E-commerce Juggernauts Going Further For Longer
Search. Click. Pay. Collect.
While the online shopping market segment has seen a bit of normalization since the decline of the pandemic; e-commerce continues to dominate the retail market, quite literally. In fact, the pandemic years were only the beginning, as it’s looking to be yet another eventful year ahead for some of the biggest and most successful names in the business.
Don’t believe me? Well, listen to the numbers talk. Globally, there are more than 26 million e-commerce sites. In the United States, there are already more than 9.5 million e-commerce platforms, and the number is only growing.
Globally, e-commerce is expected to generate more than $6.3 trillion this year, and that’s only a rough estimate. By next year, online shopping will account for nearly 21.2% of total retail sales globally.
Starting to believe me? The U.S. isn’t even in first place when it comes to online shopping. The International Trade Association predicts that China accounts for more than 50% of worldwide sales. How much do Chinese consumers spend? Well, around $3 trillion last year, alone.
In August, the U.S. Census estimated that total second-quarter e-commerce spending hit $269.5 billion – this was a 6.6% increase from the previous quarter.
Consumers can’t seem to get enough. Online shopping has become a digital retail slot machine that allows us to pull and refresh countless pages of products and services that uniquely fit our needs. And e-commerce giants are loving every minute we’re spending time and money on their sites.
Shooting higher and higher
Ready for launch? The last few months haven’t been the smoothest drive around the block for many ecommerce companies. Sinking consumer sentiment, due to rising prices, and weaker investor confidence have seen the company valuation slightly fall.
More than this, some of the companies that are listed here had to make some cutthroat “strategic changes” to help stabilize their bottom lines and restructure their balance sheets. One of which was by cutting employee headcount.
At the start of the year, one of the biggest in the business, Amazon cut more than 18,000 employees from its payroll and further froze new positions. In May, Shopify reduced its global headcount by 20% after an initial 10% cutback in July last year. The company went one step further, selling its logistics division to California-based Flexport.
Yet, the industry-wide layoffs that plagued tech companies and many e-commerce businesses and startups earlier in the year have seemed to pay off following recent third-quarter financial earnings.
Amazon Inc
Amazon (NASDAQ: AMZN) continues to be an e-commerce juggernaut. The Seattle-based company has perfected the formula of what it takes to stay ahead of competitors, while simultaneously diversifying its portfolio of operations to capture more than retail consumers.
Let’s start with some basics. The company recently reported its third-quarter financial earnings, and it didn’t disappoint. For starters, net sales increased by 13% to $143.1 billion, which is a strong rebound from the recorded $127.1 billion in net sales reported for the same quarter last year.
For its North American segment, sales surged by 11% and international sales jumped 16% year over year. Something that played in the company’s favor is the impact of year-over-year changes in foreign exchange rates, which helped increase net sales by 11%, and added roughly $1.4 billion in additional capital to its balance sheet.
However, retail sales aren’t the only thing that helped drive a prosperous third quarter. Amazon Web Services (AWS) helped boost earnings, as AWS sales bolstered another $23.1 billion in sales, representing a 12% year-over-year increase.
As you would know by now, the rapidly expanding Artificial Intelligence (AI) and Generative AI industry has captivated market headlines this year. The AWS business segment has delivered remarkable strides in the field of generative AI, along with a combination of custom AI chips.
The company’s Amazon Bedrock service is acclaimed as being the most flexible and efficient way of building generative AI applications. Amazon isn’t marketing these services to small individual players. Companies like United Airlines, GoDaddy, Booking.com, and even Adidas are now starting to run their generative AI workloads through the AWS system.
Investors are loving where AMZN is heading. Year-to-date growth is up 62% since the first trading week of November, and after experiencing a minor dip near the end of October, shares rumbled back up by nearly 17% over ten days. Whether you want to side with them or not, Amazon is on track to go beyond the moon, who knows where they will end up in a year from now?
Oracle Corporation
The software and computer technology company, Oracle (NYSE: ORCL) isn’t a name you’d expect to see on a list of e-commerce companies that are taking over the worldwide retail industry.
Well, even though Oracle is considered to be one of the biggest, and most influential technology companies – a part of its business is developing and deploying Business-to-Consumer (B2C) products that help create a more unified and streamlined e-commerce buying experience.
Looking at its underlying performance, more than 82% of its revenue is currently generated through its cloud business segment, which includes regulatory licenses. This percentage equates to roughly $42.2 billion in revenue. Other segments such as services contribute 11% of revenue or $5.62 billion, and hardware 6.3% or $3.23 billion.
Tying these strings together, Oracle is expected to generate more than $50.96 billion in revenue and $36.83 billion in gross revenue.
On a longer outlook, Oracle has managed to boost its earnings per share (EPS) by 30% year over year. That translates to an average of 17% year over year in share price performance.
For the fiscal third quarter, the company reported revenue increase in nearly every business segment. Overall, revenue climbed 45% to $4.1 billion, however, cloud infrastructure was up 55%; cloud application 42%, fusion cloud 25%; and NetSuit Cloud rose 23%.
The latter is what’s currently helping to drive Oracle’s e-commerce business segment. While we won’t see the company selling consumer goods anytime soon, the company holds a steady, yet highly diverse portfolio of technology and software infrastructure that’s enabling e-commerce businesses to power their online stores, analyze consumer data, and build more dynamic data analysis tools.
Shopify Inc
Next up is Shopify (NYSE: SHOP) that’s given investors a rosy forward-looking guidance following its third-quarter financial earnings. The company’s revenue swelled over recent months, leading to SHOP shares surging 22% in post-earnings trading.
The company is expecting its revenue to continue growing in the mid-twenties range on a year-over-year basis. On top of that, company directors are positive that the tail-end of the year will see revenue further expand in the high-teens range, with sales expected to beat analysts’ estimates as consumers begin to stock up on holiday purchases and other essential items.
Shopify has become a cash-generating machine. For starters, current top-line revenue growth experienced a 25% year-over-year improvement. Their third quarter posted a 16% increase in free cash flow and is on track with the company’s long-term annual guidance.
While Shopify has traditionally been the go-to place for small merchants looking to build their digital commerce infrastructure, the company has expanded its business model and now provides a range of e-commerce tools that directly help businesses create a more streamlined customer experience, both for online purchases and during checkout.
Instead of solely focusing on digital retail, Shopify has steadily moved into the brick-and-mortar ecosystem by launching services such as their Shopify Retail Plan, which is primarily aimed at helping in-person businesses and forms part of their Shopify POS Pro feature.
Additionally, Shopify is further increasing its partnership with Flexport, which bought over its logistics arm and has deployed new in-app features that enable businesses to connect Amazon Prime and Amazon Prime Day sales buttons to their digital stores.
What have all of these additions, features, and changes meant for SHOP on the market? Well, aside from already surging more than 30% within the first few days of November, overall stocks have risen by 73% to date. For the third quarter, EPS was $0.24 per share, roughly 10 cents more than analyst’s expectations of $0.14 per share.
The longer you wait with SHOP the better. Why? Well, Shopify is in the business of commerce, not just online shopping. They’re expanding their portfolio, and creating new features that help to streamline customer experiences, both in-store and in the virtual environment.
More than this, they’re cutting their losses, quite literally, and streamlining their own business model to offer a simpler, yet robust strategy that attracts merchants and investors alike.
MercadoLibre Inc
Another juggernaut that’s been making headlines in recent years is the Latin American e-commerce platform, MercadoLibre (NASDAQ: MELI). For one, the company has a robust, yet straightforward business model that helps to minimize costs and reduce operational expenses.
On top of that, the company is boasting improved revenue performance across its biggest Latin American regions, which include Argentina, Brazil, and Mexico. Overall, the third quarter was nothing shy of being another remarkable few months, with total net revenues surging 69% year over year. This translates into $3.8 billion in revenues on a neutral foreign exchange basis.
This wasn’t even the most outstanding part of the company’s third-quarter financial results. Their Total Payment Volume (TPV) was far beyond analyst’s expectations, skyrocketing 121% year over year, and generating $47.3 billion in neutral foreign exchange basis revenue.
The long-term outlook for most e-commerce companies is to continue reducing operational expenses, especially in sales and marketing. During the third quarter earnings call, MercadoLibre claimed that by diluting expenses in these two categories.
Additional investment in digital tools and their web infrastructure has helped them direct excess cash towards internal processes and cost structures that can directly benefit their business, and more importantly consumers.
It goes to show that a robust business strategy that considers the long-term development of the industry and market trends helps to stabilize a company’s bottom line, even when consumers are tightening their purse strings on the back of rising costs.
MELI has held a bullish streak on the stock market, with shares up 67% to date. Investors that are smart enough to know that MELI could present them with a major upside both in the near and long run would put their money where their mouth is, and look at how MELI can help to complement their portfolio.
Coupang Inc
Last is the “Amazon of South Korea” a company that initially found itself selling streaming services, that later transformed into becoming one of the biggest, and most used e-commerce platforms in South Korea.
Coupang (NYSE: CPNG) has built a modest reputation over the last several years, and during its short time, being just over a decade, it’s managed to rake in a sizable revenue and build a robust portfolio.
For investors that hold a more conservative position, CPNG could become your go-to. Why you may ask? Well, for starters, CPNG is relatively underpriced, with shares trading in the mid-teens.
This year, stocks have climbed just over 13% to date, and trades in a day range of $16.48 – $17.02. Even more than this, the current high for CPNG is set at $20.37 per share, with the lowest trading value per share being $12.67.
Looking at the overall performance, CPNG presents a positive upside for investors, having climbed more than 30% since falling to its lowest price of $12.91 per share back in mid-March.
At the time of writing, Coupang Q3 2023 earnings were yet to be released, however, using Q2 2023 financial results as a reference, we see that the company continues to experience strong revenue growth and a solid growth profit margin.
For the second quarter, net revenues increased 16% on a year-over-year basis, while their net profit was up 32% year over year to roughly $1.5 billion.
Then there’s the free-flowing cash the company has managed to keep above the $2.0 billion threshold, seeing Q2 free-flowing cash improve to $2.3 billion year over year.
Coupang provides investors with stability and more accessibility to foreign opportunities that continue to see improving performance despite having to endure wider macroeconomic challenges.
The end of shopping malls?
You’d think that the thousands of online options and e-commerce giants spending billions each year on marketing and digital tools to reel in consumers would mean the end of our beloved shopping malls.
Well, contrary to popular belief, our shopping malls aren’t dying out, just yet. In fact, an industry analysis by Coresight Research found that foot traffic in some shopping malls has started picking up again.
Last year, foot traffic in high-end shopping malls rose 12% compared to 2019, and in lower-tier malls, foot traffic was up by 10%.
While the rest of the major cities are struggling to keep retail, commercial, and office spaces occupied – some shopping malls have seen their occupancy rates hit 95% last year. In lower-tier shopping malls, this figure was closer to 89%.
Coreseight defined a “top-tier” mall as those being located in areas where consumers had an average annual income of $200,000.
Speaking of money. Higher-end shopping destinations generated roughly $7.5 billion in revenue, with the lower-end retail malls generating closer to $6.5 billion in revenue last year according to the same Coresight report.
In-store shopping is growing, or at least on track to hit pre-pandemic levels again. Perhaps the sharp uptake in foot traffic and revenue could be partially contributed by the fact that consumers were eager to get out again, after spending months indoors or having a bit of cash stocked up from stimulus checks and their pandemic savings.
Bringing customers back, and creating a more unique and “personal” shopping experience is why big-box retailers are investing billions to update their interiors, store layouts, and product displays.
Wal-Mart is one of those investing heavily in the in-store shopping experience. The company has already spent more than $500 million to update roughly 1,400 stores across the U.S., looking to create more dynamic store layouts, faster and more convenient checkouts, and improve overall product display.
This is part of a $9 billion shopper experience plan that the company has to update nearly all of its more than 10,000 retail locations in the U.S. over the next several years. Wal-Mart is strategically playing the game in their favor. The company accounted for 5.3% of pure e-commerce retail sales in 2020, with Amazon in first place, accounting for 38.1% and eBay at third with 4.7% of total retail sales.
So maybe the shopping mall isn’t dead, and corporate brands are trying their best to get with the times, and looking to create more unique in-store experiences that will help generate sales and further boost their bottom lines.
Well, let’s hope this investment pays off as e-commerce continues to rise and rise each year, and more companies ditch their brick-and-mortar stores due to surging rental costs, lower foot traffic, and soaring crime rates – have you seen downtown San Francisco lately – and rather focussing on developing online platforms that give them an upper hand to reach consumers in further pockets of the market.
Final Take
The upcoming holiday season will once again put many e-commerce juggernauts to the test, seeing which of them can prioritize cost-cutting, and returning these efforts back to investors. While there’s a lot of uncertainty, more so now than during the same period last year, investors continue to play it safe with bets on companies that provide them stability, and long-term growth without excessive risk exposure.
Regardless of everything, it’s an exciting time to be an investor. E-commerce giants are turning into tech companies, shopping malls are becoming cash cows and consumers are sending our favorite retailers to the stars.
