Platform Stocks’ Rout Misjudges Realities of the Great Digital Shift

There are retracements — when stocks give back some of their gains.

And then there are routs.

And what we’re seeing right now with the markets down 5%, as measured by the tech-heavy Nasdaq Thursday (May 5), is most decidedly a rout.

Get a bit more granular, and the platform names are posting declines that are outpacing the broader indexes.

Shopify is off 13%, for example. Etsy is sliding 17%. Amazon is faring a bit better as its stock is off only 8% on the day, although the eCommerce juggernaut has been getting hammered ever since it reported earnings late last month.

Read more: Amazon Online Sales Decline 3% YOY, Sets Sights on Prime Day

And there’s the rub: earnings.

We’ve seen a trend in which companies, in many cases, were reporting better-than-expected results, and guidance is what sank things. Taken as a whole, investors are fretting about what lies ahead for eCommerce, and by extension, the connected economy. Etsy edged revenue expectations, for example, and yet, slowing growth is in the cards, if not outright declines. Etsy’s latest growth rate was around 5%, Amazon’s sales were around 7% higher. Wayfair is an outsized casualty here — down massively, off 26% amid a 14% decline in revenues posted alongside its latest quarterly report.

Growth expectations giveth gains to stocks; growth expectations, drastically revised — sometimes to the point where declines are expected — taketh those gains away.

Etsy CEO Josh Silverman’s comments on his firm’s earnings call gave the nudge that what has been a “tidal wave of growth” is now ebb tide. The core business on its core Etsy platform showed a 2% decline in gross sales at its core Etsy property.

See more: Etsy Tumbles as Post-Pandemic Growth Slows, Pledges to Fight Retail’s ‘Sea of Sameness’

Staggering Share Price Declines

With some of these names — like Etsy — down about 60% year to date, or Amazon down 31% over the same period, or Shopify down a staggering 70%, the implication, painted with a very broad brush, is that these companies will see their actual day-to-day businesses put up numbers that will be only a fraction of what they were before.

Indeed, Etsy’s near-term outlook predicts a 5% to 10% drop in the marketplace’s gross sales in the current quarter.

Shopify is still looking for growth, but it has said growth rates in the current year will be comparable to last year.

And yet, if you’re looking for what can be termed a defensive play here, well, Walmart is down only 1% Thursday. Perhaps it is the omnichannel focus and the lower price points (not to mention the massive installed customer base) that has investors embracing that marquee shopping name.

What to make of all this? Inflation is taking a bit, to be sure. Amazon’s own earnings commentary took note that household budgets are tightening.

And the paycheck-to-paycheck economy is the one that most Americans live in. We make ends meet — and many of us struggle to do so.

But the macro headwinds do not necessarily mean that the great digital shift is being derailed — and it’s unrealistic to think that these platforms and marketplaces are going to see business cut in half (or more).

It’s also important to note that many of these firms are gearing up for the next leg of the digital shift, where, for example, Shopify is buying Deliverr to bolster its logistics.

Read more: Shopify to Acquire eCommerce Firm Deliverr for $2.1B

Amazon, too, has been opening Amazon Fresh grocery stores. Etsy has kept 90% of its business through the current macro headwinds, which indicates just how sticky the digital shift can be. Incidentally, PYMNTS data show that roughly 50% of connected economy activities are not strictly commerce related.

See more: Nearly 50% of Activities Comprising the CE Index Are Not Commerce Related

As for right now, for the platforms, consumers may be reassessing how much they are spending, but they will remain pretty set in the digital ways that have proven to be the favored ways in how they spend — or how they are connected to all manner of activities.