E-commerce bonds: a relative value analysis

E-commerce bonds: a relative value analysis

Bonds
Althea Spinozzi

Senior Fixed Income Strategist, Saxo Bank Group

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.
Issuer Currency Maturity Rating Coupon Yield  Minimum ID_ISIN
USD
ANGI GROUP LLC USD 8/15/2028 BB- 3.875% 3.6% 50k USU0035LAA71
ALIBABA GROUP HOLDING USD 12/6/2027 A+ 3.400% 1.6% 200k US01609WAT99
ALIBABA GROUP HOLDING USD 11/28/2024 A+ 3.600% 1.0% 200k US01609WAQ50
ALIBABA GROUP HOLDING USD 12/6/2047 A+ 4.200% 2.9% 200k US01609WAV46
ALIBABA GROUP HOLDING USD 11/28/2021 A+ 3.125% 0.3% 200k US01609WAP77
ALIBABA GROUP HOLDING USD 12/6/2057 A+ 4.400% 2.9% 200k US01609WAW29
ALIBABA GROUP HOLDING USD 12/6/2037 A+ 4.000% 2.7% 200k US01609WAU62
ALIBABA GROUP HOLDING USD 11/28/2034 A+ 4.500% 2.4% 200k US01609WAR34
ALIBABA GROUP HOLDING USD 6/6/2023 A+ 2.800% 0.6% 200k US01609WAS17
ALIBABA GROUP HOLDING USD 11/28/2024 A+ 3.600% 1.0% 200k USG01719AE63
ALIBABA GROUP HOLDING USD 11/28/2021 A+ 3.125% 0.5% 200k USG01719AA42
ALIBABA GROUP HOLDING USD 11/28/2034 A+ 4.500% 2.4% 200k USG01719AF39
AMAZON.COM INC USD 6/3/2050 A+ 2.500% 2.4% 50k US023135BT22
AMAZON.COM INC USD 6/3/2060 A+ 2.700% 2.5% 50k US023135BU94
AMAZON.COM INC USD 6/3/2030 A+ 1.500% 1.3% 50k US023135BS49
AMAZON.COM INC USD 8/22/2057 A+ 4.250% 2.7% 50k US023135BM78
AMAZON.COM INC USD 8/22/2047 A+ 4.050% 2.5% 50k US023135BJ40
AMAZON.COM INC USD 12/5/2044 A+ 4.950% 2.4% 50k US023135AQ91
AMAZON.COM INC USD 6/3/2025 A+ 0.800% 0.6% 50k US023135BQ82
AMAZON.COM INC USD 8/22/2027 A+ 3.150% 1.0% 50k US023135BC96
AMAZON.COM INC USD 6/3/2027 A+ 1.200% 1.0% 50k US023135BR65
AMAZON.COM INC USD 8/22/2037 A+ 3.875% 2.1% 50k US023135BF28
AMAZON.COM INC USD 11/29/2022 A+ 2.500% 0.3% 50k US023135AJ58
AMAZON.COM INC USD 6/3/2023 A+ 0.400% 0.3% 50k US023135BP00
AMAZON.COM INC USD 8/22/2024 A+ 2.800% 0.6% 50k US023135AZ90
AMAZON.COM INC USD 12/5/2034 A+ 4.800% 1.7% 50k US023135AP19
AMAZON.COM INC USD 12/3/2025 A+ 5.200% 0.7% 50k US023135BN51
AMAZON.COM INC USD 2/22/2023 A+ 2.400% 0.3% 50k US023135AW69
AMAZON.COM INC USD 12/5/2021 A+ 3.300% 0.1% 50k US023135AM87
AMAZON.COM INC USD 12/5/2024 A+ 3.800% 0.6% 50k US023135AN60
BOOKING HOLDINGS INC USD 4/13/2030 A- 4.625% 2.1% 50k US09857LAR96
BOOKING HOLDINGS INC USD 4/13/2025 A- 4.100% 1.1% 50k US09857LAP31
BOOKING HOLDINGS INC USD 6/1/2026 A- 3.600% 1.3% 50k US741503AZ91
BOOKING HOLDINGS INC USD 4/13/2027 A- 4.500% 1.6% 50k US09857LAQ14
BOOKING HOLDINGS INC USD 3/15/2023 A- 2.750% 0.7% 50k US741503BB15
BOOKING HOLDINGS INC USD 3/15/2025 A- 3.650% 1.1% 50k US741503AW60
BOOKING HOLDINGS INC USD 3/15/2028 A- 3.550% 1.7% 50k US741503BC97
EXPEDIA GROUP INC USD 2/15/2030 BBB- 3.250% 3.2% 50k US30212PAR64
EXPEDIA GROUP INC USD 2/15/2028 BBB- 3.800% 3.2% 50k US30212PAP09
EXPEDIA GROUP INC USD 2/15/2026 BBB- 5.000% 2.9% 50k US30212PAM77
EXPEDIA GROUP INC USD 5/1/2025 BBB- 7.000% 1.8% 50k USU3010DAJ91
EXPEDIA GROUP INC USD 8/15/2024 BBB- 4.500% 2.0% 50k US30212PAJ49
EXPEDIA GROUP INC USD 5/1/2025 BBB- 6.250% 3.1% 50k USU3010DAH36
EXPEDIA GROUP INC USD 12/15/2023 BBB- 3.600% 2.2% 50k USU3010DAK64
EXPEDIA GROUP INC USD 8/1/2027 BBB- 4.625% 3.4% 50k USU3010DAL48
EXPEDIA GROUP INC USD 2/15/2030 BBB- 3.250% 3.1% 50k USU3010DAG52
EXPEDIA GROUP INC USD 2/15/2026 BBB- 5.000% 3.0% 50k USU3010DAE05
JD.COM INC USD 1/14/2030 BBB 3.375% 2.2% 200k US47215PAE60
JD.COM INC USD 4/29/2026 BBB 3.875% 1.7% 200k US47215PAC05
JD.COM INC USD 4/29/2021 BBB 3.125% 1.2% 200k US47215PAB22
JD.COM INC USD 1/14/2050 BBB 4.125% 3.6% 200k US47215PAF36
MEITUAN USD 10/28/2030 BBB- 3.050% 2.7% 200k USG59669AC89
MEITUAN USD 10/28/2025 BBB- 2.125% 1.9% 200k USG59669AB07
TRIPADVISOR INC USD 7/15/2025 B+ 7.000% 4.8% 50k USU8966TAA61
EBAY INC USD 7/15/2042 BBB 4.000% 3.1% 50k US278642AF09
EBAY INC USD 7/15/2022 BBB 2.600% 0.4% 50k US278642AE34
EBAY INC USD 8/1/2024 BBB 3.450% 0.8% 50k US278642AL76
EBAY INC USD 1/30/2023 BBB 1.084% 0.5% 50k US278642AT03
EBAY INC USD 3/11/2025 BBB 1.900% 0.9% 50k US278642AV58
EBAY INC USD 1/30/2023 BBB 2.750% 0.5% 50k US278642AS20
EBAY INC USD 6/5/2027 BBB 3.600% 1.5% 50k US278642AU75
EBAY INC USD 3/9/2022 BBB 3.800% 0.4% 50k US278642AN33
EBAY INC USD 3/11/2030 BBB 2.700% 2.0% 50k US278642AW32
EUR
BOOKING HOLDINGS INC EUR 3/3/2027 A- 1.800% 0.4% 100k XS1196503137
BOOKING HOLDINGS INC EUR 9/23/2024 NR 2.375% 0.1% 100k XS1112850125
BOOKING HOLDINGS INC EUR 3/10/2022 A- 0.800% -0.3% 100k XS1577747782
BOOKING HOLDINGS INC EUR 11/25/2022 A- 2.150% -0.2% 100k XS1325825211
EXPEDIA GROUP INC EUR 6/3/2022 BBB- 2.500% 0.5% 100k XS1117297512

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