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

 

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