We are long-term investors here at MyWallSt and recommend companies that we believe will have consistent growth for years to come. Updates are an opportunity for us to reaffirm our stance on a company while keeping you up to date on its developments. By renewing our comments with the latest information, we ensure that investors have confidence in our selections, regardless of their start date.
With consistent headlines about the demise of brick-and-mortar retailers, it’s easy to forget that e-commerce still represents a very small percentage of total retail sales. Back in 2010, e-commerce penetration was about 6.4% in the United States. Since then it has grown by about 1% a year.
The COVID-19 pandemic changed that trajectory quite dramatically. Some estimates saw e-commerce topping 32% penetration in the summer months, leveling out to about 21.5% for the calendar year. This shift saw a big jump in revenue for the major e-commerce platforms. Amazon, a $1.5 trillion company, saw revenue growth of 38% for the year — an unprecedented surge for a company of that size. Smaller players like Shopify and Etsy saw sales double.
The big question on everyone’s mind now is will they be able to maintain this trajectory? Many believe that e-commerce will pull-back to pre-pandemic levels as the economy reopens, causing big sell-offs in the so-called “work-from-home stocks” as positive vaccine news is reported.
Assuming a smooth vaccination rollout over the next six months (something that is far from certain), we believe that growth rates will normalize somewhat, but that e-commerce penetration will not retract to pre-pandemic levels. The simple fact is that e-commerce is a wonderful service. Consumers get unlimited choice, easy price comparisons, and now, speedy and reliable delivery.
The pandemic forced many consumers to set up accounts, save their payment and shipping information, and experience the benefits of online shopping across a range of categories. This, we believe, will form long-term habits for consumers that may have previously been reluctant to embrace e-commerce.
Etsy occupies an even more specialized position within the larger e-commerce debate. The pandemic created huge tailwinds for the specialist online retailer as they rallied their millions of sellers to make masks, hand sanitizers, and home office equipment. Sales of masks were so big that the company even broke them out as a separate revenue stream. With demand for such items waning, will Etsy be able to maintain the momentum that has seen the stock grow about 4-fold in the last twelve months?
There’s no doubt that it will be challenging. However, we believe that Etsy’s greatest strength was demonstrated last year — not its ability to make pandemic-specific items like masks, but rather its ability to harness its millions of sellers to meet the rapidly evolving needs of buyers. Given the massive size of the handmade and craft market that Etsy has not yet penetrated, we believe last year’s success is something that Etsy can build upon, rather than an inflated once-off period that it will have trouble repeating. We have updated our comment on Etsy, which users can find by clicking on the icon below.