Launching Saxo’s E-commerce theme basket as more growth lies ahead

We have written and talked a lot about e-commerce stocks last year (read latest note from November here) as the pandemic turbocharged investor demand for these 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.

Saxo’s E-commerce theme basket and the next stage of growth

As we all our equity theme baskets we try to strike a balance between geographical diversification, balanced in terms of subcategories within the overall theme, and select the companies mostly on market cap without any regards to valuation metrics. These baskets are inspirational lists and not our investment recommendations. Investors should do their own due diligence of these stocks and make their own assessments of whether the theme and the individual stocks make sense in their respective portfolio.

We have selected 40 stocks for this e-commerce theme with a global focus. We have excluded travel and leisure stocks such as travel sites and travel recommendation sites, which are e-commerce in a sense but we have decided to put those companies 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.

Source: Bloomberg and Saxo Group
* Region is the main geographical revenue segment and global if geographical segments are almost equal

The two biggest companies in the global e-commerce industry are Amazon and Alibaba, and both companies reported Q4 earnings this week which were strong and bolstered sentiment in the industry propelling e-commerce to new all-time highs. While growth rates have been strong for e-commerce in 2020 and will come down in 2021 the outlook remains strong. In this note from Nasdaq, several key insights on e-commerce are discussed. Online retail reached 16% of total US retail sales in 2020 and that share will likely continue to increase due to 1) e-commerce moving into the three biggest retail categories groceries, health, and cars, and 2) demographics which means that the population under 40 today will increase in terms of spending power over the next 20 years and their habits are shaped by the Internet more than their parents’ generation.

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.

On a bigger macro level, we see two trends. In the US and Europe, e-commerce will deliver its future growth from penetration of existing categories such as electronic and clothing, but the biggest growth will be in 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, Shopify has written an interesting piece here.

E-commerce stocks up 7% this month on strong Q4 earnings

Our e-commerce basket is up 14.8% year-to-date as of yesterday’s close and is thus the best performing theme in our universe of themes and the basket is up 700% over the past five years outperforming the MSCI World Index by a wide margin (see chart). Past performance is no indicator of future performance of course and given we select on market cap there is an inherent selection and survivorship bias in our basket. This 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.