We recently published a list of 10 Best Internet Retail Stocks to Buy Now. In this article, we are going to take a look at where Amazon.com, Inc. (NASDAQ:AMZN) stands against other 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.”
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).
A customer entering an internet retail store, illustrating the convenience of online shopping.
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.”
Overall, AMZN ranks 1st on our list of best internet retail stocks to buy now. While we acknowledge the potential of 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.
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Disclosure: None. This article is originally published at Insider Monkey.