The e-commerce industry, which saw accelerated growth amid the pandemic, should keep growing even in a post-pandemic world given the convenience it offers and the permanent shift to online platforms. However, not all players in this industry are well positioned to capitalize on the industry tailwinds. Growing international footprint and diversified offerings make the prospects bright for Vipshop Holdings (VIPS) and Amazon (AMZN). But on the other hand, Sea Limited (SE) and Jumia Technologies (JMIA) are struggling to stay afloat.
The e-commerce industry was growing even before the pandemic, but it received a significant boost last year thanks to increased dependence of people relying on e-commerce to meet their daily living needs. In order to stay afloat, many traditional retailers moved to online platforms as well. Consequently, the industry has experienced favorable investor sentiment, as evident from Global X E-commerce ETF’s (EBIZ) 68.3% return over the past year, compared to SPDR S&P 500 ETF Trust’s (SPY) 47.4% gain over this period.
While the fast-paced reopening of the economy is leading to a shift in investors focus away from the pandemic winners, with the assumption that they may not be able to maintain their growth in the post-pandemic scenario, the demand for e-commerce is not expected to reduce anytime soon, given the convenience it offers. Moreover, many retailers have invested significantly on setting up their online platforms, and they should continue building these platforms even after the pandemic. The global e-commerce market size is expected to grow at a CAGR of 14.7% over the next six years.
As virtual shopping and contactless transactions are here to stay, Vipshop Holdings Limited (VIPS) and Amazon.com, Inc. (AMZN) should deliver solid returns based on their expanding global footprint and strategic investments. But what about Sea Limited (SE) and Jumia Technologies AG (JMIA)? Should they be avoided in the near-term owing to weak financials and cloudy growth prospects? I will answer that below
Stocks to Buy:
Vipshop Holdings Limited (VIPS)
Based in China, VIPS deals in high quality and popular branded products and operates through Vip.com, Shan Shan Outlets, and Others segments. The company offers its branded products through its vip.com and vipshop.com online platforms, as well as through its internet website and cellular phone application. Additionally, it offers warehousing, logistics, product procurement, research and development, technology development, and consulting services.
In March, VIPS’ board of directors authorized a share repurchase program under which the company may repurchase up to US $500 million of its Class A ordinary shares over the 24-month period upon the establishment of the share repurchase program. The company expects the funding of the repurchase to be done out of their existing cash balance.
The company’s non-GAAP income from operations increased 30% year-over-year to RMB 2.82 billion for the fourth quarter that ended December 31, 2020, while its non-GAAP net income grew 35.8% year-over-year to RMB 2.58 billion over the same period. The company’s total revenue increased 22% from the prior-year quarter to RMB 35.8 billion. Its EPS came in at RMB 18.51, compared to RMB 14.20 in the fourth quarter of 2020.
VIPS is expected to witness revenue growth of 61.4% year-over-year to $4.33 billion in the most recent quarter that ended on March 31, 2021. Its EPS is estimated to increase 71.4% from the year-ago value to $0.36 in the current quarter. VIPS’ stock has gained 100.6% over the past year.
VIPS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall grade of B, which equates to Buy rating in our POWR Ratings system. VIPS has an A grade for Growth, and a B grade for Value. Among the 78 stocks in the China industry, it is ranked #7.
Click here to see the additional POWR Ratings for VIPS. (Momentum, Stability, Sentiment and Quality).
Amazon.com, Inc. (AMZN)
Founded in 1994, this e-commerce behemoth needs no introduction. AMZN dominates global online sales and has achieved stellar financial performance over the years. As shop and work from home habits continue, the company’s online shopping and streaming platforms have witnessed a significant uptick in demand.
This month, Amazon Web Services, Inc. (AWS) unveiled the general availability of Amazon DevOps Guru which is a fully managed operations service that uses machine learning to improve application availability by automatically detecting operational issues and recommending specific actions for remediation. This development should enhance the company’s cloud platform and allow it to cater to increasing business needs.
In April, The Walt Disney Company (DIS) leveraged AWS for the global rollout of Disney+ to improve performance and reliability of its streaming service. This should reinforce AMZN’s AWS as the leading cloud provider.
AMZN’s net sales have increased 44% year-over-year to $108.5 billion in the first quarter that ended March 31, 2021. Its net income increased 219.3% from the year-ago value to $8.11 billion. The company’s operating income rose 122.3% year-over-year to $8.89 billion. Its EPS came in at $15.79, representing a 215.2% increase from the year-ago value.
The consensus EPS estimate of $55.7 for 2021 indicates a 33.2% improvement year-over-year. The consensus revenue estimate of $115.17 billion for the current quarter ending June 2021 indicates a 29.5% increase year-over-year. AMZN’’s stock has gained 40.6% over the past year.
AMZN’s strong fundamentals are reflected in its POWR Ratings. The stock has a grade of A for Sentiment and B for Quality. In the Internet industry, it is ranked #12 out of 71 stocks.
In total, we grade AMZN based on eight different components. Beyond what we stated above, we have also given AMZN grades for Growth, Value, Momentum and Stability. You can get those grades here.
Stocks to Sell:
Sea Limited (SE)
Formerly known as Garena Interactive Holding Limited, SE engages in the digital entertainment, e-commerce, and digital financial service businesses. It provides Garena digital entertainment platform along with SeaMoney digital financial services, including mobile wallet and payment services to individuals and businesses.
In January, Shopee, an integral part of SE, unveiled a series of new initiatives and features for Shopee Mall at the inaugural of Shopee Brands Summit 2021. This should help them meet the ever changing needs of consumers and allow them to deliver a seamless and fun shopping experience.
However, SE’s operating expenses have increased 80.0% year-over-year to $891.04 million for the fiscal fourth quarter that ended December 31, 2020, while its operating loss came in at a negative $357.33 million indicating a 55.3% decrease year-over-year. The company generated a net loss of $524.57 million, representing an 86.1% decline from its year-ago value. Moreover, SE reported an adjusted EBITDA of negative $171.26 million for its digital financial services.
Analysts expect SE’s EPS to come in at a negative $0.63 in the most recent quarter that ended in March 2021, indicating a 21.2% decline year-over-year. In fact, the stock could not beat the consensus EPS estimates in any of the trailing four quarters. The company’s stock has declined 7.2% over the past 3 months.
SE’s POWR Ratings are consistent with this bleak outlook. It has an overall grade of F, which equates to Strong Sell in our POWR Ratings system. SE has a grade of D for Growth, Value, and Quality. Of the 71 stocks in the Internet industry, it is ranked #70.
To see the additional grades for SE based on Momentum, Sentiment and Stability, click here .
Jumia Technologies AG (JMIA)
Formerly known as Africa Internet Holding GmbH, JMIA operates an e-commerce platform in Africa, Portugal, Germany, and the United Arab Emirates. The company’s platform consists of a marketplace that connects sellers with consumers, a logistics service that enables the shipment and delivery of packages from sellers to consumers, and a payment service which facilitates transactions to participants active on the company’s platform in selected markets.
In April 2021, JMIA launched a new initiative under the theme of “Support Them … Buy Their Products” to support locally manufactured products and encourage Egyptians to buy them. This move by JMIA should widen their customer base along with enhancing the role of local production to boost the country’s economy.
However, in the fourth quarter that ended on December 31, 2020, JMIA reported an adjusted EBITDA loss of €28.3 million. Moreover, its operating loss came in at €40 million over the same period, while its net loss for the period came in at €46.93 million.
The consensus loss per share of $1.85 for the current year represents a 54.2% decline year-over-year. JMIA’s stock has declined 57.9% over the past 3 months.
JMIA’s weak prospects are apparent in its POWR Ratings as well. The stock has an overall grade of F, equating to a Strong Sell in our proprietary ratings system. JMIA also has a grade of F for Value Grade and Sentiment Grade, and a grade of D for Stability and Quality. In the same industry, the stock is ranked #68.
In addition to the grades I’ve just highlighted, you can see the JMIA’s grades for Growth and Momentum by clicking here.
AMZN shares were trading at $3,297.07 per share on Friday afternoon, down $9.30 (-0.28%). Year-to-date, AMZN has gained 1.23%, versus a 13.23% rise in the benchmark S&P 500 index during the same period.