The growth of e-commerce is far from over. Online shopping now represents 14% of the U.S. retail market, up from 1% in 2001. And according to MoffettNathanson analyst Michael Morton, the trend will continue from here, and for obvious reasons: “it’s more convenient and often cheaper for a consumer to shop online,” he writes.
Morton on Tuesday picked up coverage of the e-commerce software sector, and he projects that “e-commerce penetration growth will continue at the historical pace.” He’s not buying the bear case that e-commerce penetration is peaking.
But Morton is a picky shopper: His only Outperform-rated stock in the group is
com (ticker: AMZN).
(CHWY) Market Perform. And he launches
(W) with an Underperform rating.
Amid a broad rally in technology shares, all six stocks are trading higher on Tuesday, with gains of 2% for both Amazon and eBay. Chewy is 4% higher, Etsy is up 5%, and
is 6% higher.
“Covid was a double-edged sword for e-commerce platforms,” Morton writes. “Gone are the days of eating the lunch of legacy brick and mortar…. To continue gaining share, a successful marketplace should aggregate a unique supply, have superior brand equity to generate traffic, and leverage global scale. Selling commodity products, without fulfillment scale in categories when speed matters, will ultimately lead to market share and margin erosion. At this point in the e-commerce maturation curve, if a company is not generating cash flow, or is not within line of sight to cash flow positive, we remain on the sidelines.”
Here’s a rundown of his calls.
Amazon: Morton sets a price target of $118. He writes that the industry’s largest player is “improving fulfillment expenses” after a recent large investment in infrastructure and staffing, driving higher profitability and lowering capital intensity from here.
Shopify: Morton’s price target is $30 for the e-commerce software company, which suggests a potential 20%-plus decline. The analyst writes that “growth and valuation concerns” keep him on the sidelines on the stock. His forecasts for gross merchandise value for both 2023 and 2024 are below consensus.
Etsy: Morton’s target on the handicraft marketplace is $116, slightly below recent levels. He asserts that “the strength of the business model” is already in consensus estimates. He expects growth to moderate to the high single digits in 2024 and 2025.
EBay: Morton writes that the online marketplace company’s challenges are “no secret” and already reflected in estimates and the stock’s valuation. “Turnarounds are hard,” the analyst adds. “We take a wait-and-see approach.” His target is $44, about 4% below Monday’s closing level.
Chewy: For the pet products retailer, Morton sets a target price of $33, nearly 25% below its recent level. While Chewy was a first mover, he writes, competitors are “now biting at their heels.” Morton contends that “consensus expectations do not anticipate the competitive reality,” adding that “Chewy’s current valuation is too optimistic for our outlook.”
Wayfair: The analyst sets a price target of $20 on the furniture and home-goods seller, which implies the stock could be cut in half. He sees a “competitive free for all” that is resulting in market-share losses for Wayfair. His revenue estimates are below Street consensus for both 2023 and 2024.
Write to Eric J. Savitz at firstname.lastname@example.org