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Ecommerce Industry on Fire Ahead of Holiday Season: 3 Stocks
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This year is likely to be a good one for the ecommerce industry, with the segment expected to take away big slices of the total retail pie. Commerce Department numbers for the last quarter are proof of this: ecommerce sales in the second quarter of 2024 grew 6.7% over 2Q23 (1.3% sequentially), with total retail sales increasing 2.1% (0.5% sequentially). Ecommerce accounted for around 16% of total U.S. retail sales.
The last quarter being the holiday quarter, is always the strongest for the industry, and this year is not likely to be much different. Therefore, this is a good time to jump into some ecommerce stocks. Our stock picks for this season are Groupon (GRPN - Free Report) , JD.com (JD - Free Report) and Carvana (CVNA - Free Report) .
The convenience of online shopping remains the top reason for ecommerce volumes and this is particularly true of Gen-Z, which is increasingly the more relevant component of sales. Many of these buyers have grown up on the Internet and are accustomed to a high level of digitization. They are also likely to hang out on popular social media platforms, allowing themselves to be influenced by the latest trends there. This is driving an entirely new perspective on the ecommerce space, one that revolves around digital influencers and appears to be expanding with more advanced technology such as AR/VR, social commerce and the Metaverse.
Holiday sales are likely to be extremely strong this year. Adobe Analytics, which marks the season from Nov. 1 to Dec. 31 has said that steep discounting (up to 30% off the list price), mobile shopping and influencers will have a big role to play this season, as the pricing will make U.S. goods more accessible to many users. The research firm is looking for 8.4% growth this year.
Salesforce, which counts the same period as the festive season, has a much more conservative estimate of 2% growth from last year, agreeing that discounts could go down up to 28%. According to the research firm, 43% of consumers surveyed are carrying more debt than in the prior year, with two-thirds stating that they would prioritize price. Only a third will be prioritizing quality over price.
Therefore, competition will be intense and AI will help consumers choose presents and retailers in supplying them. According to Limelight Marketing, online sales will grow 9.5% this year compared with total retail sales growth of around 4.8%.
One interesting trend that the firm points out is the bringing forward of the holiday shopping season. We could also say that since goods are more easily available online, many consumers will be spreading out their purchases (16% according to the firm will start as early as June). eMarketer is also projecting 9.5% ecommerce sales growth this holiday season.
Valuation tends to be rich, however, because of the positive sentiments at both sell side analysts and the general public, so it’s important to choose wisely.
About the Industry
Internet - Commerce continues to evolve as the technologies driving it advance.
On the one side are increasingly powerful and capable user devices. On the other are increasingly sophisticated platforms, often combining chatbots and/or social media. While AI continues to deliver increased user satisfaction, the metaverse promises another paradigm shift.
Differentiation comes from better technology for improved showcasing, easier navigation and payment, speedier delivery and returns, brand building, comparison shopping, loyalty, etc. as well as good customer service and more shipping options, which generally tip the scales in favor of larger players. Particularly so, because there is fierce price competition necessitating deep discounting in many cases.
Current Trends Driving the Internet-Commerce Industry
The total retail experience between physical and digital continues to blur as most consumers blend their online and offline activities. This usually takes the forms of research online and buy in-store or buy online and pick up in-store. Since convenience is the main requirement, any experience that increases the speed of delivery/pickup is preferred. This may entail increased reliance on robots, self-driven delivery vehicles and drones that could ease bottlenecks and make deliveries smoother and cheaper. Therefore, it isn’t just the online-first retailers that are building a physical presence, but also those who have traditionally been physical retailers that are digitizing to various degrees, or getting themselves a digital store-front.
Another notable trend is a subscription format for repeat-use items. This makes it easier for the consumer to order and for the retailer to plan. Retailers usually offer some kind of discount to consumers choosing this option, which makes it all the more attractive. The trend is expected to expand going forward as both tangible and intangible commodities and low-value and high-value items are increasingly sold ‘as-a-service.’
Direct access to the consumer is something that no retailer can afford to pass up, as this is the only way to acquire customer data. Since some of the larger companies are already providing services based on customer data (such as Amazon’s buyer review summary), buyers are getting used to these services. Because of the many details involved in satisfying a customer, data mining has grown in importance over the years, with the party controlling the customer’s data being best positioned to identify and service demand while also delivering the desired experience. Most of the big ecommerce players are also into payments processing, which gives them further insight into a customer’s tastes, preferences and buying habits. As machines read and process customer data, they can create programs and processes to maximize customer satisfaction, drive sales and minimize returns. Artificial intelligence, as used by companies like Amazon, already decides how competitive a player is. So harnessing big data has become imperative for survival.
The macroeconomic situation continues to evolve, although we can probably say with confidence that there won’t be much of a recession and certainly not this year. On the other hand, rate cuts have started leading up to the elections. Therefore, although today’s consumer is thrifty, the easing of pressure on disposable income can only be a good thing. For producers, supply chain issues have alleviated to a great extent while the labor situation is still tight. Global uncertainties continue to affect foreign exchange effects for companies with international operations. Overall, industry players will continue to see the benefits of operating leverage they have built up in the last few years. The importance of having a digital presence has never been greater, particularly considering the fact that the retail ecommerce market continues to expand into new product segments and geographies, and consumers continue to prefer the convenience of online shopping.
A trend that Gen-Z is popularizing is social commerce. Social commerce means the ability to discover, research, buy and checkout on a social media platform, often and increasingly more so, through influencers. Brands usually have store fronts on these platforms where influencers also discuss their products, thus driving traffic to them. The social element of shopping that ecommerce had taken out is thus returning through this route. Since social commerce first became popular in China, it isn’t surprising that the Chinese social media platform TikTok that’s also very popular with Gen Z is the number one place for social commerce. But others like Facebook, Instagram and a host of others are also very popular.
Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1. So the group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates positive near-term prospects.
Ecommerce being in the top 50% of Zacks-ranked industries is the result of its relative performance versus others. What we’re seeing in the aggregate estimate revisions is steadily stronger sentiments, since the beginning of the year. The aggregate earnings estimate for 2024 is up 28.6% and for 2025 up 10.7%. The rate cuts this year should also have a positive impact on spending.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Generates Strong Shareholder Returns
Over the past year, the Zacks Electronic - Commerce Industry has traded relatively close to the broader Retail and Wholesale sector and the S&P 500, although usually at a premium to both.
The stocks in this industry have collectively gained 43.9% over the past year, compared to the 35.3% gain for the broader Zacks Retail and Wholesale Sector and the 33.8% gain for the S&P 500.
One-Year Price Performance
Image Source: Zacks Investment Research
Current Valuation Attractive
Historically, the industry has always traded at a premium to the sector as well as the S&P 500. Its current price-to-forward 12 months’ earnings (P/E) of 25.67X represents a premium of 17.2% to the S&P 500 and 6.8% to the broader retail sector, which are currently trading at 21.90X and 24.04X, respectively. Given the continued optimism behind the positive estimate revisions trend, we view the discount to its own median level of 26.28X over the past year positively.
Forward 12 Month Price-to-Earnings (P/E) Ratio
Image Source: Zacks Investment Research
3 Stocks Worth Considering
The improving prospects mean that there are a large number of stocks currently worth picking. Especially because of the significant variety that exists in this industry in terms of lines of business, business model, location and so forth. This is also the reason that choosing can be tricky. We have used our proprietary ranking system to pick four stocks that appear attractive today.
Groupon, Inc. (GRPN - Free Report) : Chicago-based Groupon offers a B2C marketplace, including a focus on deals. Its mobile application and website groupon.com cover three primary categories: Local (merchandise and local events), Goods (third-party merchandise) and Travel (accommodations, air tickets and packages for domestic and international destinations). The company generates Service revenues (through commission as well as advertising) from these three categories. North America accounted for nearly 74% of revenue last year with International bringing in the balance.
Mobile commerce is a big driver for the company, which has recently transitioned from a deals site to a full-fledged marketplace. It has harnessed AI across the business, making life easier for both buyers and sellers and continues to take out costs to align with the new structure. Groupon does continue to see some challenges with respect to the reliability of its website and its international business has been less than satisfactory. But with sales returning to growth (after eight years) in the fiscal first quarter and the North America segment continuing to grow in the second, there is reason to believe that the ongoing transformation will remain on track.
The optimism is reflected in analyst estimates, which grew 17 cents (56.7%) for 2024 and 3 cents (3.1%) for 2025 in the last 60 days. Analyst estimates represent EPS growth of 190.4% in 2024 and 96.8% in 2025.
The shares of this Zacks Rank #1 (Strong Buy) company down 20.6% over the past year.
Price & Consensus: GRPN
Image Source: Zacks Investment Research
JD.com, Inc. (JD - Free Report) : Beijing-based JD offers ecommerce platforms, along with associated logistics, real estate, asset management services, storage and other management services in China. Although its range of electronic goods is extensive, it also offers general merchandise, healthcare and industrial supplies. It also supplies data, technology and other solutions facilitating the digitization of enterprises.
The company continues to generate revenue and earnings growth on the back of its general merchandise category, which continues to benefit from the recovery in supermarkets. Its broad selection, competitive pricing and good customer service no doubt helped. The strong momentum in the business is likely to ensure steady payouts to investors in the form of both dividends and share repurchases.
In the last 60 days, the Zacks Consensus Estimate for 2024 has increased 57 cents (16.8%). For 2025, it is up 51 cents (14%). Analysts expect earnings growth of 27.2% in 2024 and 4.5% in 2025.
The Zacks Rank #1 stock is up 14.4% over the past year.
Price & Consensus: JD
Image Source: Zacks Investment Research
Carvana Co. (CVNA - Free Report) : Tempe, AZ-based Carvana operates an ecommerce platform for buying and selling used cars in the United States. Its platform allows customers to research and identify a vehicle; inspect it using the company's 360-degree vehicle imaging technology; obtain financing and warranty coverage; purchase the vehicle; and schedule delivery or pick-up from their desktop or mobile devices. Carvana also operates auction sites.
While the number of cars sold by this online dealer of used cars is just crossing 100,000 units, a couple of factors increase our optimism regarding this stock. The first is, this is a leading player in a nascent market, as cars are still largely sold offline. Therefore, it is something of a trend-setter that will definitely see some first-mover benefits, if it isn’t already. The second point is that it is growing profitably, which is not the case for most relatively new businesses. Recent results were strong and the EBITDA growth outlook, although from a small base, is impressive.
Analyst estimates are also extremely encouraging. For the current year, analysts have gone up from the expected loss of 24 cents 60 days ago to a profit of 2 cents right now. For 2025, their profit estimates are up from a mere 37 cents 60 days ago to $1.85 currently. That’s pretty phenomenal, and just the kind of stock growth investors would be looking to snatch up.
Investors are certainly piling into this Zacks #2 (Buy) ranked stock, with the shares up 329.1% in the past year.
Price & Consensus: CVNA
Image Source: Zacks Investment Research
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Ecommerce Industry on Fire Ahead of Holiday Season: 3 Stocks
This year is likely to be a good one for the ecommerce industry, with the segment expected to take away big slices of the total retail pie. Commerce Department numbers for the last quarter are proof of this: ecommerce sales in the second quarter of 2024 grew 6.7% over 2Q23 (1.3% sequentially), with total retail sales increasing 2.1% (0.5% sequentially). Ecommerce accounted for around 16% of total U.S. retail sales.
The last quarter being the holiday quarter, is always the strongest for the industry, and this year is not likely to be much different. Therefore, this is a good time to jump into some ecommerce stocks. Our stock picks for this season are Groupon (GRPN - Free Report) , JD.com (JD - Free Report) and Carvana (CVNA - Free Report) .
The convenience of online shopping remains the top reason for ecommerce volumes and this is particularly true of Gen-Z, which is increasingly the more relevant component of sales. Many of these buyers have grown up on the Internet and are accustomed to a high level of digitization. They are also likely to hang out on popular social media platforms, allowing themselves to be influenced by the latest trends there. This is driving an entirely new perspective on the ecommerce space, one that revolves around digital influencers and appears to be expanding with more advanced technology such as AR/VR, social commerce and the Metaverse.
Holiday sales are likely to be extremely strong this year. Adobe Analytics, which marks the season from Nov. 1 to Dec. 31 has said that steep discounting (up to 30% off the list price), mobile shopping and influencers will have a big role to play this season, as the pricing will make U.S. goods more accessible to many users. The research firm is looking for 8.4% growth this year.
Salesforce, which counts the same period as the festive season, has a much more conservative estimate of 2% growth from last year, agreeing that discounts could go down up to 28%. According to the research firm, 43% of consumers surveyed are carrying more debt than in the prior year, with two-thirds stating that they would prioritize price. Only a third will be prioritizing quality over price.
Therefore, competition will be intense and AI will help consumers choose presents and retailers in supplying them. According to Limelight Marketing, online sales will grow 9.5% this year compared with total retail sales growth of around 4.8%.
One interesting trend that the firm points out is the bringing forward of the holiday shopping season. We could also say that since goods are more easily available online, many consumers will be spreading out their purchases (16% according to the firm will start as early as June). eMarketer is also projecting 9.5% ecommerce sales growth this holiday season.
Valuation tends to be rich, however, because of the positive sentiments at both sell side analysts and the general public, so it’s important to choose wisely.
About the Industry
Internet - Commerce continues to evolve as the technologies driving it advance.
On the one side are increasingly powerful and capable user devices. On the other are increasingly sophisticated platforms, often combining chatbots and/or social media. While AI continues to deliver increased user satisfaction, the metaverse promises another paradigm shift.
Differentiation comes from better technology for improved showcasing, easier navigation and payment, speedier delivery and returns, brand building, comparison shopping, loyalty, etc. as well as good customer service and more shipping options, which generally tip the scales in favor of larger players. Particularly so, because there is fierce price competition necessitating deep discounting in many cases.
Current Trends Driving the Internet-Commerce Industry
Zacks Industry Rank Indicates Strength
The Zacks Internet - Commerce Industry is a rather large group within the broader Zacks Retail And Wholesale Sector. It carries a Zacks Industry Rank of #68, which places it in the top 20% of 250+ Zacks industries.
Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1. So the group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates positive near-term prospects.
Ecommerce being in the top 50% of Zacks-ranked industries is the result of its relative performance versus others. What we’re seeing in the aggregate estimate revisions is steadily stronger sentiments, since the beginning of the year. The aggregate earnings estimate for 2024 is up 28.6% and for 2025 up 10.7%. The rate cuts this year should also have a positive impact on spending.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Generates Strong Shareholder Returns
Over the past year, the Zacks Electronic - Commerce Industry has traded relatively close to the broader Retail and Wholesale sector and the S&P 500, although usually at a premium to both.
The stocks in this industry have collectively gained 43.9% over the past year, compared to the 35.3% gain for the broader Zacks Retail and Wholesale Sector and the 33.8% gain for the S&P 500.
One-Year Price Performance
Image Source: Zacks Investment Research
Current Valuation Attractive
Historically, the industry has always traded at a premium to the sector as well as the S&P 500. Its current price-to-forward 12 months’ earnings (P/E) of 25.67X represents a premium of 17.2% to the S&P 500 and 6.8% to the broader retail sector, which are currently trading at 21.90X and 24.04X, respectively. Given the continued optimism behind the positive estimate revisions trend, we view the discount to its own median level of 26.28X over the past year positively.
Forward 12 Month Price-to-Earnings (P/E) Ratio
Image Source: Zacks Investment Research
3 Stocks Worth Considering
The improving prospects mean that there are a large number of stocks currently worth picking. Especially because of the significant variety that exists in this industry in terms of lines of business, business model, location and so forth. This is also the reason that choosing can be tricky. We have used our proprietary ranking system to pick four stocks that appear attractive today.
Groupon, Inc. (GRPN - Free Report) : Chicago-based Groupon offers a B2C marketplace, including a focus on deals. Its mobile application and website groupon.com cover three primary categories: Local (merchandise and local events), Goods (third-party merchandise) and Travel (accommodations, air tickets and packages for domestic and international destinations). The company generates Service revenues (through commission as well as advertising) from these three categories. North America accounted for nearly 74% of revenue last year with International bringing in the balance.
Mobile commerce is a big driver for the company, which has recently transitioned from a deals site to a full-fledged marketplace. It has harnessed AI across the business, making life easier for both buyers and sellers and continues to take out costs to align with the new structure. Groupon does continue to see some challenges with respect to the reliability of its website and its international business has been less than satisfactory. But with sales returning to growth (after eight years) in the fiscal first quarter and the North America segment continuing to grow in the second, there is reason to believe that the ongoing transformation will remain on track.
The optimism is reflected in analyst estimates, which grew 17 cents (56.7%) for 2024 and 3 cents (3.1%) for 2025 in the last 60 days. Analyst estimates represent EPS growth of 190.4% in 2024 and 96.8% in 2025.
The shares of this Zacks Rank #1 (Strong Buy) company down 20.6% over the past year.
Price & Consensus: GRPN
Image Source: Zacks Investment Research
JD.com, Inc. (JD - Free Report) : Beijing-based JD offers ecommerce platforms, along with associated logistics, real estate, asset management services, storage and other management services in China. Although its range of electronic goods is extensive, it also offers general merchandise, healthcare and industrial supplies. It also supplies data, technology and other solutions facilitating the digitization of enterprises.
The company continues to generate revenue and earnings growth on the back of its general merchandise category, which continues to benefit from the recovery in supermarkets. Its broad selection, competitive pricing and good customer service no doubt helped. The strong momentum in the business is likely to ensure steady payouts to investors in the form of both dividends and share repurchases.
In the last 60 days, the Zacks Consensus Estimate for 2024 has increased 57 cents (16.8%). For 2025, it is up 51 cents (14%). Analysts expect earnings growth of 27.2% in 2024 and 4.5% in 2025.
The Zacks Rank #1 stock is up 14.4% over the past year.
Price & Consensus: JD
Image Source: Zacks Investment Research
Carvana Co. (CVNA - Free Report) : Tempe, AZ-based Carvana operates an ecommerce platform for buying and selling used cars in the United States. Its platform allows customers to research and identify a vehicle; inspect it using the company's 360-degree vehicle imaging technology; obtain financing and warranty coverage; purchase the vehicle; and schedule delivery or pick-up from their desktop or mobile devices. Carvana also operates auction sites.
While the number of cars sold by this online dealer of used cars is just crossing 100,000 units, a couple of factors increase our optimism regarding this stock. The first is, this is a leading player in a nascent market, as cars are still largely sold offline. Therefore, it is something of a trend-setter that will definitely see some first-mover benefits, if it isn’t already. The second point is that it is growing profitably, which is not the case for most relatively new businesses. Recent results were strong and the EBITDA growth outlook, although from a small base, is impressive.
Analyst estimates are also extremely encouraging. For the current year, analysts have gone up from the expected loss of 24 cents 60 days ago to a profit of 2 cents right now. For 2025, their profit estimates are up from a mere 37 cents 60 days ago to $1.85 currently. That’s pretty phenomenal, and just the kind of stock growth investors would be looking to snatch up.
Investors are certainly piling into this Zacks #2 (Buy) ranked stock, with the shares up 329.1% in the past year.
Price & Consensus: CVNA
Image Source: Zacks Investment Research