After suffering some of the sharpest market losses in the first half of the year, a basket of badly beaten dot-com stocks has suddenly become the new leaders as investors give the group a second look.
While the list of stocks posting double-digit short-term gains is long and the retail categories they represent diverse, this pack of eCommerce outperformers does share at least one common thread in as much as they all cater to consumers who like the convenience and selection they get from shopping online.
As much as there’s no way of knowing if this budding bounce will prove to be sustainable or simply another trap in a long running sell-off, the reasons behind the sudden surge in eCommerce brands are both familiar and unique to the present economic maelstrom.
Whether it’s a fuel-based decision to make fewer trips to the store, an inventory driven desire to see which particular products are actually in-stock, or the economic adjustments that are causing consumers to scan the web for deals, the shared truth is that eCommerce is as viable as ever.
In short, dot-coms may be down but they are far from dead.
Big Tickets and Little Trinkets
To be sure, while the short-term pop of 10% to 30% has provided some relief and hope to long-suffering investors, the six-month returns are still all deeply in the red with losses in excess of 70% in many cases.
That said, online auto retailer Carvana, whose stock was up 25% in two trading days of July yet still down over 90% from its peak last fall, the high price, lean inventory, rising interest rate headwinds that plagued the company for the past year have not changed. However, many of the tailwinds that saw the brand’s quarterly revenues grow from $300 million to over $3.5 billion over the past five years are also still intact.
“In the long run, the macroeconomic backdrop disappears,” Carvana CEO Ernie Garcia told investors in late April on the company’s Q1 earnings call. “Structurally, nothing has changed. We’re still in a fragmented 40 million unit per year market, with significant margins and customers who are open to and excited about trying something new.”
At the other end of the financial spectrum, Etsy — the leading marketplace for hand-crafted goods — has undergone its own short-term 20% rebound in July after falling 75% from its peak in November.
At its annual meeting with (presumably angry) shareholders last month, CEO Josh Silverman reminded investors that 2021 was another record-breaking year for the eCommerce site, and that Etsy’s revenue growth and margins were both still above 30% powered by a user base of 90 million customers and 5 million sellers.
While Silverman told the group that this year was going to be unpredictable and difficult to forecast, he also stressed that many tailwinds were still in place.
“People continue to be nervous about global events in the economy and will have to fight harder for consumers’ time and money, yet we have ample reason to remain very optimistic,” he said. “We truly believe we offer something different across every brand in our house and that the size of the prize for Etsy is enormous.”
Other big-name dot-com brands experiencing a short-term bounce include furniture and household goods giant Wayfair (+23% in July), as well as direct to consumer, pet supply subscription giant Chewy (+40% 1-month). But even with those gains, the two stocks are still down 80 and 50 percent respectively versus one year ago.
To be fair, that slump has been filled with numerous bumps and rebounds along the way that suggested sentiment might be reversing around the dot-com retail patch but proved to be fleeting.
That very well may be the case again, or it this time it might be the start of something different, as the case for convenience, selection and value that eCommerce sites offer is taking on renewed importance in an economy that it dominated by the growing level of stretched and stressed consumers who are living paycheck to paycheck.
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