E-commerce stocks are continuing their strong momentum this year, with the two biggest companies in the global e-commerce industry, Amazon and Alibaba, both reporting strong Q4 earnings which bolstered sentiment in the industry, propelling e-commerce to new all-time highs.
The E-commerce theme basket from Saxo Bank, the leading fintech and regtech specialist, is up 14.8% year-to-date driven by strong investor demand and positive Q4 earnings.
The basket was topped by Amazon and Alibaba, and online traders in the GCC are already on board as both e-commerce giants came first on the most traded stocks in the e-commerce industry among GCC Saxo Bank clients in 2020.
“The pandemic turbocharged investor demand for e-commerce stocks as the underlying companies were the big winners of the pandemic and lockdowns across every major economy. It forced consumers to buy goods online lifting growth rates and profitability.” said Peter Garnry, Head of Equity Strategy at Saxo Bank.
While growth rates and profitability were lifted by consumer behaviour caused by the pandemic, the next stage of growth for e-commerce companies will be driven by a move into the three biggest retail categories of groceries, health and cars, as the spending power and habits of the under 40s continue to be shaped by the internet.
Growth lying ahead:
E-commerce penetration in electronics is now over 50% and clothing is above 25% and will likely continue to grow. This indicates where online in percent of total retail sales will go in the future as the rest of all retail categories moves online. In cars, Tesla has shown that a lot of car orders can be done online with less physical store footprint.
There are two trends to look at on a bigger macro level. In the US and Europe, e-commerce will deliver its future growth from penetration of existing categories such as electronic and clothing, with the biggest growth set for grocery, health, and cars.
In emerging markets, e-commerce in electronics and clothing will be the key drivers as emerging market countries catch up with the developed world. These trends are important to get right for an investor in terms of key trends to watch in 2021 for the e-commerce industry.
“It is important to be aware of as an investor, so do not focus too much on performance but rather on the theme and its outlook and research the individual names.” added Garnry.
Risks to consider:
While e-commerce stocks have been rallying the past year, generating unprecedented returns for investors, this equity theme does not come without risks as well. An obvious key risk is the rising shipping rates that are currently at level three times above the normal and last mile delivery costs are also soaring due to extraordinary demand which the supply side was not prepared for. This could squeeze operating margins in the short term.
The reconfiguration of the global supply chain due to rising US-China tensions could longer term push input costs and prices on goods higher which again could put margins under pressure. Many e-commerce companies have had a first mover advantage but with big profits come more competitions and Amazon is a good case on this phenomenon as it experiences much more tough competition in regions such as Asia and South America.
Saxo Bank’s ‘E-commerce theme basket’ consists of 40 stocks with a global focus, excluding travel and leisure stocks such as travel sites and travel recommendation sites, which have been put in a separate travel and leisure theme coming later this year.
The list represents almost $4trn in market value and the group of companies have an average revenue growth rate of 40% the past year with divergence within the group on y/y change in EBITDA.
Risks to consider:
While e-commerce stocks have been rallying the past year, generating unprecedented returns for investors, this equity theme does not come without risks as well. An obvious key risk is the rising shipping rates that are currently at level three times above the normal and last mile delivery costs are also soaring due to extraordinary demand which the supply side was not prepared for. This could squeeze operating margins in the short term.
The reconfiguration of the global supply chain due to rising US-China tensions could longer term push input costs and prices on goods higher which again could put margins under pressure. Many e-commerce companies have had a first mover advantage but with big profits come more competitions and Amazon is a good case on this phenomenon as it experiences much more tough competition in regions such as Asia and South America.
Saxo Bank’s ‘E-commerce theme basket’ consists of 40 stocks with a global focus, excluding travel and leisure stocks such as travel sites and travel recommendation sites, which have been put in a separate travel and leisure theme coming later this year.
The list represents almost $4trn in market value and the group of companies have an average revenue growth rate of 40% the past year with divergence within the group on y/y change in EBITDA.
Equity valuations are high on e-commerce stocks with our basket valued at 79 times 12-month forward earnings which is around four times the global equity market. Rising interest rates could severely compress equity valuations on high growth stocks which is considered a key risk.
*Please note:
All Saxo Bank equity theme baskets are based on striking balance between geographical diversification, balanced in terms of subcategories within the overall theme, and selecting the companies mostly on market cap without any regards to valuation metrics. The baskets are inspirational lists and not investment recommendations. Investors should carry out their own due diligence of stocks and make their own assessments of whether the theme and individual stocks make sense in their portfolio.
