When it comes to retail sales, if you’re betting between bricks and bytes, go with the latter. U.S. e-commerce sales surged in the first quarter as traditional brick-and-mortar retail sales limped along. Despite the weak economic outlook, online sales continue to impress.
More than a few stocks will benefit from this shift in consumer behavior, but not all of them are as obvious as you think.
Q1 E-Commerce Sales Robust
U.S. consumer sentiment may not be exactly stellar but shoppers continue to spend, just not the way they used to. Thanks to the rise in use and convenience of smartphones and mobile apps, e-commerce sales are growing while in-store sales are stagnating.
In the first quarter of 2016, U.S. online sales increased 15.1% year-over-year to $86.3 billion and accounted for 7.8% of total retail sales. In the first quarter of 2015, online sales totaled $75.0 million and accounted for 6.9% of total retail sales. Most impressively, e-commerce sales accounted for 31.8% of total first-quarter retail sales growth. (Source: “Quarterly Retail E-commerce Sales 1st Quarter 2016,” U.S. Census Bureau, May 17, 2016.)
Overall, total first-quarter retail sales increased 3.3% on a non-adjusted basis to $1.11 trillion from $1.08 trillion. On an adjusted basis, retail sales advanced 2.2% to $1.18 trillion.
This doesn’t necessarily mean people are shopping a lot more; total retail sales have been in a pretty tight range since the second quarter of 2015. What it might mean is that consumers are shifting the way they connect with their favorite brands. Those brands that evolve with the times (technology and trends) will thrive.
Those brands that don’t…well, you don’t have to look further than the empty halls of your local mall and the shuttered windows of one-time teen stalwarts like Aeropostale Inc, American Apparel Inc, and Quicksilver, Inc. When was the last time (not counting the 1980s) you heard someone talk about the great stuff they got at Eddie Bauer? Sure, some of them will restructure and crawl out from under Chapter 11 but still.
5 of the Best E-Commerce Stocks
It’s never too late to get in on e-commerce stocks, just like it’s never too late to get in on any stock. This is especially true for e-commerce stocks when you consider online retail sales were up 15% year-over-year in 2015 at $341.7 billion and are expected to broach $525 billion by 2020.
Online shopping is here to stay and some stocks are better positioned than others to take advantage of the changing industry dynamics.
Amazon.com, Inc. (NASDAQ:AMZN)
It’s tough to be everything to everybody, but Amazon.com, Inc. (NASDAQ:AMZN) is trying to be just that. Not only does the one-time used bookstore now sell virtually everything under the sun, it gets its goods to consumers in as little as a few hours. That’s because of Amazon’s strategically located fulfillment centers, which are, analysts estimate, within 20 miles of 50% to 60% of its core same-day deliverable market. (Source: “Here are all of Amazon’s warehouses in the U.S.,” Business Insider, March 24, 2015.)
A year ago, when Amazon was trading at $315.00 per share, some were saying the stock was dead money. It’s more than doubled since then. That’s not surprising when you consider Amazon accounted for more than half of all e-commerce growth in 2015. And it’s not going to slow down either.
eBay Inc (NASDAQ:EBAY)
Who doesn’t love an online yard sale? You may not be able to find as many great deals as you once could on eBay Inc (NASDAQ:EBAY), but the company still manages to make a lot of money and reward its investors.
First-quarter revenue was up 4.05% year-over-year at $2.1 billion while net income was up seven percent at $482 million, or $0.41 per share. eBay generated $641 million in operating cash flow from continuing operations and $483 million in free cash flow from continuing operations during the first quarter of 2016. It also repurchased roughly $1.0 billion of its common stock, or 42.3 million shares, in the first quarter. (Source: “eBay Reports First Quarter 2016 Results,” eBay, April 26, 2016.)
For fiscal 2016, eBay expects net revenue between $8.6 billion and $8.8 billion, representing (FX-neutral) growth of three to five percent. In addition to organic growth, the company is launching new initiatives to accelerate performance, which should help drive the company’s share price higher.
Alibaba Group Holding Ltd (NYSE:BABA)
No, it’s not American nor will it thrive on increased U.S. e-commerce spending, but Alibaba Group Holding Ltd (NYSE:BABA) is the biggest online retailer in the most populated country in the world. China’s e-commerce giant also sells to other international destinations.
While the company’s share price has struggled, down roughly 35% since peaking at $120.00 just months after its record-breaking initial public offering in September 2015, it’s important to note that the company’s earnings have more than doubled over the course of the last year.
In the just-completed first quarter, Alibaba’s revenue soared 39% to $17.4 billion, while net income was up 85% at $832 million, or $0.33 per share. (Source: “Alibaba Group Announces March Quarter 2016 and Full Fiscal Year 2016 Results,” Yahoo! Finance, May 5, 2016.)
FedEx Corporation (NYSE:FDX)
What was the old saying during the gold rush? When everyone is out looking for gold, you sell shovels? Something like that. Well, FedEx Corporation (NYSE:FDX) may not be an e-commerce company, but it does help e-commerce juggernauts deliver their products.
FedEx is a freight services company that helps e-commerce companies and businesses around the world get their products and services where they need to be. Its “FedEx Express” unit is the world’s No. 1 express transportation provider, delivering approximately 3.5 million packages daily to more than 220 countries and territories. It maintains a fleet of 650 aircraft and more than 56,000 motor vehicles and trailers.
In March, FedEx announced that for the third quarter (which ended February 29), revenue increased 8.5% to $12.5 billion, while the company’s net income earnings slipped to $1.84 per share from $2.18 per share in 2014. Adjusted earnings for the third quarter were $2.51 per share compared to $2.03 in the third quarter of last year. (Source: “FedEx Corp. Reports Strong Adjusted Third Quarter Earnings,” FedEx Corporation, March 16, 2016.)
Looking ahead, FedEx tightened its adjusted earnings forecast to $10.70–$10.90 per diluted share compared to the previous forecast of $10.40–$10.90 per share. This represents a 20%–22% increase over 2015.
As management noted, “Our positive financial momentum should continue into our upcoming fiscal 2017, where we expect solid growth in earnings and cash flow.” (Source: Ibid.)
United Parcel Service, Inc. (NYSE:UPS)
You can’t list the one delivery service without mentioning the other, especially when you consider United Parcel Service, Inc. (NYSE:UPS) is the world’s largest package delivery company. Each and every business day, UPS delivers packages for 1.5 million shipping customers to 7.9 million receivers in over 220 countries and territories. In 2013, UPS delivered an average of 16.9 million pieces per day worldwide for a total of 4.3 billion packages.
Once the go-to shipper for Amazon, many people fear UPS’s stock is in for a world of pain when the e-commerce giant takes more control of its own shipping needs. But it’s all about perspective.
In 2015, UPS generated roughly $1.0 billion in revenue from Amazon. In the same year, UPS reported total revenue of $58.4 billion, which means Amazon accounts for roughly 1.7% of revenue. And something tells me Amazon isn’t paying the same price as you and me when it comes to shipping a comparable package. In fact, we could be subsidizing Amazon’s ultra-cheap shipping options, so losing some business from Amazon is not as bad as it may seem.
In the fourth quarter of 2015, UPS announced that revenue inched up one percent to $16.1 billion. Fourth-quarter adjusted earnings per share increased 26% year-over-year to $1.57, the highest ever for a fourth quarter. This represents the fourth consecutive quarter that UPS exceeded its financial expectations. In 2015, total revenue was up less than one percent at $58.3 billion, while net income was up roughly 60% at $4.8 billion or $5.35 per share. (Source: “UPS Delivers Peak Profits,” United Parcel Service, Inc., February 2, 2016.)