Opinion: This e-commerce stock may be a better buy than Amazon right now

Table of Contents Amazon: More weakness to comeeBay: Customer concerns crop upWayfair: Housewares and furniture…

One of the biggest investing stories last year was the explosive growth in e-commerce. Amid lockdowns, working from home, and the general move toward digital transactions over the last few years, the retailers that were best equipped to book transactions online made the biggest gains.

Now that the initial impact of the pandemic is roughly a year and a half behind us, Wall Street is far less interested in whether a firm is capitalizing on COVID-19 disruptions and is much more concerned with how it is plotting a way forward as things (theoretically) normalize.

That has created an interesting challenge for some stocks, as year-over-year comps aren’t quite as impressive. Adding to the uncertainty is fears that supply chain disruptions or inflationary pressures could eat into Americans’ holiday shopping habits. To top it off, fears that the stock market could be in store for a rough 2022 is only making the stakes higher for closely watched e-commerce stocks

Here are five high-profile stocks in the sector, and what investors can expect.

Amazon: More weakness to come

Amazon.com Inc.
AMZN,
+0.07%
is the biggest dog in the e-commerce space, and the $1.7 trillion company stumbled in a big way with its third-quarter earnings. It not only missed expectations for both its profit and sales, but it announced it is expecting a significant drop in profitability amid the all-important holiday shopping season.

Admittedly, investors were expecting the earnings decline after Amazon offered a weaker forecast three months ago in its second-quarter numbers. But that doesn’t make the pill easier to swallow. Shares are now down about 9% from their summer highs and are sitting on a meager 5% gain so far this year while the broader S&P 500 index
SPX,
+0.12%
is up about 25% since January 1.

It seems foolish to write Amazon off as doomed, but based on the fact that these challenges have been persistent for two consecutive quarters with no clear light at the end of the tunnel, investors may want to be cautious right now.

eBay: Customer concerns crop up

In its most recent earnings report, online marketplace eBay Inc.
EBAY,
-0.95%
topped Wall Street expectations on both the top and bottom line. However, those numbers weren’t enough to satisfy investors who — like those watching Amazon — are looking more at the challenges.

One of eBay’s black clouds is its struggles with its customer base: the platform actually saw a decline in buyers overall and that those who were shopping were spending less.

True, eBay has been working hard to change that. From refurbished electronics complete with warrantees along with authentication of luxury fashion goods like handbags, the merchant is doing its best to show it can do much more than function as a digital garage sale.

Unfortunately, it may not be working. eBay reported gross merchandise volume — that is, the total value of transactions for goods sold in the quarter — slumped 10% from a year prior. Even though that topped expectations, it’s not a good sign for the long-term health of the company, or the chance of short-term success this holiday shopping season.

Another ill omen for the stock this winter: Shares are off about 6% since mid-October highs as investors digest these and other numbers. That’s not the kind of momentum you want to see as we close out the year.

Wayfair: Housewares and furniture tailwind fades

One of last year’s biggest growth stories was pandemic-fueled e-commerce shopping in housewares and furniture. Wayfair Inc.
W,
-0.43%
shares went from just under $100 apiece to the start of 2020 to more than $250 by year-end.

This year has been a different story, however. When it became clear around March that year-over-year comps were going to be very hard to replicate, the stock started to take a tumble and hasn’t seemed to find its footing since then.

That downtrend continued as Wayfair reported third-quarter earnings. The problem wasn’t just the fact that Wayfair remains unprofitable amid competition from deeper-pocketed rivals like Amazon, but that its revenue declined year-over-year — and missed Wall Street’s rather modest expectations to boot.

Wayfair’s CEO offered a rather disappointing excuse, saying consumers naturally shifted spend toward travel and even toward bricks-and-mortar sales over e-commerce. That’s not particularly encouraging.

After all, if the excuse is that Wayfair can’t capitalize thanks to the “great reopening” then how will it have what it takes to build its business in the long term?

Sea: From e-sports to e-tailing and e-payments

We still have some time before Singapore-based Sea Ltd.
SE,
-2.87%
announces its highly anticipated third-quarter earnings on Nov. 16. But judging by recent performance and prior quarterly reports from this fast-growing digital powerhouse, the results could look pretty good.

For those unfamiliar, Sea is a digital platform that initially made most of its money from videogames, the most prominent being its League of Legends title. However, like any good tech stock, Sea has continued to innovate by adding on streaming functionality, chat and social tools and eventually digital payment and e-commerce services.

It’s this last part that really has investors excited lately. Sea’s Shopee e-commerce platform in particular is worth watching, as it’s a mobile-native marketplace that is tied in with the firm’s SeaMoney digital financial services arm that offers both mobile wallet service to individuals and payment processing for businesses. In other words, it’s a true end-to-end platform that is wholly maintained by Sea — meaning the potential for big margins on every transaction as a result.

Shopee has consistently been the most downloaded shopping app in Southeastern Asia, fueling $15 billion in gross merchandise value in the second quarter, a jump of 87.5% year-over-year. What’s more, if that figure just holds steady instead of growing that will mean a $60 billion annual GMV tally — up sixfold from the $10 billion recorded just three years ago.

On top of that, second-quarter mobile wallet payment volume topped $4.1 billion for a 150% surge over the prior year

The success of Sea is partially a story of being in the right place at the right time. But it’s also a story of ambitious growth and vision. Since its 2017 IPO at a mere $15 per share, Sea stock has exploded more than 20-fold to about $350 at present — with little sign of slowing down.

MercadoLibre: A shift in momentum

Another emerging market success story is South American e-commerce darling MercadoLibre Inc.
MELI,
-0.59%.
The stock admittedly is seeing some growing pains and can be volatile in the short term, but it remains a very compelling long-term success story.

The company’s just reported earnings featured gross merchandise volume that was up 30% year over year to $7.3 billion — the fruit of some 260 million transactions on it platform, with almost two-thirds of those coming from mobile. That’s amazing volume, and Wall Street bid up shares 5% in a single session after the numbers dropped.

This comes after Mercadolibre’s stock tallied double-digit declines in both the month of September and October, putting shares down about 30% from their 52-week highs. That’s in large part because while the company is based in Argentina, Brazil is the real money-maker for this stock. Recent troubles there — rising inflation and unemployment — have given investors pause.

But as these third-quarter numbers show, the megatrend of e-commerce is difficult to stop. Shares have underperformed in 2021, but the momentum shift on the back of earnings could give investors hope that the impressive long-term growth narrative speaks for itself. Even after the fall troubles, this stock is up an amazing 885% in five years.

Jeff Reeves is a MarketWatch columnist. He doesn’t own any of the stocks mentioned in this article.

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