01 Nov 2 E-commerce Stocks Growing Faster Than Amazon
COVID-19 has ravaged economies and upended countless lives.
For some, it may feel as if we have been forced into an economic time machine that is fast-forwarding trends and behaviours that would have taken many years to play out.
One such behaviour is shopping.
For many Singaporeans, retail therapy is now taking the form of online marketplaces and platforms to satisfy their browsing and buying needs.
Living in Amazon’s world
According to market research firm Nielsen, COVID-19 has converted many offline shoppers in Singapore to online ones, in addition to making existing online shoppers spend more.
Of the people who bought household goods online for the first time, more than three out of five said they will do so again in the next 12 months.
The shift to online shopping has also been accelerated globally, which naturally benefits the world’s largest e-commerce retailer, Amazon (NASDAQ: AMZN).
For the second quarter, Amazon posted a 40% year on year increase in revenue and a quarterly profit of US$5.2 billion, the highest ever in its 26-year history.
Amazon’s performance in the stock market did not disappoint either.
Its share price has risen roughly 60% year-to-date, giving the company a staggering market value of US$1.52 trillion.
This rise is impressive considering the technology-centric NASDAQ Composite Index gained around 20% over the same period.
But Amazon is not the only e-commerce player that is experiencing remarkable growth.
Let’s look at two other companies that are growing their e-commerce sales at a much faster rate.
Sea Limited (NYSE: SE)
Sea’s e-commerce platform, Shopee, is the Amazon of Southeast Asia.
Launched in 2015, it has outpaced competitors including Alibaba-backed (SEHK: 9988) Lazada to chalk up the highest number of monthly active users and downloads in the region.
This growth in users has translated into a sterling performance, as announced in its recent second quarter, with adjusted revenue soaring by 187.8% year on year to US$510.6 million.
Management has expressed confidence that this growth momentum will continue into the third quarter as COVID-driven initiatives introduced in the second quarter start to bear fruit.
These initiatives are expected to build and deepen loyalty to the Shopee platform by helping sellers defray operating costs in areas such as marketing and logistics.
In Singapore for example, a S$1 million Seller Support Package was launched to provide free shipping and cheaper advertising for local sellers and SMEs.
To be clear, Sea is more than an e-commerce business as it also generates revenue through its digital entertainment division (known as “Garena”) and digital finance services (known as “SeaMoney”).
In fact, digital entertainment currently produces the bulk of the company’s revenue with US$716.2 million, taking up slightly more than half of the group’s total adjusted revenue of US$1.3 billion in the second quarter.
While this represents strong growth of 62% year on year, the real growth engine for Sea is e-commerce, which grew around three times faster than digital entertainment.
Together, Sea’s digital entertainment and e-commerce platforms are also expected to provide a unique advantage in boosting the usage of its SeaMoney digital payments solution.
While SeaMoney contributes a mere 1% of the group’s total revenue today, management is optimistic that it will be a new growth catalyst as expressed in the recent earnings review: “SeaMoney’s focus continues to be leveraging on Sea’s strategic leadership positions in some of the largest use cases for digital payments in e-commerce and digital entertainment. We believe its impressive growth in the second quarter underlines the strength of this strategy.”
It is worth noting that at the group level, Sea is not yet profitable as it continues to invest aggressively to expand its digital empire.
It also trades at a lofty market capitalization of around US$77 billion as a result of a nearly 294% increase in share price since the beginning of the year.
However, we continue to believe that the company has a massive growth runway that rides on multiple tailwinds, one of which is the rapidly increasing e-commerce penetration among Southeast Asia’s 600 million population.
Etsy (NASDAQ: ETSY)
With a market capitalization of around US$14.5 billion, Etsy has a stock market value that is significantly smaller than Sea.
However, it has carved out a niche by specializing in unique products that cannot be found anywhere else, making it the world’s largest online marketplace for handmade and craft goods.
Etsy generates about three-quarters of its revenue from fees related to its marketplace services such as listing, selling and payment collection.
The remaining one-quarter comes from providing optional services such as advertising and shipping.
For the second quarter of 2020, Etsy’s revenue climbed 137% year on year to US$429 million on the back of an impressive 146% increase in Gross Merchandise Sales (GMS) over the same period.
While this was due in part to the strong demand for face masks, which made up 14% of the overall GMS of S$2.7 billion, GMS growth excluding masks sales still stood at a very respectable 93%.
As an online marketplace, Etsy’s mission to “Keep Commerce Human” may sound ironic.
However, it reflects the company’s constant efforts to improve the platform by providing a more personalized shopping experience.
These include new functions such as saved searches and favourites to provide inputs for algorithms to generate recommendations that will interest customers.
There is also an augmented reality tool that allows customers to see how paintings would look like in their homes before making the purchase.
If these features sound impressive, it is because Etsy invests heavily in product development. While operating conditions have become more challenging due to the pandemic, Etsy increased product development spending by 56% year on year to US$45 million in the second quarter.
Despite the higher costs, Etsy boasts a profitable business model with EBITDA (earnings before interest, taxes, depreciation, and amortization) of nearly US$151 million which is commendable, especially for high-growth companies.
Just last month, Etsy also added another feather to its cap when it was included in the S&P 500 index.
This inclusion further validates the company’s financial track record and gives it greater visibility among institutional investors.
Although Etsy’s share price has already risen by 169% year-to-date, we believe it will continue to perform well moving forward.
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Disclaimer: Charlotte owns shares in Amazon, Sea and Etsy.