E-commerce bonds: a relative value analysis E-commerce bonds: a relative value analysis E-commerce bonds: a relative value analysis

E-commerce bonds: a relative value analysis

Althea Spinozzi

Head of Fixed Income Strategy

Summary:  E-commerce bonds offer in average lean leverage and healthy credit ratios. While the average yield across maturities in euro is near zero, in US dollar it's around 1.7% with some companies offering yields well above 3%. We find that corporates with exposure to the hospitality sector offer the highest risk amid the Covid-19 pandemic with Expedia most likely to suffer from a rating downgrade in the coming months. Credit quality of the rest of e-commerce corporates is high offering safe assets within the investment-grade space.

Following Peter’s analysis of e-commerce stocks, I would like to analyze the bonds that are offered by this sector. 

Not all of the companies indicated by Peter have bonds; however, for those that do, we find that they offer an average yield of 1.7% in US dollar and near-zero yields in euro. Of course, bond yields vary vastly according to the duration and rating of a bond. Still, such a low average yield indicates that e-commerce credits are qualitatively high. For simplicity, in this analysis, we will analyze only US dollar bonds as near-zero yields offered by euro bonds makes them less exciting.

The bond list is characterized by notes with an investment-grade rating except for Tripadvisor and Angi Homeservices, and offer maturities ranging from 2021 until 2060.

Looking at the fundamentals, we immediately see that, on average, e-commerce corporates are sound with lean leverage. Nevertheless, it is not the case for Expedia (S&P: BBB-; Moody’s Baa3) which offers the highest leverage with a net debt to EBITDA of 4.38x compared to the list's median of -1.55x. Besides, the company's credit conditions look shaky compared to other investment-grade peers because of its high negative operating margins.

Also Tripadvisor (S&P: B-; Moody’s B1) doesn't shine, as it presents negative operating margins as well as negative interest coverage. It is important to note, however, that in contrast with Expedia, Tripadvisor is rated as junk. Hence, Expedia is exposed to a downgrade risk while Tripadvisor is not. With this in mind, Tripadvisor US dollar notes with maturity 2025 (USU8966TAA61) offer a yield close to 5%, while Expedia notes with similar maturities (USU3010DAH36) offer around 200bps less.

It is important to note that Tripadvisor, Expedia and Booking Holdings operate in the hospitality business. Therefore, if countries' lockdown measures amid the Covid-19 pandemic continue to restrict the movement of people, we can expect the fundamentals of these companies to deteriorate further. Within this context, Booking Holdings looks to be in better conditions to weather the crisis compared to the two, with a good rating of A- (S&P), and healthy credit ratios. However, quality doesn't come cheap as investors will get only 2% in yield for a 10-year note (US09857LAR96).

The company that looks to be offering the best tradeoff between risk and reward it is Angi Homeservices. Angi is active within the home services digital market place. Even though it is rated junk by Moody's and S&P (Ba3; BB-),  the company has healthy leverage and good interest coverage ratio, even once capital expenditures are taken into account. It is important to note that Angi is a much smaller company compared to peers. Hence, its notes bring much higher liquidity and refunding risk compared to others. The company offers only bonds with 2028 maturity (USU0035LAA71), which offer a yield of 3.6%, around 40bps points higher than Expedia's bonds with similar maturity (US30212PAP09).

Looking away from higher-yielding e-commerce companies, the list offers high quality and safe investments. The two companies that stand out in terms of quality are Amazon and Alibaba.  Alibaba provides a higher yield for bonds of the same maturity. Still, the credit quality of the company is way better than Amazon, as it is characterized by higher operating margins and interest coverage and a negative net debt to EBITA. The Alibaba 2037 (US01609WAU62) offers a yield of 2.7% compared to Amazon 2037 (US023135BF28), which offer only 2.1% in yield.
IssuerCurrencyMaturityRatingCouponYield MinimumID_ISIN
ANGI GROUP LLCUSD8/15/2028BB-3.875%3.6%50kUSU0035LAA71
ALIBABA GROUP HOLDINGUSD12/6/2027A+3.400%1.6%200kUS01609WAT99
ALIBABA GROUP HOLDINGUSD11/28/2024A+3.600%1.0%200kUS01609WAQ50
ALIBABA GROUP HOLDINGUSD12/6/2047A+4.200%2.9%200kUS01609WAV46
ALIBABA GROUP HOLDINGUSD11/28/2021A+3.125%0.3%200kUS01609WAP77
ALIBABA GROUP HOLDINGUSD12/6/2057A+4.400%2.9%200kUS01609WAW29
ALIBABA GROUP HOLDINGUSD12/6/2037A+4.000%2.7%200kUS01609WAU62
ALIBABA GROUP HOLDINGUSD11/28/2034A+4.500%2.4%200kUS01609WAR34
ALIBABA GROUP HOLDINGUSD6/6/2023A+2.800%0.6%200kUS01609WAS17
ALIBABA GROUP HOLDINGUSD11/28/2024A+3.600%1.0%200kUSG01719AE63
ALIBABA GROUP HOLDINGUSD11/28/2021A+3.125%0.5%200kUSG01719AA42
ALIBABA GROUP HOLDINGUSD11/28/2034A+4.500%2.4%200kUSG01719AF39
AMAZON.COM INCUSD6/3/2050A+2.500%2.4%50kUS023135BT22
AMAZON.COM INCUSD6/3/2060A+2.700%2.5%50kUS023135BU94
AMAZON.COM INCUSD6/3/2030A+1.500%1.3%50kUS023135BS49
AMAZON.COM INCUSD8/22/2057A+4.250%2.7%50kUS023135BM78
AMAZON.COM INCUSD8/22/2047A+4.050%2.5%50kUS023135BJ40
AMAZON.COM INCUSD12/5/2044A+4.950%2.4%50kUS023135AQ91
AMAZON.COM INCUSD6/3/2025A+0.800%0.6%50kUS023135BQ82
AMAZON.COM INCUSD8/22/2027A+3.150%1.0%50kUS023135BC96
AMAZON.COM INCUSD6/3/2027A+1.200%1.0%50kUS023135BR65
AMAZON.COM INCUSD8/22/2037A+3.875%2.1%50kUS023135BF28
AMAZON.COM INCUSD11/29/2022A+2.500%0.3%50kUS023135AJ58
AMAZON.COM INCUSD6/3/2023A+0.400%0.3%50kUS023135BP00
AMAZON.COM INCUSD8/22/2024A+2.800%0.6%50kUS023135AZ90
AMAZON.COM INCUSD12/5/2034A+4.800%1.7%50kUS023135AP19
AMAZON.COM INCUSD12/3/2025A+5.200%0.7%50kUS023135BN51
AMAZON.COM INCUSD2/22/2023A+2.400%0.3%50kUS023135AW69
AMAZON.COM INCUSD12/5/2021A+3.300%0.1%50kUS023135AM87
AMAZON.COM INCUSD12/5/2024A+3.800%0.6%50kUS023135AN60
BOOKING HOLDINGS INCUSD4/13/2030A-4.625%2.1%50kUS09857LAR96
BOOKING HOLDINGS INCUSD4/13/2025A-4.100%1.1%50kUS09857LAP31
BOOKING HOLDINGS INCUSD6/1/2026A-3.600%1.3%50kUS741503AZ91
BOOKING HOLDINGS INCUSD4/13/2027A-4.500%1.6%50kUS09857LAQ14
BOOKING HOLDINGS INCUSD3/15/2023A-2.750%0.7%50kUS741503BB15
BOOKING HOLDINGS INCUSD3/15/2025A-3.650%1.1%50kUS741503AW60
BOOKING HOLDINGS INCUSD3/15/2028A-3.550%1.7%50kUS741503BC97
EXPEDIA GROUP INCUSD2/15/2030BBB-3.250%3.2%50kUS30212PAR64
EXPEDIA GROUP INCUSD2/15/2028BBB-3.800%3.2%50kUS30212PAP09
EXPEDIA GROUP INCUSD2/15/2026BBB-5.000%2.9%50kUS30212PAM77
EXPEDIA GROUP INCUSD5/1/2025BBB-7.000%1.8%50kUSU3010DAJ91
EXPEDIA GROUP INCUSD8/15/2024BBB-4.500%2.0%50kUS30212PAJ49
EXPEDIA GROUP INCUSD5/1/2025BBB-6.250%3.1%50kUSU3010DAH36
EXPEDIA GROUP INCUSD12/15/2023BBB-3.600%2.2%50kUSU3010DAK64
EXPEDIA GROUP INCUSD8/1/2027BBB-4.625%3.4%50kUSU3010DAL48
EXPEDIA GROUP INCUSD2/15/2030BBB-3.250%3.1%50kUSU3010DAG52
EXPEDIA GROUP INCUSD2/15/2026BBB-5.000%3.0%50kUSU3010DAE05
JD.COM INCUSD1/14/2030BBB3.375%2.2%200kUS47215PAE60
JD.COM INCUSD4/29/2026BBB3.875%1.7%200kUS47215PAC05
JD.COM INCUSD4/29/2021BBB3.125%1.2%200kUS47215PAB22
JD.COM INCUSD1/14/2050BBB4.125%3.6%200kUS47215PAF36
TRIPADVISOR INCUSD7/15/2025B+7.000%4.8%50kUSU8966TAA61
EBAY INCUSD7/15/2042BBB4.000%3.1%50kUS278642AF09
EBAY INCUSD7/15/2022BBB2.600%0.4%50kUS278642AE34
EBAY INCUSD8/1/2024BBB3.450%0.8%50kUS278642AL76
EBAY INCUSD1/30/2023BBB1.084%0.5%50kUS278642AT03
EBAY INCUSD3/11/2025BBB1.900%0.9%50kUS278642AV58
EBAY INCUSD1/30/2023BBB2.750%0.5%50kUS278642AS20
EBAY INCUSD6/5/2027BBB3.600%1.5%50kUS278642AU75
EBAY INCUSD3/9/2022BBB3.800%0.4%50kUS278642AN33
EBAY INCUSD3/11/2030BBB2.700%2.0%50kUS278642AW32
BOOKING HOLDINGS INCEUR3/3/2027A-1.800%0.4%100kXS1196503137
BOOKING HOLDINGS INCEUR9/23/2024NR2.375%0.1%100kXS1112850125
BOOKING HOLDINGS INCEUR3/10/2022A-0.800%-0.3%100kXS1577747782
BOOKING HOLDINGS INCEUR11/25/2022A-2.150%-0.2%100kXS1325825211
EXPEDIA GROUP INCEUR6/3/2022BBB-2.500%0.5%100kXS1117297512

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