• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Technology

Many E-Commerce Plays Are No Longer Pricing in Potential Growth Headwinds

Business is currently very good for many e-commerce and digital payments firms. But there are reasons to think that growth rates will cool later this year.
By ERIC JHONSA
May 07, 2020 | 03:56 PM EDT
Stocks quotes in this article: MELI, AMZN, TGT, PYPL, W, SHOP, ETSY

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:

  1. 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%.
  2. 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.
  3. 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.
  4. 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.
  5. 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.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.
TAGS: Investing | Technology |

More from Technology

Bearish Bets: 3 Stocks You Should Think About Shorting This Week

Bob Lang
Jun 26, 2022 10:30 AM EDT

These recently downgraded names are displaying both quantitative and technical deterioration.

Atlassian Is Now in the Latter Stages of Its Decline

Bruce Kamich
Jun 24, 2022 12:22 PM EDT

Let's check the charts and indicators.

Wolfspeed Could Start to Run With the Pack

Bruce Kamich
Jun 24, 2022 7:55 AM EDT

Here's how aggressive traders can play this tech stock.

Chinese Tech Company Ximalaya Pulls Planned IPO Yet Again

Alex Frew McMillan
Jun 24, 2022 6:30 AM EDT

Poor market conditions and the uncertain status of Chinese tech listings cause the podcast market leader to put off its Hong Kong IPO.

Will This Year's Energy and Commodity Trades Become Last Year's Tumbling Tech?

Helene Meisler
Jun 24, 2022 6:00 AM EDT

I can't remember the last time anyone asked me about Apple. No one cares.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 12:04 AM EDT PAUL PRICE

    Two Good Signs -- Especially for Small-Cap Investors

  • 12:10 AM EDT PAUL PRICE

    More Insider Buying in American Woodmark (AMWD)

    American Woodmark , which I've discussed here fr...
  • 08:55 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    The 10 personality traits of successful traders an...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login