Markets continue to reel under the weight of high inflation and aggressive Federal Reserve Bank monetary policy tightening. Billionaire Bill Gates has warned of an imminent economic slowdown. And the recent quarterly earnings releases of major e-commerce industry players have been disappointing. The bearish market sentiment surrounding e-commerce stocks is evident in the Global X E-commerce ETF’s (EBIZ) 21.2% decline over the past month.
According to Mastercard SpendingPulse, e-commerce transactions have declined 1.8% year-over-year. Amid widespread apprehension about a further slowdown in e-commerce sales in the coming quarters, investors should be cautious about overvalued e-commerce stocks.
Given this backdrop, we believe fundamentally weak and overvalued e-commerce stocks Etsy, Inc. (ETSY), eBay Inc. (EBAY), Shopify Inc. (SHOP), Amazon.com, Inc. (AMZN), and Wayfair Inc. (W) are best avoided now.
Etsy, Inc. (ETSY)
ETSY in Brooklyn, N.Y., operates two-sided online marketplaces that connect buyers and sellers primarily in the United States, the United Kingdom, Germany, Canada, Australia, France, and India. Its primary marketplace website connects artisans and entrepreneurs with various consumers.
ETSY’s revenue for the first quarter, ended March 31, 2022, came in at $579.27 million, up 5.2% year-over-year. However, its net income was $86.11 million, down 40.1% year-over-year. Its non-GAAP adjusted EBITDA was t $159.20 million, down 13.5% year-over-year. Also, its cash and cash equivalents came in at $756.24 million for the period ended March 31, 2022, compared to $780.20 million for the period ended Dec.31, 2021.
In terms of forward EV/S, ETSY’s 4.83x is 337.6% higher than the 1.10x industry average. Furthermore, its 4.28x forward P/S is 364.8% higher than the 0.92x industry average.
Analysts expect ETSY’s EPS to decline at a 17.4% rate to $2.81 in 2022. Furthermore, the stock declined to 66.6% in price over the past six months to close yesterday’s session at $86.40.
ETSY has an overall D grade, which equates to Sell in our POWR Ratings system. Also, it has a D grade for Growth, Value, Stability, and Sentiment. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
We have also rated it for Momentum and Quality. Click here to access all the ETSY ratings. It is ranked #53 of 72 stocks in the F-rated Internet industry.
eBay Inc. (EBAY)
EBAY operates marketplace platforms that connect buyers and sellers in the United States and internationally. The San Jose, Calif.-based company's Marketplace platform includes its online marketplace at ebay.com and the eBay suite of mobile apps.
EBAY’s net revenues for the first quarter, ended March 31, 2022, came in at $2.48 billion, down 5.9% year-over-year. Its net loss was $1.34 billion, compared to a net income of $641 million in the year-ago period. And its loss per share came in at $2.28, compared to $0.92 in EPS in the prior-year period.
In terms of forward EV/S, EBAY’s 3.15x is 185.7% higher than the 1.10x industry average. Furthermore, its 2.80x forward P/S is higher than the 0.92x industry average.
EBAY’s revenue is expected to decline at a 5.5% rate to $9.84 billion in 2022. Over the past six months, the stock has declined 33.4% in price to close yesterday’s trading session at $49.26.
EBAY’s POWR Ratings reflect its poor prospects. The stock has a D grade for Sentiment.
We have also rated it for Growth, Value, Momentum, Stability, and Quality. Click here to access all the EBAY ratings. It is ranked #22 in the Internet industry.
Shopify Inc. (SHOP)
Headquartered in Ottawa, Canada, SHOP, a commerce company, provides a commerce platform and services in Canada, the United States, Europe, the Middle East, Africa, the Asia Pacific, and Latin America. The company's platform enables merchants to display, manage, market, and sell its products through various sales channels.
For the first quarter ended March 31, 2022, SHOP’s revenues increased 21.7% year-over-year to $1.20 billion. However, its net loss came in at $1.47 billion, compared to $1.26 billion in net income in the year-ago period. Its loss per share came in at $11.70, compared to $9.94 in EPS in the prior-year period. The company’s cash and cash equivalents came in at $2.45 billion, for the period ended March 31, 2022, compared to $2.50 billion for the period ended Dec. 31, 2021.
In terms of forward EV/S, SHOP’s 7.11x is 153.4% higher than the 2.81x industry average. Also, its 8.14x forward P/S is 187.4% higher than the 2.83x industry average.
SHOP’s EPS is estimated to decline 51.8% to $3.9 in 2022. Over the past six months, the stock has retreated 78.1% in price to close yesterday’s session at $340.04.
SHOP’s POWR Ratings are consistent with this bleak outlook. It has an overall F rating, which equates to a Strong Sell in our proprietary rating system. It also has an F grade for Sentiment and a D grade for Growth, Value, Stability, and Quality.
We also have graded SHOP for Momentum. Click here to access all of SHOP’s ratings. It is ranked last of 33 stocks in the F-rated Internet - Services industry.
Amazon.com, Inc. (AMZN)
AMZN engages in the retail sale of consumer products and subscriptions in North America and internationally. The Seattle, Wash.-based company operates through three segments: North America; International; and Amazon Web Services (AWS). It sells merchandise and content purchased for resale from third-party sellers through physical and online stores.
AMZN’s net sales came in at $116.44 billion, up 7.3% year-over-year for the first quarter, ended March 31, 2022. However, its net loss was $3.84 billion, compared to $8.11 billion in net income in the year-ago period. Its loss per share was $7.56, compared to an EPS of $15.79 in the previous period. In addition, its total current assets were $133.88 billion for the period ended March 31, 2022, compared to $161.58 billion for the period ended Dec. 31, 2021.
In terms of forward EV/S, AMZN’s 2.37x is 115.1% higher than the 1.10x industry . Its forward P/S of 2.22x is 141.1% higher than the 0.92x industry average.
AMZN’s EPS is estimated to decrease 75.9% to $15.64 in 2022. It missed EPS estimates in two of the four trailing quarters. The stock declined 39.2% in price over the past six months to close yesterday’s trading session at $2,175.78.
AMZN’s POWR Ratings reflect its poor prospects. It has an overall D rating, which equates to Sell in our POWR Ratings system. It has a D grade for Growth and Value.
Click here to access the additional POWR Ratings for AMZN (Momentum, Stability, Sentiment, and Quality). AMZN is ranked #45 of 72 stocks in the Internet industry.
Wayfair Inc. (W)
W in Boston engages in the e-commerce business in the United States and internationally. The company provides approximately thirty-three million products for the home sector under various brands.
On March 3, 2022, W entered a strategic partnership with Capital One (COF) to offer a credit program for its Wayfair Professional members. However, this move might not deliver stellar profits to the company in the near term, owing to its latest poor financials.
W’s net revenue decreased 13.9% year-over-year to $2.99 billion for its fiscal 2022 first quarter, ended March 31, 2022. Its net loss came in at $319 million, compared to $18 million in net income in the prior-year period. The company’s loss per share was $3.04, compared to an EPS of 0.16 in the previous period.
W’s 937.45x trailing-twelve-month P/CF is significantly higher than the 9.96x industry average.
W’s revenue is expected to decrease 3.8% to $13.18 billion in 2022. Its EPS is estimated to decline 356.5% in 2022, and its EPS is expected to remain negative in 2022 and 2023. Also, it missed EPS estimates in two of the trailing four quarters. And over the past six months, the stock has declined 75.1% in price to close yesterday’s trading session at $62.35.
W has an overall F rating, which equates to a Strong Sell in our POWR Ratings system. It has an F grade for Sentiment and a D grade for Growth, Momentum, Sentiment, and Quality.
Click here to check additional ratings for W (Value). It is ranked #44 of 45 stocks in the Specialty Retailers industry.
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ETSY shares were trading at $82.26 per share on Tuesday morning, down $4.14 (-4.79%). Year-to-date, ETSY has declined -62.43%, versus a -16.09% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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