In this article, we present to you the 15 Best E-Commerce Stocks to Buy Now. If you’re in a hurry you can skip ahead and jump straight to the 5 Best E-Commerce Stock to Buy Now.
E-commerce is defined as the business platform that allows individuals to market and purchase items over the internet. The platform has helped businesses reach a wider market by providing a more efficient alternative to purchasing products. In an article, we discussed the 10 best selling products online in 2020 based on best selling products from e-commerce websites.
The ongoing digitalization of the modern world has helped make E-commerce become widely popular in our society. In 2019, an estimated 1.92 billion people globally purchased goods and services online. During the same year, e-retail sales were $3.5 trillion worldwide.
As a result of recent activities to help stop the spread of COVID-19, the e-commerce industry has boomed and is expected to continuously stay relevant and competitive during this “new normal”. The platform has provided customers with access to products from the convenience and safety of their own homes, and at the same time, it has helped firms to continue operations. The World Health Organization mentioned that
“The likelihood of an infected person contaminating commercial goods is low and the risk of catching the virus that causes COVID-19 from a package that has been moved, traveled, and exposed to different conditions and temperature is also low.”
The pandemic has not only made online shopping convenient, it has also made the platform a necessity. Proving that during weak economic periods, the industry will withstand the test of stability. During the first half of the fiscal year 2020, online sales in the US increased by 30.1% on a year-on-year basis. In a study conducted by Grand View Research, the global e-market is expected to grow at a CAGR of 14.7% from 2020 to 2027.
The Biden Administration listed universal broadband as one of its priorities for economic recovery. $20 billion will be used for expanding rural broadband infrastructure (Please also see 12 Best Infrastructure Stocks to Buy Now), and tripling funding for community connect broadband grants to expand access in rural areas. Karen Kerrigan, president, and CEO of the Small Business and Entrepreneurship Council agrees that technology platforms are critical to a small-business,
“As we’ve seen during the Covid-19 crisis, access to broadband and technology platforms has been critical to small-business survival during this period, without broadband, it was very hard to pivot and move to new operating models.”
In order to identify the 15 best e-commerce stocks to buy now, we started with the 39 holdings in the Global X E-commerce ETF (EBIZ) as of December 22, 2020, and we were able to narrow down our list to 15 stocks by using our hedge fund sentiment scores.
So why did we use the hedge fund sentiment scores as the main criterion to determine the best e-commerce stocks to buy now? Our in-house analysis shows that we can classify in advance a select group of stocks that can outperform the S&P 500 index on an average by double digits annually by using the hedge fund sentiment data. For example, since March 2017, the portfolio of our monthly newsletter’s stock picks has beaten the market by over 78 percentage points (see the details here). We have also publicly shared some of our monthly newsletter’s portfolio holdings. In October, we shared this concept of real estate stock and since then it has been up more than 50 percent.
Based on our hedge fund sentiment data, we present to you, the 15 best e-commerce stocks to buy now among the 800+ hedge funds tracked by Insider Monkey:
15. Wayfair Inc (NYSE:W)
No of HFs: 40
Total Value of HF Holdings: $4.95 Billion
We start the list of the best e-commerce stocks to buy now with Wayfair, Inc. The company was formerly known as CSN. They are an e-commerce company that markets furniture and home-goods. W allows consumers to browse furniture such as bedroom, living room, kitchen, dining, and alike through digital platforms. During the third quarter of 2020, the company posted revenue of $3.84 billion.
In an article, we mentioned Artisan Mid Cap Fund’s comments on Wayfair:
“Revenue growth has slowed dramatically for Wayfair over the last year, in part due to rising trade tariffs. Meanwhile the company has been dramatically expanding headcount as well as its advertising and logistics spend, resulting in increasing losses and pushing out our margin expansion thesis. Given our lack of visibility into when these headwinds may abate, we decided to exit our position.”
WSJ recently wrote about Amazon’s unsuccessful but ferocious efforts to compete with Wayfair since 2016. At the time Wayfair had $3.4 billion in revenue and slightly under 18% of the online furniture sales market. Here is an excerpt:
“That year, Amazon launched its Wayfair Parity Team, which analyzed Wayfair’s business with the goal of eventually selling on Amazon 90% of furniture Wayfair offered, the people said. The team grew to around 100 people. It struggled to find Wayfair’s suppliers. Wary of competitors, Wayfair was buying items from manufacturers and rebranding them to mask their identity, said the people.
The team eventually identified the manufacturers by ordering Wayfair products to check manufacturing information and by going to trade shows to find Wayfair’s suppliers, they said. Amazon didn’t stop Wayfair’s growth. The smaller company increased its share of online furniture sales in the U.S. to 25% last year..
14. Qurate Retail (NASDAQ:QRTEA)
No of HFs: 41
Total Value of HF Holdings: $608 Million
Qurate Retail is an American media conglomerate that serves customers worldwide. The company that provides e-commerce services. The company focuses on video and digital e-commerce via television, websites, social media, mobile applications, and alike. During the third quarter of 2020, the company reported total revenue of $3.4 million.
In an article, we mentioned Silver Ring Value Partners’ comments on QRTEA,
“The company’s business is primarily interactive selling via the QVC and HSN brands. Despite the rise of Amazon and online retail, sales have been relatively stable over the last 5 years. The key to this business is a loyal cohort of customers that account for ~85% of sales. These customers are incredibly sticky and have formed a strong recurring habit of shopping on the company’s platforms. They make ~20 purchases per year and their habit of shopping with QVC/HSN has not been meaningfully disrupted by the growth in other forms of retail. It is this cohort that makes this business predictable and makes any rapid declines in revenues unlikely.
The business is not without its challenges. The integration of HSN over the last 2 years has caused issues, and led to a low single-digit decline in sales in 2019. The previously acquired Zulilly business has not done well, although it now accounts for less than 10% of profits and is not material to the overall value of the company. Also, as pay TV loses subscribers in the U.S., it becomes harder for the company to acquire top-of-funnel customers via its TV networks.
On the bright side, the company has benefitted from the COVID pandemic, which caused a spike in demand in Q2, which likely continued into Q3. The reason this is important to the long-term value of the business is not the temporary bump in sales, but the increase in top-of-funnel customers. Historically there has been a steady relationship between top-of-funnel customers and the number of loyal cohort customers which account for most of the company’s value. So far the new cohorts are showing similar behavior to those of the past, suggesting a permanent step-up in value from the impact of COVID on the company.”
13. Angi Homeservices, Inc. (NASDAQ:ANGI)
No of HFs: 43
Total Value of HF Holdings: $348 Million
Angi Homeservices, Inc. is an internet service with a digital marketplace that serves customers worldwide. The company focuses on home improvement; connecting homeowners to services professionals for home services.
The top hedge fund holder of this stock is Jim Simons’ Renaissance Technologies which had over $46 million invested in the stock at the end of September.
12. Godaddy, Inc. (NYSE:GDDY)
No of HFs: 44
Total Value of HF Holdings: $2.41 Billion
Godaddy, Inc. is one of the world’s largest service platform for online sellers around the world. The company provides small businesses with email management, web development, website security, and alike. Recently, GDDY released plans of acquiring a California payment servicer in a $365 million deal. The company said that the acquisition will bring more than $150 million in booking in 2023.
GoDaddy outperforms the market and rises 22% in the last one year. In an article, Coho Capital Management said that GDDY is the global leader in domain name registration,
“We relay the story of Geico as we believe it shares some commonalities with GoDaddy, one of our most recent purchases. Like Geico, GoDaddy benefits from scale economics in a commodity industry. GoDaddy is the global leader in domain name registration with a market share of 22%, 2.5x its next largest competitor. Like Geico, GoDaddy’s markets can be characterized as having low barriers to entry but high barriers to scale. Growth beyond a certain scale requires greater data center capacity, robust customer service options, and enhanced analytics. Last, like Geico, GoDaddy benefits from a well-known brand name (81% brand awareness in the US according to BrandOutlook), lowering its customer acquisition costs.
Much like Geico, GoDaddy operates in a commodity industry generating 46% of its revenue from website domain name registration and 38% from website hosting. GoDaddy’s unit economics, however, are anything but commodity-like with a gross profit contribution per customer of 64% and less than 15% annual churn. Fifteen percent may seem high but keep in mind many domains are a business dream with a web presence and creative destruction will do its work. The customers that stay with GoDaddy are immensely profitable translating into an LTV/CAC (lifetime value/customer acquisition cost) of over 10x.
11. NetEase, Inc. (NASDAQ:NTES)
No of HFs: 45
Total Value of HF Holdings: $3.66 Billion
Netease, Inc. is one of the largest internet and video game companies in the world. The company operates three business segments; online game service segments, the Youdao segment, and the innovative businesses and other segments.
NetEase music streaming service, NetEase Cloud Music recently announced a new platform called “Music Talent”, the platform will provide support to talents who create derivative music content and help artists earn an annual income of over RMB1 million or more.
10. Ebay, Inc. (NASDAQ:EBAY)
No of HFs: 50
Total Value of HF Holdings: $4.88 Billion
Ebay, Inc. is a global e-commerce company that connects users around the world. The company focuses on facilitating sales through their website. During the third quarter of 2020, the company reported a revenue of $2.6 billion. Ebay was also mentioned as one of the 15 best online shopping sites in India.
In an article, Steel City Capital mentioned that by 2020, Ebay’s managed payments initiative should more or less offset the cash flow the company will lose as a result of the sale of the classifieds portfolio.
“EBAY (Long): The Partnership has taken some profits in EBAY although our position remains sizeable at 10% of capital. A substantial portion of the investment thesis has played out, namely that activist-owner Elliot Management would instigate the sale of both StubHub and EBAY’s portfolio of classified businesses. The sale of StubHub was completed in early 2020 for net cash proceeds of ~$3.1 billion, and in the third quarter, the company announced it had entered into an agreement to sell the classifieds portfolio to Adevinta (ADE) for $2.0 billion of net cash and ~$6.7 billion worth of shares. The market responded positively to ADE’s acquisition and today the share-based consideration is worth ~$9.0 billion.
With a key component of the thesis realized, why not completely exit the position? The answer is what remains – the core EBAY marketplace – continues to trade at a modest price relative to its cash generating capacity. At the shares’ current price of $53, EBAY’s market capitalization is $37.5 billion. This includes $5.8 billion of cash and investments, implying a value net of cash of $31.7 billion. The company should generate an additional $1.25 billion of free cash flow in the second half of the year, receive $2.0 billion in net cash proceeds from ADE, and shares in ADE worth another $9.0 billion at current prices. Backing out these additional items results in a clean market cap of $19.5 million for EBAY’s core marketplace.
By 2022, EBAY’s managed payments initiative should more or less offset the cash flow the company will lose as a result of the sale of the classifieds portfolio. Steady state free cash flow should remain in the realm of $2.0 billion. To this end, I believe we are paying an effective 10x P/FCF multiple for the core marketplace business. Say what you want about EBAY, but this is hardly a demanding valuation for a capital-light (a positive in an inflationary world) ecommerce operator (a positive in a pandemic-stricken world).”
9. Etsy, Inc. (NASDAQ:ETSY)
No of HFs: 51
Total Value of HF Holdings: $1.89 Billion
Etsy, Inc. is an acronym for Easy to Sell Yourself. From the company name itself, they are a global online marketplace that allows easy transactions for users to market and purchases item through their e-commerce website.
If you are looking for the best idea for your portfolio, in an article, we mentioned Greenhaven Road Capital’s comments on ETSY and it might just help you make that decision,
“ETSY (ETSY) – Etsy is the most expensive company that we own on a price-to-sales basis. It also one of the highest quality and most resilient as a vibrant two sided marketplace. Management is making several operational improvements that have grown revenues and improved margins. With price increases, they are investing in growing the base of buyers, improving the search results shoppers receive, and enhancing the tools available for sellers. Etsy has announced their first significant acquisition, and we believe this boutique Amazon alternative has a long runway for growth with no additional capital requirements.”
In a separate article, we also mention Greenhaven Road Captial’s comments on the stock,
“Our “bet” on Etsy (ETSY) is also one on status quo/trend continuation. The thesis is that Etsy will remain a viable niche alternative to Amazon and will continue to improve the monetization of their two-sided marketplace. Our bet on Digital Turbine (APPS) is that they will continue growing their distribution channel for apps on smart phones, particularly for slots controlled by carriers. If successful, we will see the number of devices and revenue per device continue to improve. KKR, Etsy, and Digital Turbine are all asset-light businesses where additional growth will not require raising additional capital, and they should benefit from operating leverage such that their margins should improve as their revenues grow. Thus, even in a “status quo” scenario, the underlying economics should improve and there is not a reliance on the capital markets to get there. They are in control of their own destinies.
It is worth highlighting that while KKR, Etsy, and Digital Turbine are all “bets” on the status quo, they are different in that KKR’s end market is institutional investors, Etsy deals with small merchants and consumers, and Digital Turbine deals with cell phone carriers and large companies with apps. These different end markets also all have different dynamics and are largely independent.”
8. Costar Group, Inc. (NASDAQ:CSGP)
No of HFs: 55
Total Value of HF Holdings: $3.04 Billion
Costar Group, Inc. is one of the world’s largest providers for information, analytics, and marketing services for commercial real estate. The company conducts research to produce and maintain the most detailed database for real estate information.
Is Costar Group, Ins a smart long-term buy? In an article, Baron Partners Fund had a few comments on CSGP,
“Shares of real estate information and marketing services provider CoStar Group, Inc. contributed to performance as net new sales reaccelerated quickly. Demand for CoStar’s digital marketplace businesses has grown as traditionally offline activities have increasingly shifted online during the pandemic. This growth was partially offset by slower trends in CoStar’s CRE data licensing businesses. The company has over $3.6 billion cash, which we expect to be used for market-expanding acquisitions.”
7. Expedia Group, Inc. (NASDAQ:EXPE)
No of HFs: 64
Total Value of HF Holdings: $3.78 Billion
Expedia Group, Inc. is an online travel shopping company. Their website provides consumers and small business travel details on travel fare aggregators, travel metasearch engines including car rentals, hotels, and alike.
In an article, Distillate Capital mentioned that EXPE’s share price has created a very attractive longer-term opportunity,
“The biggest addition by weight in the rebalance was Expedia (EXPE), the travel company. While it is clear that the company faces a very challenging near-term environment for travel, the roughly 55% fall in the company’s share price has created a potentially very attractive longer-term opportunity. Against a market cap of just under $8 billion, the company has total debt of around $4.9 billion but offsetting cash of around $4.6 billion, which should help it to withstand near-term challenges. Looking forward, the company is projected to generate well over $1.5 billion of free cash flow per year, which gives it an extremely attractive valuation. Given that companies in our strategy are weighted on the basis of their normalized cash flows, the disconnect between the steep price decline and more stable normalized free cash flows drives a substantial increase in the position weight.”
6. Mercadolibre, Inc. (NASDAQ:MELI)
No of HFs: 81
Total Value of HF Holdings: $5.76 Billion
Mercadolibre, Inc. operates an online commerce platform that is dedicated to e-commerce and online auctions. As of the third quarter of 2020, the company’s users have rose to 16.8 million compared to 13 million during the first quarter of 2020.
The top hedge fund holder of this stock is Raiv Jain’s GQG Partners, which had over $1.28 billion invested in the stock at the end of September.
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Disclosure: None. 15 Best E-Commerce Stocks To Buy Now is originally published at Insider Monkey.