Next-Generation Retail: 7 Stocks Innovating in E-Commerce
E-commerce has revolutionized the way people buy products and services. The convenience of e-commerce has led to the collapse of American shopping malls. Picking the right e-commerce stocks in the early 2000s could have yielded generational wealth for investors.
While getting into e-commerce now isn’t the same opportunity as in the early 2000s, the industry is still growing quickly. E-commerce is projected to achieve a compounded annual growth rate of 10.15% from now until 2028.
Surprisingly, only one-third of people shop online, which means the industry still has plenty of room to grow. Investors who want to profit from that growth may want to consider these top e-commerce stocks.
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E-Commerce Stocks: Shopify (SHOP)
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Shopify (NYSE:SHOP) is an e-commerce platform that helps companies create online stores and sell products. The company has monthly subscriptions, which results in annual recurring revenue that investors can count on.
Switching from Shopify is difficult, and doing so will result in businesses shutting down their e-commerce operations. Most businesses will continue to pay Shopify’s monthly subscription unless they are on the brink of bankruptcy.
The company is leveraging its billions of interactions for machine learning to optimize its platform and increase sales for its merchants. Those efforts and others have paid off. Shopify recently reported its best Black Friday ever as merchants on the platform drummed up $4.1 billion in sales.
Shopify continues to deliver high growth for investors. Revenue increased by 25% year-over-year, while gross profit jumped by 36% year-over-year. The company reported its fourth consecutive quarter of positive free cash flow, which reached 16% of revenue.
Amazon (AMZN)
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Amazon (NASDAQ:AMZN) is the face of e-commerce and the company that made the industry mainstream. The stock had been a bit slow for a few years but has come back to life with a 71% year-to-date gain.
Even with the company’s high penetration into e-commerce, Amazon continues to report double-digit year-over-year revenue growth. Net sales increased by 13% in the third quarter, while net income soared to $9.9 billion.
Amazon isn’t just an e-commerce company anymore. The tech conglomerate offers several avenues for growth, such as Amazon Web Services and Twitch. Andy Jassy, Amazon CEO, shared excitement about three business segments. The first two come as no surprise: Amazon Stores and AWS.
However, Jassy also mentioned that the company’s advertising revenue grew robustly. Of the many business segments under the Amazon umbrella, it’s exciting to see ad revenue get mentioned alongside stores and AWS.
Amazon has been breaking into the walled gardens of online advertising, and it makes sense. People don’t go on search engines or social media to buy goods and services. However, many people go on Amazon with the intent to buy something or plan their next purchase.
Businesses can get better ad results if their customers have that mindset. Amazon gives them that opportunity, and their advertising business generates more revenue and earnings growth in the future.
Perion (PERI)
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Perion (NASDAQ:PERI) is a smaller advertising company that combines impressive growth rates with a low valuation. While investors have kept many e-commerce stocks on their radar, Perion remains relatively unknown despite its financial performance.
Perion has a forward P/E ratio of nine, which is something investors would expect from a telecom stock like Verizon (NYSE:VZ) or AT&T (NYSE:T). Despite the low valuation, Perion achieved 17% year-over-year revenue growth and 28% year-over-year net income growth while having no debt. The company has more than three times the amount of total assets than total liabilities.
Perion offers advertising solutions for search engines, social media, video, CTV, and other major digital advertising channels. Many brands turn to the growing advertising company for ad placements and optimal performance. That trend continued as Perion reported its best Black Friday e-commerce sales volume ever. The company also recently released a generative AI-powered dynamic audio advertising solution that is leading to more demand.
The fast-growing advertising company has a $1.3 billion market cap and has gained 11% year-to-date. The stock’s 944% growth over the past five years highlights the potential for lofty returns. Thus, it is one of my top picks when it comes to e-commerce stocks.
Lululemon Athletica (LULU)
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Lululemon Athletica (NASDAQ:LULU) has been a great stock for long-term investors. Shares have gained 51% year-to-date and are up by 311% over the past five years. The athletic apparel company has many retail locations in North America and uses its online store to generate more sales.
Revenue growth has decelerated in recent quarters due to macroeconomic headwinds, but Lululemon Athletica remains well ahead of competitors like Nike (NYSE:NKE). In the third quarter, revenue increased by 19% year-over-year compared to Nike’s 2% year-over-year revenue jump.
Lululemon Athletica expanded its physical presence with 14 additional stores and closed out the quarter with 686 stores. The company is trendy among younger consumers and is growing faster than many of its competitors.
The company recently announced a $1 billion stock repurchase program, which will further reward long-term investors. Lululemon Athletica’s leadership has demonstrated commitment to increasing shareholder value in addition to reporting strong financials. Lululemon Athletic enjoys double-digit profit margins and looks like a candidate that may offer dividends by the end of the decade.
Walmart (WMT)
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Walmart (NYSE:WMT) is the largest retailer in the world and is a popular destination for people who want to save money on various products. Walmart specializes in getting the lowest prices and operates over 10,000 stores in more than 20 countries.
Walmart shares took a breather in November after a nice rally and are up by 5% year-to-date. Shares have gained 64% over the past five years. The retailer reported 5.2% year-over-year revenue growth in the third quarter. The company also reported 15% year-over-year e-commerce growth in the same quarter.
Walmart’s retail international segment is growing at a faster rate than U.S. sales. Interestingly, e-commerce is having the opposite trend. While international e-commerce sales dropped by 3% year-over-year, U.S. e-commerce sales grew by 24% year-over-year.
Walmart is dabbling in advertising just like Amazon and reported an impressive 26% year-over-year growth rate for Walmart Connect advertising sales. Ads still make up a small portion of Walmart’s total revenue. However, in-store ads combined with online ads on Walmart’s site can lead to more growth in the years to come. If advertising continues to grow at this pace, it will eventually influence a larger percentage of Walmart’s total revenue. It is one of the best e-commerce stocks you can buy, in my opinion.
Alphabet (GOOG, GOOGL)
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Many e-commerce businesses run advertisements to attract potential customers. Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is one of the top resources for these business owners due to the company’s platforms and ad targeting capabilities.
Google and YouTube are two of the many subsidiaries under the Alphabet umbrella. The company also gives investors exposure to exciting segments like artificial intelligence and the cloud.
Alphabet stock has been a reliable winner for long-term investors. Shares have gained 47% year-to-date and are up by 156% over the past five years. Alphabet’s third-quarter results suggest that the gains can continue. The online advertising giant reported 11% year-over-year revenue growth and 41.6% year-over-year net income growth.
Google Cloud continues to grow at a robust pace. That business segment grew by 22.5% year-over-year and reached $8.4 billion in revenue. Google Cloud powers up many websites and makes up more than 10% of total revenue. Google Cloud is compensating for a slowdown in Google advertising revenue growth, which only came in slightly below 10% year-over-year.
MercadoLibre (MELI)
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MercadoLibre (NASDAQ:MELI) is an Argentine e-commerce and fintech company that delivers exceptional top-line and bottom-line growth. MercadoLibre’s e-commerce platform has been around for over 20 years and helps everyone from small sellers to large official stores. The marketplace has millions of sellers.
MercadoLibre is the largest marketplace in Latin America. Growth is high across the board, especially in Mexico and Brazil. The stock has rewarded long-term investors by almost doubling year-to-date. Long-term gains paint an even better picture, as shares are up by almost 400% over the past five years.
The company has generated strong returns for shareholders through its impressive finances. Revenue soared by 40% in the third quarter while net income comfortably surpassed expectations and almost tripled year-over-year.
MercadoLibre isn’t the cheapest e-commerce play if investors look at the conventional P/E ratio. Shares currently trade at an 80 P/E ratio and a 46 forward P/E ratio. However, the stock’s PEG ratio is under one, which some investors interpret as an undervalued stock. Even investors who look at companies based on their P/E ratios have been willing to pay a premium for exposure to MercadoLibre stock.
On this date of publication, Marc Guberti held long positions in SHOP and PERI. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Marc Guberti is a finance freelance writer at InvestorPlace.com who hosts the Breakthrough Success Podcast. He has contributed to several publications, including the U.S. News & World Report, Benzinga, and Joy Wallet.
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