In case there were any lingering doubts that e-commerce activity has soared in the U.S. and elsewhere since late March, this week's earnings reports should erase them.
Among other things, we've seen:
- PayPal (PYPL) report that its transactions have risen sharply following a March slump and were up 20% annually over the past month, with transactions involving PayPal brands up 43%.
- Online furniture retailer Wayfair (W) report that its revenue rose about 90% annually in April, after growing 20% in Q1 and 26% in Q4 2019.
- Shopify (SHOP) report that new store creations on its platform were up 62% from March 13 to April 24, relative to the prior six weeks.
- Latin American e-commerce leader MercadoLibre (MELI) report that its gross merchandise volume (GMV) rose 73% in constant currency (CC) in April, with items sold rising 76%. For comparison, GMV rose 34.2% in CC in Q1, and 39.7% in Q4.
- Craft goods marketplace Etsy (ETSY) report that its core marketplace sales rose 79% annually in April, while adding that this number doesn't account for $133 million worth of mask sales.
Throw in the strong e-commerce sales figures previously shared by the likes of Amazon.com (AMZN) and Target (TGT) , and it's pretty clear that the average consumer's online retail spending is meaningfully higher right now than it was in February. And admittedly, though I expected e-commerce activity to grow during COVID-19 lockdowns, I wasn't expecting this large of a boost, at least not for discretionary purchases.
But with the shares of so many e-commerce and payments plays having rocketed higher, markets now seem to be betting that growth rates will remain well above January and February levels for a while. And as some of the aforementioned companies readily admit, that's far from a given right now.
Likely Headwinds and Tailwinds Going Forward
A few different factors could lead e-commerce sales growth to slow during the second half of 2020. First, as retail stores reopen, some of the retail spending that has moved to online channels will shift back to offline channels.
Second, though it will probably be a while before spending on things such as travel, restaurant dining and entertainment returns to February levels, some portion of discretionary consumer spending will flow back to them -- even if spending in such areas goes from being down 90% to being down 40% to 50%, that would have a major impact on discretionary consumer income flows.
Third, stimulus payments have from all indications provided a major lift to discretionary purchases in recent weeks. And while a new round of stimulus checks could be on the way, investors can't count on them to boost sales of things such as furniture and home electronics forever.
Last but not least, the macro environment needs to be considered. A backdrop of high unemployment and significant financial challenges for several major parts of the U.S. economy isn't a favorable one for discretionary consumer spending.
On the flip side, with COVID-19 fears likely to keep influencing the behavior of many consumers in the coming months, e-commerce's share of retail goods purchases is likely to remain elevated.
And as companies such as PayPal and Shopify have suggested, some of the behavior changes taking place right now -- whether among consumers or merchants -- are likely to have long-term effects. For example, someone who was previously reluctant to buy furniture online and made a purchase via Wayfair in April might make another purchase down the line. Likewise, a small business that used Shopify's platform to start selling online because its physical store was shuttered might continue doing so after its store reopens.
But a demand environment featuring both meaningful headwinds and tailwinds would be something different than what's being experienced right now, when the tailwinds are far stronger than the headwinds.
And both on the way down in February and March, and on the way back up over the last six weeks, it doesn't feel as if markets have done a great job of projecting how business conditions could look for tech companies seeing healthy demand in the current environment outside of the very near-term.
