E-commerce Themes in Q1 2021 And The Companies That Are Winning

E-commerce Themes in Q1 2021 And The Companies That Are Winning

With most major e-commerce companies having reported their earnings updates for the first quarter of 2021, here are some of the key themes I picked up and the companies that are winning in this space.

South Korea e-commerce growing fast – Coupang riding the wave

Korea may have one of the most mature e-commerce markets globally, but there is still plenty of room for growth.

During Coupang Inc‘s (NYSE: CPNG) earnings conference call for the first quarter of 2021, CEO Bom Suk Kim said:

“Korea is a massive e-commerce opportunity. It’s the fifth-largest globally and grew at a 20% CAGR over the last five years, second only to China. And it’s the largest e-commerce opportunity not won by Amazon or Alibaba, but there is a broader play here.

Similar to China, Korea is leapfrogging the offline retail revolution. The US has more than 10 times the offline retail footprint per capita of Korea.

We believe we are at the centre of two revolutions, not just the transition from offline to online, but also a retail revolution that happened first offline in the US, but is now starting online in Korea. The market also boasts a highly connected tech-savvy consumer base with high mobile usage. We believe these structural characteristics create strong tailwinds for e-commerce that will lead to higher online penetration than other markets.”

In the first quarter of 2021, Coupang delivered total revenue growth of 74%, approximately three times faster than the overall Korean e-commerce segment.

This growth is even more impressive when considering that the company lapped a COVID-induced spike in e-commerce demand in the first quarter of 2020, which started in Korea in late January 2020.

Personalised e-commerce on the rise – Etsy well-positioned

E-commerce activity for products that are customisable, handmade, or unique has grown faster than the e-commerce market in general.

Etsy Inc (NASDAQ: ETSY), which is a global marketplace for unique handcrafted products, saw its gross merchandise sales in the first quarter of 2021 grow by a staggering 132% from a year ago. For perspective, this was more than double Amazon’s 64% growth in third-party seller services revenue for the quarter.

Etsy’s team has done an excellent job in driving traffic to its marketplace and building a two-sided network. Etsy CEO Josh Silverman commented in the 2021 first-quarter earnings conference call that Etsy is focused on building brand awareness, creating more buyer triggers, and creating in-app personalisations to help improve the buyer experience.

Although Etsy’s management warned of slower growth in the latter part of 2021 due to difficult year-on-year comparisons, CFO Rachel Glaser remains bullish on the long-term prospects. She said the following in Etsy’s 2021 first-quarter earnings call:

“We remain very excited about the opportunity ahead and believe that now is the right time for us to invest for growth. These investments primarily are in the form of people and marketing dollars. Our growth has vastly outpaced our hiring and we are leaving far too many great ideas on the cutting room floor. We’ve already added 100 employees in Q1 and intend to keep hiring throughout the year. So we have ample resources in time to impact the holiday season and beyond.”

Arming the rebels – Shopify

Shopify Inc (NYSE: SHOP), which provides the tools for merchants to start an online shop, saw revenue growth of 110% in the first-quarter of 2021. Shopify’s revenue for the quarter was also sequentially higher than 2020’s fourth quarter, which is usually a seasonally stronger quarter.

Shopify’s merchants are growing fast. The company’s gross merchandise value soared 114% from the same period last year. Like Etsy, Shopify’s growth outpaced the revenue growth recorded in Amazon’s third-party marketplace services.

Shopify’s partnerships with Facebook and TikTok are also going smoothly. Harley Finkelstein shared the following comments during Shopify’s 2021 first-quarter earnings conference call:

“We are ushering in a new era of social commerce and helping more brands and consumers engage in the Digital Main Street. The number of shops actively selling on Facebook shops has more than quadrupled since Q1 a year ago, as well as the GMV through Facebook. While still small, the launch of Facebook shops in May of last year is clearly starting to make a difference here.

In Q1, we expanded our marketing partnership with TikTok internationally to an additional 14 countries in North America, EMEA, and APAC. So far, we’ve seen good traction in the adoption of TikTok in the U.S. since we launched the integration last October. And we recently expanded our Pinterest channel into 27 additional markets, opening discoverability and sales opportunities worldwide.”

Latin America e-commerce – Mercado Libre triple-digit Growth in GMV

Latin America continues to see higher e-commerce adoption. MercadoLibre Inc (NASDAQ: MELI), the e-commerce front runner in Latin America, reported a 114% increase in gross merchandise value (GMV) on a currency-neutral basis.

MercadoLibre’s GMV grew 183%, 92%, and 114%, respectively, in its three core markets of Argentina, Brazil, and Mexico. The company’s logistics network is also steadily spreading its influence with more than half of MercadoLibre’s Brazil consumer packed goods being shipped from its own fulfilment centre.

The company’s product mix continues to shift towards big brands as MercadoLibre has put an emphasis on attracting global and local household name-brands. MercadoLibre’s Chief Financial Officer, Pedro Arnt, explained during the company’s 2021 first-quarter earnings call:

“In consumer electronics, for example, we have added partnerships with Panasonic, Asus and Intelbras, while our CPG portfolio now includes stores by JMacedo and Mondelez.

As a result, approximately 20% of our marketplace sales are already from Official Stores, an increase of 7 percentage points over the same quarter last year.

Overall product depth continues to improve, as live listings have reached almost 300 million listings this quarter, increasing versus Q4 in all major geographies. Part of this increase was driven by the growth of unique sellers in our marketplace, with almost 1 million total sellers with successful sales during the quarter.

We will continue to grow our already ample seller base, adding almost 200k new sellers to our marketplace this quarter.”

Southeast Asian E-commerce booming- Shopee and Lazada both reporting triple-digit growth

Its boom town for e-commerce in Southeast Asia. Alibaba (NYSE: BABA) reported that Lazada recorded another quarter of triple-digit growth in the gross number of orders. But while Lazada continues to grow, all eyes seem to be on Sea Ltd‘s (NYSE: SEA) Shopee, which since its launch in 2015 has quickly overtaken Lazada to become the number one e-commerce player in the region.

The number of orders on Shopee surged 153% year-on-year and even exceeded the orders seen in the fourth quarter of 2020, which is a seasonally busier period for commerce. Shopee’s gross merchandise value also increased by 103% year-on-year and 6% sequentially.

According to App Annie, Shopee ranked first across its core markets in Southeast Asia and Taiwan by  monthly active users and total time spent in-app on Android in the Shopping Category.

Shopee also recorded a gross profit in the first quarter of 2021, a welcome turnaround from its negative gross profit a year ago. Sea’s CEO, Forrest Li, commented in the company’s 2021 first-quarter earnings call:

“To conclude, we believe that e-commerce penetration remains low across all our markets, in spite of the step change in digitalization since the onset of the pandemic. Against this backdrop, we remain committed to investing with efficiency to capture the attractive potential over the long run.

We believe our hyperlocal and highly targeted approach, alongside our commitment to focus and invest with efficiency for the long term, will allow us to build a healthy and sustainable ecosystem that can offer the best long term value for buyers and sellers and in turn our other stakeholders.”

Note: An earlier version of this article was published at The Good Investors, a personal blog run by our friends.

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Disclosure: Jeremy Chia owns shares of Mercado Libre, Etsy Inc, Shopify Inc, Coupang, Amazon Inc, Sea Ltd, and Facebook Inc.