Below we presented the list of 5 best e-commerce stocks to buy now. For our detailed discussion as well as a more comprehensive list please see 15 Best E-Commerce Stocks To Buy Now.
5. Shopify, Inc. (NYSE:SHOP)
No of HFs: 81
Total Value of HF Holdings: $7.51 Billion
Shopify, Inc. is ranked as the fifth-best e-commerce stock to buy now. It is a cloud-based e-commerce platform for online stores and retail point-of-sale systems. During the third quarter of 2020, the company reported a revenue of $767.4 million, a 96% increase compared to the same period of 2019.
McClain Capital highlighted a few stocks in an article, and SHOP was one of them.
“Shopify (SHOP) : The currently fast growing, yet unprofitable e-commerce platform for retailers trades at a $120bln valuation on $1.6bln in 2019 revenues, a valuation of 75x sales for a company that ran -8% net margins. Assuming the business will run a normal 10% net margin and trade at a generous 25x P/E in 2030, revenue will need to grow by a factor of 80 times current levels for shareholders to earn a 10% IRR over the next 10 years.”
4. JD.com, Inc. (NASDAQ:JD)
No of HFs: 85
Total Value of HF Holdings: $13.5 Billion
JD.com, Inc. is China’s largest online retailer. They are a technology-driven e-commerce company that engages in the sale of electronics and general merchandise. JD was listed as one of the 10 best Chinese stocks to buy now.
In an article, Hayden Capital mentioned that they finalized the sale of their position in JD.
“JD.com (JD): This quarter, I also finalized the sale of our position in JD.com. I’ve laid out our detailed thesis on the company in past letters, which unfortunately haven’t panned out.
We originally bought the position in March 2017, predicated on the thesis that as Chinese GDP per capita rises, consumers would increasingly place emphasis on shipping times and name brand / authentic products. In addition, as the consumer base widened and shoppers got in the habit of instant gratification (due to same day / next day shipping), they would engage with the platform more often. The thesis was that this engagement and resulting loyalty to the platform, would allow JD to branch out into higher-margin general merchandise categories (which also have higher order frequencies) vs. their traditional electronics & appliances (lower margin, low order frequency), which would result in higher profits and margins.
Two years later, the broader theses points came true. GDP per capita has risen +21% in just the last two years ($9.8K in 2018 vs. $8.1K in 2016; LINK), which has led to a greater focus on quality products vs. cheap price. But the beneficiary of this was Alibaba and not JD.”
In a separate article, Third Point mentioned their comments on the stock as well,
“During the quarter, we took advantage of jitters about China’s relationships with Hong Kong and the U.S. that created an air pocket in trading of Chinese‐related shares to establish new positions in e‐commerce leaders Alibaba and JD.com. As we have articulated in prior letters3, our outlook for Alibaba and the broader Chinese e‐commerce market is bright. We believe online gross merchandise value (“GMV”) will grow at a mid‐teens CAGR over the next five years, propelled by both (1) rising consumption per capita, as the Chinese retail market is equal in size to the U.S. despite four times as many consumers, and (2)increased penetration of retail by online, a trend which we believe has been structurally accelerated by the COVID‐ 19 pandemic.
As the e‐commerce market matures, we believe Alibaba & JD will leverage scale and growing repositories of transaction data to increase monetization of their platforms through targeted advertising to improve revenue yields (revenues as a percentage of GMV) from a starting point of less than 4% today. As a point of comparison, brick‐and‐mortar retail store rent expenses in China are greater than 10% of sales on average, which provides a significant umbrella for online marketplaces to take a greater share of GMV through a combination of commission and advertising spending as online retailer cost structures converge with brick‐ and‐mortar retail.
Finally, we continue to be excited about the latent potential in some of Alibaba’s businesses beyond the core e‐commerce marketplaces – particularly the cloud computing business, Aliyun. China’s cloud computing industry remains nascent but is growing nearly 3x faster than its developed market counterparts through a combination of rising IT intensity, rapid cloud penetration, and a gradual moderation in software piracy. Within that market, Aliyun is increasingly dominant (with nearly 50% market share) and will generate dramatic profit growth as margins expand with scale. As one reference point, Aliyun today resembles Amazon’s AWS business five years ago; this is an encouraging comparison given that today, AWS’ operating profits (and estimated enterprise value) exceed Alibaba’s business in its entirety. Ant Financial – in which Alibaba holds a ~30% stake that is worth roughly $70 billion – has announced its intention to go public later this year. Alibaba shares will benefit further should they become accessible to mainland Chinese investors through inclusion in the Southbound Connect.”
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3. Booking Holdings, Inc. (NASDAQ:BKNG)
No of HFs: 113
Total Value of HF Holdings: $6.67 Billion
Booking Holdings, Inc. is an American company that owns and operates several travel fare aggregators and travel fare metasearch engines. The company was ranked 216th on the 2019 Fortune 500 list of largest US corporations by revenue.
In an article, Wedgewood Partners decided to liquidate their position during the second quarter.
“After a holding period of several years, we decided to liquidate our position in Booking Holdings during the second quarter. We trimmed our position earlier this year, as the COVID-19 outbreak unfolded and we deployed proceeds into better opportunities elsewhere, but a combination of a significantly worsening fundamental picture and a recovery in the stock led us to sell our position entirely.
There has been no fundamental change to our view of the quality of the business model or the management team, and we wouldn’t be surprised if the stock found its way back into our portfolio again. However, the outlook for industry fundamentals quickly became much worse than we previously had anticipated, and we think normalization may be a multi-year process. Furthermore, comparing global travel and hospitality data to trends in Booking’s consensus estimates at the time we decided to sell our position, we believed even reduced expectations for the company’s results still were too high, likely by a considerable amount. In fact, shortly after our sale, Booking reported much worse than expected first quarter booking trends, coming in -30% below lowered expectations. In addition, the Company reported that April was even worse, with booked room nights collapsing -85% in the month.
Despite the superiority of the business model, and despite the fact that we expect Booking’s competitive position to emerge considerably stronger from this crisis, we believe there will be an extended period of adjustment before travel returns to anything like normal, meaning it will be a long time before we can call Booking a “growth company” again, and we can deploy the proceeds somewhere more attractive until then.”
In a separate article, Wedgewood also commented on the stock,
“As we have been writing since Booking began discussing a change in its advertising strategy back in 2017, we believe investors have completely failed to grasp the significance of the Company’s strategic initiatives over the past few years. Booking had found that traditional search engine optimization (SEO) advertising, primarily with Google, was not generating the return in bookings/revenue and profits that it had generated in the past. Furthermore, Booking noted this was in some part due to metasearch providers (such as TripAdvisor) – of which Booking was the most important customer – competing directly with its online travel agency customers for bookings by investing in SEO themselves, rather than “staying in their lane” and functioning solely as a search service. This dwindling return on advertising spend had led to continually shrinking margins, as Booking had to invest more and more to generate the same level of booking growth.
Booking laid out a clearly articulated strategy to reduce its reliance on SEO advertising as well as its spend with the metasearch providers that were using Booking’s own ad dollars to compete against it, and it proceeded to execute this strategy exactly as laid out. This led to slowing – but still healthy – bookings growth, but it also led to rapidly accelerating profit growth, exactly as planned. Furthermore, and more importantly, its business model developed less reliance on more expensive forms of advertising, such as SEO, and its strategy changed the behavior of the major metasearch providers, dissuading the Company from competing directly against its customers, such as Booking.
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2. Alibaba Group (NYSE:BABA)
No of HFs: 166
Total Value of HF Holdings: $28.8 Billion
Alibaba Group is a Chinese multinational technology company that specializes in e-commerce and technology. The company was mentioned as one of the 10 best large-cap stocks to buy according to Ray Dalio.
Baron Opportunity Fund mentioned in an article that shares of Alibaba were up on sustained core commerce recovery benefiting from improved purchase frequency and spending per order
“Alibaba Group Holdings Limited is the largest retailer and e-commerce company in China. Alibaba operates shopping platforms Taobao and Tmall and owns 33% of soon-to-be publicly traded Ant Financial, which operates Alipay, China’s largest third-party online payment provider. Shares of Alibaba were up on sustained core commerce recovery benefiting from improved purchase frequency and spending per order. We believe Alibaba’s core business remains highly profitable, complemented by rapid growth in the cloud business and inflection in the Cainiao logistics and New Retail segments.”
While in a separate article, Rowan Street Capital mentioned that Alibaba’s integrated ecosystem connects and controls the whole value chain of branding, broadcasting, sales conversion, and sharing
“We first initiated a position in Alibaba back in May of 2018, and continued adding to our position as the stock continued slipping for the rest of the year as the company fell victim to a broader slowdown in Chinese economy as well as trade tensions with the U.S. Additionally, an earnings miss and a guidance cut, along with the broader market sell-off in December of 2018 cooled off the stock to $130 per share. At that price, we thought the stock was a ‘steal’ and added aggressively, building out our position to ~18% of the overall portfolio (please see below). Only two years following our investment, the stock has doubled in price as compared to the S&P 500 advance of +27% over the same time period.
Our initial interest in the company was sparked by the book “Alibaba: The House That Jack Ma Built”, which we had a pleasure of reading back in 2016. We had since followed the company for about two years before our initial investment. Patience is in our DNA!
The book refers to the “Iron Triangle” (E-commerce Edge, Logistics Edge and Finance Edge) as a key factor in making Alibaba such a dominant player in China’s e-commerce market. But it is the charisma of the company’s founder — his “Jack Magic” — that bound together the people and capital who would build on these foundations.
Alibaba’s integrated ecosystem connects and controls the whole value chain of branding, broadcasting, sales conversion and sharing. That’s very different from how it works in the U.S., where internet giants such as Amazon, Facebook and Alphabet are individually dominant in certain parts of the value chain, but not in the complete manner that Alibaba has achieved. None has an ecosystem that connects the entire marketing and commerce value chain from branding, broadcasting and sales conversion. Alibaba connects the entire value chain.
Alibaba shares now trade at a more than 25% discount after the Chinese government started going after Jack Ma over the last few weeks. It is hard to predict what will happen as China is a dictatorship, but given that they are willing to create the Chinese equivalents of U.S. tech companies, we don’t expect them to destroy Alibaba. If Alibaba were a U.S. company that’s facing no political risk, its market value would have been at least $2 trillion today.
1. Amazon.com, Inc. (NASDAQ:AMZN)
No of HFs: 245
Total Value of HF Holdings: $43.7 Billion
Amazon.com, Inc. is an American multinational technology company that focuses on e-commerce, cloud computing, digital streaming, and artifical intelligence. The company was mentioned as one of the 10 best magic formula stocks to buy now and was also ranked number one in the top 5 online shopping websites in the world in 2020.
In an article, Baron Opportunity Fund mentioned comments on the stock,
“Amazon.com, Inc. is the world’s largest retailer and cloud services provider. Shares were up on strong second quarter revenue metrics – with paid unit growth accelerating to 57%, a startling figure for a company of this scale – as Amazon benefited from recent investments in logistics and distribution to meet increased COVID-19-related demand. Amazon has the unique ability to deliver all the necessities of life safely to your doorstep, including groceries. Amazon also reported a stunning beat in operating profit, with $5.8 billion of operating income, almost six times Wall Street’s expected figure. While e-commerce penetration is rising rapidly and Amazon continues to grow its addressable market by entering new verticals, we continue to view Amazon Web Services as the more material driver of the company given its leadership in the vast and growing cloud infrastructure market and potential to compete in application software in the years to come.”
In a separate article, RiverPark Advisors, LCC shared their comments on the stock,
“Amazon: AMZN shares were a top contributor as the company again announced impressive quarterly results. Driven by the effects of the pandemic, AMZN’s year-over-year revenue growth accelerated to 40% in the second quarter, up from 26% growth for the first quarter. North American retail sales grew 43% to $55 billion, International retail sales grew 38% to $23 billion, Amazon Web Services revenue grew 29% in 2Q to $11 billion, and Amazon’s Other category, mostly driven by ad sales, grew 41% to $4 billion. With the continued acceleration in ecommerce and cloud computing adoption, management forecasted continued robust revenue growth for its third quarter, implying upwards of 33% year-over-year growth.
For the trailing twelve months, Amazon’s free cash flow grew 27% to $32 billion or $62 per share (up from $47 in the first quarter). We believe that Amazon’s revenue can grow from its TTM $322 billion to more than $800 billion annually, with free cash flow exceeding $150 per share by the end of 2025.”
Qualivian Investment Partners also had comments in the stock where it was mentioned in an article that COVID is pulling forward years of eCommerce migration and AMZN is one of the big winners
“Amazon: AMZN shares, along with many other eCommerce participants, have been on a strong run this year, outperforming the S&P 500 materially since February. COVID is pulling forward years of eCommerce migration and AMZN is one of the big winners. Alongside this, cloud migration continues to accelerate as the cost-benefit of migrating from on-premise to the cloud dominates especially in the work/learn from home COVID era. AMZN handily beat topline consensus estimates across its 1P/3P online sales, subscription, and other revenues, while meeting AWS sales estimates (which disappointed market observers). Operating income and cash flow handily beat consensus, increasing 96% and 52% last quarter, despite spending an incremental $2.5bn in Q2 and Q3 on COVID-related expenses.
The management team continues to invest in Prime One-Day shipping, AWS, international, video content, positioning the company for continued market share gains, new revenue growth vectors, and margin expansion once the company laps this investment cycle, further strengthening its long-term competitive advantage. The key risks that we continue to monitor are regulatory/political in nature.”
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Please also see 12 Best Genomic Stocks to Buy Now and Top 10 Sin Stocks to Buy Now.
Disclosure: None.
