Research firm eMarketer recently released a list of the top 10 e-commerce companies in the U.S. by market share.
The list has some expected names. It also has some unexpected names. In total, though, all 10 e-commerce companies on eMarketer’s list have been winning thanks to the digital revolution.
Does that mean you should buy each of these top e-commerce stocks?
No. Not at all. When it comes to the stock market, it isn’t just about growth. It is about how much growth is priced in. And unfortunately, when it comes to a few of these top e-commerce stocks, too much growth is priced in at current levels.
But, when it comes to a few other top e-commerce stocks, not enough growth is priced in at current levels.
With that in mind, here’s a list of the top five e-commerce companies in the U.S. by market share, and an analysis of where those top e-commerce stocks are going next.
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Top E-Commerce Stocks: Amazon (AMZN)
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At the top of the list, of course, is e-retail giant Amazon (NASDAQ:AMZN).
According to eMarketer, Amazon owns a dominant 50% of the U.S. e-commerce market. Considering this market is growing at 16% and an accelerating rate, that means Amazon owns 50% of a 15%-plus growth market.
And that is just the domestic piece. On the international front, global e-retail sales rose by 25% last year. Over the next several years, global e-retail sales growth is expected to run around 20%-per-year. Amazon’s international market share is tough to peg. But if U.S. market share is already 50%, then international share could realistically rise to somewhere around 25%. That means Amazon is slated to own 25% of that 20%-plus growth market.
Put those two together, and it is easy to see why Amazon’s e-retail business has tons of growth ahead of it.
But that is just the tip of the iceberg when it comes to Amazon’s total growth. Amazon is also building out a robust offline retail business which started with Whole Foods and won’t end for another 10-plus years. The company is also behind the world’s largest and most dominant cloud business, Amazon Web Services. And then there are the big potential growth drivers through entries into the pharmacy, logistics and advertising markets.
All together, this is a mega-growth company. Granted, the valuation is rich. But when all is said and done, Amazon could net in excess of $150 in earnings-per-share. If that happens, then a $2,000 stock price will look pretty cheap.
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Top E-Commerce Stocks: eBay (EBAY)
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Coming in at second place is Amazon’s little brother, eBay (NASDAQ:EBAY). According to eMarketer, eBay owns 6.6% of the U.S. e-commerce market.
That really isn’t that big. And it wouldn’t be surprising if eBay operated a brick-and-mortar business, too. But, eBay is purely digital. That means that the measly 6.6% of the U.S. e-commerce market that eBay owns is the company’s entire U.S. business.
That isn’t very good. Worse yet, there is reason to believe that eBay’s 6.6% market share will only drop over the next several years.
Revenue growth at eBay has been running around 7% for the past several quarters. But most of that growth is coming from price increases. Active buyer growth was just 4% last quarter, while sold-items growth was just 1%.
These slow growth rates don’t line up with the U.S. e-commerce market’s 16%-plus growth rate. As such, eBay is clearly losing market share. This market share erosion will likely persist, considering eBay lacks significant mind-share among tomorrow’s biggest consumers (Piper Jaffray’s Spring 2018 Taking Stock With Teens Survey found that eBay’s mind-share among teenagers fell to a record low 1.8%, down 120 basis points from 3% in the Fall 2017 survey).
EBAY stock doesn’t trade at a huge multiple. The forward multiple is only 16, which is roughly in-line with the market average. But, considering growth at this company is 7% and slowing, a 16 forward multiple may prove to be too aggressive.
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Top E-Commerce Stocks: Apple (AAPL)
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Some may view this as surprising, but according to eMarketer, Apple (NASDAQ:AAPL) is the third biggest e-retail company in the U.S. with 3.9% market share.
That may initially sound surprising. After all, Apple isn’t thought of as a retailer in the traditional sense. But upon closer inspection, Apple does sell a ton of stuff through its websites, from iPhones to iPads to Macs to Apple Watches. All that stuff adds up, and as such, it really isn’t surprising that Apple is the third-biggest e-retail company in the U.S.
Does that make AAPL stock a buy? I think so.
The big story at Apple is that the company is transitioning from selling iPhones, iPads and Macs, to selling software subscription services like iCloud, Apple Music and App Store. This is a very healthy transition. The hardware business is low-margin and notoriously lumpy, depending on the upgrade cycle. The software business, meanwhile, is high-margin and steady, as most of its revenues come from annually recurring subscriptions.
Thus, over the next several years, Apple’s revenue streams will be less lumpy and more steady. That will warrant a higher multiple on AAPL stock. Plus, margins will roar higher thanks to higher-margin software growth. That will cause earnings to get a big boost.
In five years, then, earnings should be way higher (buybacks and tax cuts are also in the mix) and the multiple should also be higher. In simple terms, bigger earnings plus a bigger multiple equals a higher stock.
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Top E-Commerce Stocks: Walmart (WMT)
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Coming in at fourth place is traditional retail giant Walmart (NYSE:WMT).
Walmart owns just 3.7% of the U.S. e-commerce market, which is rather anemic considering this is America’s largest brick-and-mortar retailer. In plain English, 3.7% e-commerce market share translates into “well, Walmart is still a far ways off from rivaling Amazon on the digital side of things.”
That is really bad news for WMT stock. In 2017, WMT stock roared to all-time high valuation levels on the thought that out-sized e-commerce growth was here to stay and that the company was turning into a formidable Amazon competitor.
Neither of those things are true. Walmart is building out a strong e-commerce platform, but growth rates are slowing. Moreover, that e-commerce platform is gaining market share, but it remains a far stretch from nearing Amazon’s scale.
In the low $80’s, with the forward multiple hovering around 17, WMT stock looked like a good buy. But now that WMT stock has rallied back to the upper $80’s, and the forward multiple sits above 18, WMT stock looks less attractive.
I don’t think there is that much more pain ahead for WMT stock. It looks like a bottom was already reached. But gains going forward will be tough to come by considering the big valuation and low growth profile of this company.
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Top E-Commerce Stocks: Home Depot (HD)
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The fifth largest e-commerce company in the U.S. is Home Depot (NYSE:HD). The home improvement retailer owns 1.5% of the U.S. e-commerce market.
Considering what Home Depot sells (home improvement goods, tools and services), the company coming in fifth on this list, ahead of Best Buy (NYSE:BBY), Macy’s (NYSE:M) and Nordstrom (NYSE:JWN), is quite impressive. After all, the home improvement space is traditionally a “touch-and-feel” one where consumers like to go in-store and see the products they are buying.
But, Home Depot has managed to build an unparalleled omni-channel retail experience that has people buying in bulk in-store and online.
That positions the company well for long-term growth. This is a big-moat company that has not only differentiated itself from other home improvement retailers, but also differentiated itself from non-store retailers like Amazon. Thus, going forward, it is fair to assume that Home Depot successfully navigates around any and all competitive threats and continues to be the go-to home improvement retailer in the U.S.
The only risk, then, is an economic slowdown. But that doesn’t look likely here and now. You’d need crazy inflation or crazy unemployment in order to catalyze that. Neither of those look likely in the foreseeable future.
All together, HD stock looks good here and now. The stock trades at 20-times forward earnings, which is in-line with its five-year average forward multiple. Yet, same-store sales growth was 6.8% last year, the best rate the company has seen in five years. Thus, with HD stock, you have an average valuation and above-average growth. That combination makes the stock look attractive here and now.
As of this writing, Luke Lango was long AMZN, AAPL, HD and M.
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