Disappointment for e-commerce companies has been exacerbated by Amazon’s route
The historic fall in Amazon’s share price over the past week underscores how difficult the environment has become for e-commerce stocks after their companion disease-driven boom, with investors gearing up for another roller coaster in the coming days.
Etsy, Wayfair and Shopify are rushing this week to report earnings in the shadow of Amazon’s worst sales since 2006. The tech giant led the way with weaker-than-expected forecasts, adding to the evidence of slowing e-commerce growth.
“This is a canary in a coal mine,” said Okte Kawrak, director and production strategist at Leverage Shares. “If Amazon is hitting the speed bump, other names could crash. “People were expecting growth to slow down after the epidemic, but I don’t think they’re expecting a sharp decline like we’ve seen.”
The rally in e-commerce stocks, which topped the Covid-19 lockdown in 2020, has reversed as consumers have returned to their pre-illness habits and inflation has cooled their costs. Amazon officials said they were keeping an eye on whether buyers would reduce their purchases to offset rising fuel and labor costs.
Etsy is down 58% this year, making it the third-worst performer in the S&P 500 index, while Wayfair is down 60%. Shopify recently posted its worst month on record and also the biggest loss this year in Canada’s S&P / TSX Composite Index. All of these stocks rallied on Monday.
Even after that relentless sale, it has become difficult for sinking buyers to come. It may be related to how expensive they are still. Shopify is trading at a staggering 128 times the estimated profit over the next 12 months and Wayfair’s number is close to 95, while Etsy’s number is 21 – suggesting that their price will continue to grow faster. That compares to about 17 on the S&P 500 and 21 for the Nasdaq 100.
However, analysts are exceeding their expectations for the upcoming quarterly results. Wayfair’s revenue was projected to decline by about 15% this quarter, while the expected 26% growth on Shopify would be the lowest since 2014, according to data compiled by Bloomberg.
Etsy reports on May 4, while Wayfair and Shopify will announce the results on May 5.
According to data compiled by Bloomberg, the average consensus for Shopify’s earnings fell nearly 9% last week. For Etsy, its average earnings forecast has fallen by 2.6% in the last month and is down nearly 30% in the last 90 days. Its revenue forecast for the previous quarter fell by more than 9%.
Despite the near-term risks, some remain optimistic about future growth. Poonam Goyal, senior retail analyst at Bloomberg Intelligence, has a positive view of the long-term prospects of e-commerce.
“We’re very excited about e-commerce, which should be able to grow into a double-digit clip for the next several years,” she said in a phone interview. “It simply came to our notice then.