E-commerce stocks are expensive but have roaring growth rates

Equities 4 minutes to read

Peter Garnry

Head of Equity Strategy

Summary:  In today's equity update, we take a look at 48 companies within e-commerce representing $3.5trn in market value. The group has revenue growth of 30% based on the latest earnings releases and analysts continue to be positive on the majority of the e-commerce stock seeing 16% upside on average over the coming 12 months. This group of e-commerce stocks represent around 6% of the global equity market value, but with half of Amazon's value likely coming from its cloud business the real weight is probably only 4% leaving plenty of room for market value increase over the coming decade.


With the Q3 earnings season almost done and the Covid-19 pandemic still raging on across the globe it is time to look at e-commerce companies which got the biggest boost this year. We have identified 48 companies operating within e-commerce as their primary domain (see list at the bottom) with combined market value of $3.5trn representing around 6% of the global equity market. These companies are still growing rapidly with the average growth around 30% y/y based on their latest earnings reports. As a group e-commerce companies are still not delivering positive ROIC numbers but is primarily a function of a lot of smaller e-commerce companies focusing on revenue growth in stead of profitability. The average ROIC among the 10 largest e-commerce companies is around 5% impacted negatively by China-based Pinduoduo.

Analysts continue to be positive on the industry with the average price target being around 16% higher than the current price level. If this e-commerce group collectively delivers 16% over the next 12 months that is a very attractive return given the uncertainty in the economy. The high growth does not come cheap with the average valuation on 12-month forward EV/EBITDA being 69x or 5 times more expensive than the global equity market. But valuations shouldn't scare investors from investing in e-commerce companies. The lesson from Microsoft is that its stock was also 5 times more expensive than the US equity market in 1986 but has still managed to deliver 26.6% annualised return excluding dividends for its shareholders. The lesson is, that if you are picking tomorrow’s winners valuation means less as the market often undervalues the long-term compounding effects of a winning business.

Another important principle worth considering is the fact that per definition all the biggest companies in the equity market today, or at any given time, was a high-growth company and thus if you are long-term winner your objective should be to pick the long-term winners. Said in another way, long-term investors should focus on growth companies.

NameRegion (*)Market Cap (USD mn.)Sales growth (%)ROIC (%)Diff to PT (%)12M Fwd EV/EBITDA
Amazon.com IncGlobal1,574,18920.513.421.524.2
Alibaba Group Holding LtdChina718,75235.39.428.818.3
MeituanChina217,59949.52.84.371.2
Pinduoduo IncChina133,487129.7-34.4-19.4#N/A
JD.com IncChina129,63624.98.76.125.8
Shopify IncGlobal115,46547.0-0.918.2241.1
Booking Holdings IncGlobal81,9113.74.3-5.225.7
MercadoLibre IncBrazil64,93359.53.310.9189.8
NetEase IncChina61,90915.815.115.716.1
eBay IncGlobal32,8880.527.230.29.4
Chewy IncUnited States26,37937.2#N/A11.7221.0
Delivery Hero SEMENA25,35186.1-26.96.1#N/A
Wayfair IncUnited States25,03534.60.818.936.4
Zalando SEEurope24,96620.39.34.431.2
Ocado Group PLCUnited Kingdom23,1749.9-4.2-10.8198.7
Trip.com Group LtdChina21,05415.20.4-7.532.8
Expedia Group IncGlobal16,9337.5-17.1-5.121.9
Just Eat Takeaway.com NVEurope16,68079.0-1.224.438.8
Etsy IncUnited States16,46635.618.222.631.8
Rakuten IncJapan15,34514.7-4.013.5-16.6
Farfetch LtdGlobal14,47569.5-46.3-7.5799.0
Vipshop Holdings LtdChina14,12810.019.92.210.0
HelloFresh SEEurope9,10841.448.929.716.8
ZOZO IncJapan8,2526.055.96.419.0
THG Holdings PLC (Hut Group)Global7,89824.5#N/A33.336.9
Williams-Sonoma IncUnited States7,4524.017.14.110.2
Dada Nexus LtdChina6,99061.3-43.317.0#N/A
Grubhub IncGlobal6,82030.3-6.52.042.0
Mercari IncJapan6,38047.6-12.128.7106.3
ASOS PLCUnited Kingdom6,02919.417.89.915.7
Fiverr International LtdUnited States5,64341.8-7.37.2217.5
ANGI Homeservices IncUnited States5,38317.10.226.828.0
boohoo Group PLCUnited Kingdom4,59344.130.457.916.7
LendingTree IncUnited States4,09644.70.715.128.6
Stitch Fix IncGlobal3,9248.5-10.7-19.542.0
Qurate Retail IncGlobal3,629-4.311.222.84.6
LivePerson IncUnited States3,55616.7-30.831.090.3
Stamps.com IncUnited States3,518-2.621.293.315.2
TripAdvisor IncGlobal3,385-3.4-12.9-10.120.1
Baozun IncChina3,06135.07.914.420.2
Shop Apotheke Europe NVGermany2,94029.9#N/A20.891.0
Shutterstock IncGlobal2,4904.415.711.414.5
MakeMyTrip LtdIndia2,4575.3-38.6-15.6#N/A
Overstock.com IncUnited States2,226-19.93.693.420.5
Yelp IncGlobal2,1387.6-2.2-3.110.3
eHealth IncUnited States1,897101.415.474.78.9
Jumia Technologies AGAfrica1,05124.3-164.20.8#N/A
PetMed Express IncUnited States6450.227.63.612.2
Aggregate / mean3,485,67429.6-1.915.769.1

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

 

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract) and Type 3 Regulated Activity (Leveraged foreign exchange trading) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.