Macro: Sandcastle economics
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E-commerce stocks are expensive but have roaring growth rates
Peter Garnry
Chief Investment Strategist
Summary: In today's equity update, we take a look at 48 companies within e-commerce representing $3.5trn in market value. The group has revenue growth of 30% based on the latest earnings releases and analysts continue to be positive on the majority of the e-commerce stock seeing 16% upside on average over the coming 12 months. This group of e-commerce stocks represent around 6% of the global equity market value, but with half of Amazon's value likely coming from its cloud business the real weight is probably only 4% leaving plenty of room for market value increase over the coming decade.
With the Q3 earnings season almost done and the Covid-19 pandemic still raging on across the globe it is time to look at e-commerce companies which got the biggest boost this year. We have identified 48 companies operating within e-commerce as their primary domain (see list at the bottom) with combined market value of $3.5trn representing around 6% of the global equity market. These companies are still growing rapidly with the average growth around 30% y/y based on their latest earnings reports. As a group e-commerce companies are still not delivering positive ROIC numbers but is primarily a function of a lot of smaller e-commerce companies focusing on revenue growth in stead of profitability. The average ROIC among the 10 largest e-commerce companies is around 5% impacted negatively by China-based Pinduoduo.
Analysts continue to be positive on the industry with the average price target being around 16% higher than the current price level. If this e-commerce group collectively delivers 16% over the next 12 months that is a very attractive return given the uncertainty in the economy. The high growth does not come cheap with the average valuation on 12-month forward EV/EBITDA being 69x or 5 times more expensive than the global equity market. But valuations shouldn't scare investors from investing in e-commerce companies. The lesson from Microsoft is that its stock was also 5 times more expensive than the US equity market in 1986 but has still managed to deliver 26.6% annualised return excluding dividends for its shareholders. The lesson is, that if you are picking tomorrow’s winners valuation means less as the market often undervalues the long-term compounding effects of a winning business.
Another important principle worth considering is the fact that per definition all the biggest companies in the equity market today, or at any given time, was a high-growth company and thus if you are long-term winner your objective should be to pick the long-term winners. Said in another way, long-term investors should focus on growth companies.
| Name | Region (*) | Market Cap (USD mn.) | Sales growth (%) | ROIC (%) | Diff to PT (%) | 12M Fwd EV/EBITDA |
| Amazon.com Inc | Global | 1,574,189 | 20.5 | 13.4 | 21.5 | 24.2 |
| Alibaba Group Holding Ltd | China | 718,752 | 35.3 | 9.4 | 28.8 | 18.3 |
| Meituan | China | 217,599 | 49.5 | 2.8 | 4.3 | 71.2 |
| Pinduoduo Inc | China | 133,487 | 129.7 | -34.4 | -19.4 | #N/A |
| JD.com Inc | China | 129,636 | 24.9 | 8.7 | 6.1 | 25.8 |
| Shopify Inc | Global | 115,465 | 47.0 | -0.9 | 18.2 | 241.1 |
| Booking Holdings Inc | Global | 81,911 | 3.7 | 4.3 | -5.2 | 25.7 |
| MercadoLibre Inc | Brazil | 64,933 | 59.5 | 3.3 | 10.9 | 189.8 |
| NetEase Inc | China | 61,909 | 15.8 | 15.1 | 15.7 | 16.1 |
| eBay Inc | Global | 32,888 | 0.5 | 27.2 | 30.2 | 9.4 |
| Chewy Inc | United States | 26,379 | 37.2 | #N/A | 11.7 | 221.0 |
| Delivery Hero SE | MENA | 25,351 | 86.1 | -26.9 | 6.1 | #N/A |
| Wayfair Inc | United States | 25,035 | 34.6 | 0.8 | 18.9 | 36.4 |
| Zalando SE | Europe | 24,966 | 20.3 | 9.3 | 4.4 | 31.2 |
| Ocado Group PLC | United Kingdom | 23,174 | 9.9 | -4.2 | -10.8 | 198.7 |
| Trip.com Group Ltd | China | 21,054 | 15.2 | 0.4 | -7.5 | 32.8 |
| Expedia Group Inc | Global | 16,933 | 7.5 | -17.1 | -5.1 | 21.9 |
| Just Eat Takeaway.com NV | Europe | 16,680 | 79.0 | -1.2 | 24.4 | 38.8 |
| Etsy Inc | United States | 16,466 | 35.6 | 18.2 | 22.6 | 31.8 |
| Rakuten Inc | Japan | 15,345 | 14.7 | -4.0 | 13.5 | -16.6 |
| Farfetch Ltd | Global | 14,475 | 69.5 | -46.3 | -7.5 | 799.0 |
| Vipshop Holdings Ltd | China | 14,128 | 10.0 | 19.9 | 2.2 | 10.0 |
| HelloFresh SE | Europe | 9,108 | 41.4 | 48.9 | 29.7 | 16.8 |
| ZOZO Inc | Japan | 8,252 | 6.0 | 55.9 | 6.4 | 19.0 |
| THG Holdings PLC (Hut Group) | Global | 7,898 | 24.5 | #N/A | 33.3 | 36.9 |
| Williams-Sonoma Inc | United States | 7,452 | 4.0 | 17.1 | 4.1 | 10.2 |
| Dada Nexus Ltd | China | 6,990 | 61.3 | -43.3 | 17.0 | #N/A |
| Grubhub Inc | Global | 6,820 | 30.3 | -6.5 | 2.0 | 42.0 |
| Mercari Inc | Japan | 6,380 | 47.6 | -12.1 | 28.7 | 106.3 |
| ASOS PLC | United Kingdom | 6,029 | 19.4 | 17.8 | 9.9 | 15.7 |
| Fiverr International Ltd | United States | 5,643 | 41.8 | -7.3 | 7.2 | 217.5 |
| ANGI Homeservices Inc | United States | 5,383 | 17.1 | 0.2 | 26.8 | 28.0 |
| boohoo Group PLC | United Kingdom | 4,593 | 44.1 | 30.4 | 57.9 | 16.7 |
| LendingTree Inc | United States | 4,096 | 44.7 | 0.7 | 15.1 | 28.6 |
| Stitch Fix Inc | Global | 3,924 | 8.5 | -10.7 | -19.5 | 42.0 |
| Qurate Retail Inc | Global | 3,629 | -4.3 | 11.2 | 22.8 | 4.6 |
| LivePerson Inc | United States | 3,556 | 16.7 | -30.8 | 31.0 | 90.3 |
| Stamps.com Inc | United States | 3,518 | -2.6 | 21.2 | 93.3 | 15.2 |
| TripAdvisor Inc | Global | 3,385 | -3.4 | -12.9 | -10.1 | 20.1 |
| Baozun Inc | China | 3,061 | 35.0 | 7.9 | 14.4 | 20.2 |
| Shop Apotheke Europe NV | Germany | 2,940 | 29.9 | #N/A | 20.8 | 91.0 |
| Shutterstock Inc | Global | 2,490 | 4.4 | 15.7 | 11.4 | 14.5 |
| MakeMyTrip Ltd | India | 2,457 | 5.3 | -38.6 | -15.6 | #N/A |
| Overstock.com Inc | United States | 2,226 | -19.9 | 3.6 | 93.4 | 20.5 |
| Yelp Inc | Global | 2,138 | 7.6 | -2.2 | -3.1 | 10.3 |
| eHealth Inc | United States | 1,897 | 101.4 | 15.4 | 74.7 | 8.9 |
| Jumia Technologies AG | Africa | 1,051 | 24.3 | -164.2 | 0.8 | #N/A |
| PetMed Express Inc | United States | 645 | 0.2 | 27.6 | 3.6 | 12.2 |
| Aggregate / mean | 3,485,674 | 29.6 | -1.9 | 15.7 | 69.1 |
Source: Bloomberg and Saxo Group
* Region is the main geographical revenue segment, and global if geographical segments are almost equal
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