in unique buyers and monthly active users (MAU).
Unique buyers for its commerce segment grew 21% year-over-year across the region reaching 61 million. On the other hand monthly active users for the quarter grew 35% year-over-year to 56 million. It is one of the best internet retail stocks to buy now and was held by 84 hedge funds in Q2 2024, as per Insider Monkey’s database.
Artisan Developing World Fund stated the following regarding MercadoLibre, Inc. (NASDAQ:MELI) in its Q3 2024 investor letter:
“Top contributors to performance for the quarter included Latin American marketplace MercadoLibre, Inc. (NASDAQ:MELI). MercadoLibre reported an impressive acceleration in gross merchandise value (GMV) growth in its core Brazilian market, while acceleration in credit card lending and development of its digital advertising capabilities continued.”
3. PDD Holdings Inc. (NASDAQ:PDD)
Number of Hedge Fund Holders: 86
PDD Holdings Inc. (NASDAQ:PDD) is another leading e-commerce company that ranks as the 3rd best internet retail stock to buy now. It is renowned for its marketplace platforms called Pinduoduo and Temu. The company has developed a network of sellers, logistics, and other capabilities in just a decade since its establishment and is now competing with other e-commerce giants in the industry.
The competitive edge of the company comes from its business models that encompasses focusing on small and medium businesses. This model makes the product listings of the company to be comparatively cheaper than its competitors thereby attracting more customers. In the second quarter of fiscal 2024, management announced that it has reached more than 167 million monthly active customers and that around 50 million customers are based in the United States.
The company has been doing well financially. PDD Holdings Inc. (NASDAQ:PDD) second quarter of fiscal 2024 revenue came in at $13.74 billion indicating an 86% growth year-over-year. The company has also developed an efficient operating model which enabled it to improve its operating profit by 156% year-over-year. The stock was held by 86 hedge funds in Q2 2024 as per Insider Monkey’s database.
Hayden Capital stated the following regarding PDD Holdings Inc. (NASDAQ:PDD) in its Q2 2024 investor letter:
“PDD Holdings Inc. (NASDAQ:PDD): A few weeks ago, Latepost (a leading Chinese technology news outlet) confirmed Pinduoduo’s online grocery initiative is solidly profitable (LINK). According to the article, Duoduo Grocery is able to achieve ~5% net profit margins in competitive markets (where they go up against Meituan Select). In non-competitive markets, they can achieve ~10 – 15% net margins.
The company doesn’t disclose the exact scale of Duoduo Grocery, but our calculations indicate it’s likely around ~RMB 300BN this year, and still growing in the double-digits. At that level, the division is likely contributing ~US $2.5BN in annual profits.
It’s an impressive result, but admittedly, not a huge needle-mover in light of the total $17.6BN net profits the company is expected to make this year (~14% of overall profits)…” (Click here to read the full text)
2. Alibaba Group Holding Limited (NYSE:BABA)
Number of Hedge Fund Holders: 91
Alibaba Group Holding Limited (NYSE:BABA) is a leading Chinese multinational conglomerate primarily known for its operations in the internet retail industry. The company provides a wide range of technology infrastructure and marketing platforms that facilitate online commerce.
It operates through seven main segments, each catering to different aspects of e-commerce and technology. For instance, the China Commerce segment includes major platforms like Taobao, Tmall, and Freshippo, whereas the International Commerce segment includes platforms like AliExpress and Lazada, targeting international retail and wholesale markets. The company has operations in cloud computing as well where it offers various cloud services, including data storage and computing power, catering to businesses of all sizes.
Alibaba Group Holding Limited’s (NYSE:BABA) international digital commerce segment is leading the company in revenue. During its first quarter results for fiscal 2025 (June Quarter), the segment revenue increased 32% year-over-year to reach approximately $4.12 billion. The strong performance of the segment was led by cross-border business growth, particularly by Choice business on AliExpress. Choice Business is a hybrid e-commerce model introduced by AliExpress to enhance the shopping experience for consumers and streamline operations for merchants. During the quarter AliExpress and Trendyol platforms stepped up investments in initiatives to increase mindshare in select markets in Europe and the Gulf region.
The company is not only a pioneer when it comes to e-commerce but holds a 42% market share in the Chinese e-commerce industry, as per DBS Bank. It ranks 2nd on our list of best internet retail stocks to buy now and was held by 91 hedge funds in Q2 2024 as per Insider Monkey’s database.
Patient Capital Management stated the following regarding Alibaba Group Holding Limited (NYSE:BABA) in its Q3 2024 investor letter:
“Alibaba Group Holding Limited (NYSE:BABA) experienced a massive rebound gaining +47% in the quarter following the announced stimulus program from the Chinese government. As the unexpectedly strong government support was announced, shorts were reversed and any name exposed to China was off to the races. We have long liked Alibaba as the company has continued to trade at a significant discount to its sum-of-the-parts valuation. With most investors writing off Chinese companies entirely, you had an opportunity to invest in a high-quality business at rock bottom prices. Over that time, the company initiated both a dividend (0.9% Yield) and buyback program, repurchasing 9% of shares outstanding over the last twelve months. Despite the strong move in the quarter, the company trades at just 12.4x next-year’s earnings. We see potential for continued multiple expansion as the Chinese economy rebounds and the country becomes investable again.”
1. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 308
Amazon.com, Inc. (NASDAQ:AMZN) is a multifaceted company primarily known for its extensive operations in the internet retail industry. It started as an online bookstore but has evolved into the largest online retailer globally, offering a vast array of products. This includes clothing, electronics, groceries, furniture, and much more.
The company focuses heavily on providing a convenient shopping experience. This includes personalized recommendations based on user behavior, competitive pricing, and fast shipping options like same-day or next-day delivery. Beyond retail, Amazon.com, Inc. (NASDAQ:AMZN) operates AWS, which provides cloud computing services to businesses of all sizes. This includes data storage, computing power, and machine learning capabilities.
The third quarter of fiscal 2024 ended with net sales up 11% year-over-year at $158.9 billion. Sales growth was most prominent in the AWS segment which grew 19% year-over-year followed by International segment sales growing 12% during the same time.
What’s more impressive about Amazon.com, Inc. (NASDAQ:AMZN) is its free cash flow generation capabilities. The company generated $47.7 billion in free cash flow on a trailing twelve-month basis ending September 30, 2024. During the third quarter, the free cash flow grew 123% year-over-year.
Apart from lucrative cash flow generating capabilities one of the competitive edge that the company holds is its progress with artificial intelligence. During its third-quarter earnings call, management announced the launch of several new AI features including Rufus, an AI shopping assistant, AI Shopping Guides, and Project Amelia, an AI assistant for sellers.
Amazon.com, Inc. (NASDAQ:AMZN) is the best internet retail stock to buy now and was held by 308 hedge funds in Q2 2024 as per Insider Monkey’s database.
Alphyn Capital Management stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q3 2024 investor letter:
“Amazon.com, Inc.’s (NASDAQ:AMZN) continued growth is driven by its strong performance in AWS and advertising, which grew 19% and 20%, respectively. E-commerce growth moderated to 9.3%, likely due to softer consumer demand.
In previous letters, I mentioned how Amazon’s heavy investments in logistics and fulfillment suppressed margins for some time, but the company is now reaping the rewards of those earlier expenditures. European operations have been profitable for the second consecutive quarter, while North American operating margins have risen from pandemic lows to 5.3%. A key ongoing area of focus for Amazon has been reducing the “cost to serve”; this is beginning to show tangible benefits. In 2023, Amazon undertook a “regionalization” strategy, which divided the U.S. into eight distinct regions for fulfillment and transportation, with corresponding distribution centers in each. As I learned from an expert interview done by InPractise, “regionalization” has resulted in estimated shipping expenses dropping from $4.76 per unit to $4.50, and they are now approximately $4.26, with potential reductions of 2-3% annually. Interestingly, Amazon leaned on its third-party vendors (3P) to finance much of this strategy. It did so by requiring 3P vendors ship inventory to the multiple regional distribution centers, instead of to a single location as they used to do. Moreover, Amazon imposed penalties for failing to meet strict minimum and maximum quantities. In this way, Amazon used 3P inventory to expand its distribution capacity by around 24 million square feet, much of which it could use for its own 1P inventory. Clever strategy, but one wonders if this raises the risk of an eventual vendor backlash due to the added financial and logistical pressures on 3P sellers.
Like Alphabet, Amazon is investing heavily in its AWS infrastructure to support its growing AI business. In the first half of the year, the company spent $30.5 billion on capital expenditures, with plans to exceed that in the year’s second half. When questioned about this during the earnings call, CEO Andy Jassy emphasized that they are seeing significant demand for AI-related services, which he believes will become a “very large” business for Amazon.”
While we acknowledge the potential of Amazon.com, Inc. (NASDAQ:AMZN) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for a promising AI stock that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
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