Insights

Is Global E-Commerce Really at Risk?

Investors endured another round of selling in the stock market, piling on after last week’s turbulent performance. For six months now, major market benchmarks like the Dow Jones Industrial Average (DJINDICES: ^DJI), S&P 500 (SNPINDEX: ^GSPC), and Nasdaq Composite (NASDAQINDEX: ^IXIC) have consistently lost ground. The S&P is inching closer toward joining the Nasdaq in bear-market territory with a 17% drop from its highs at the beginning of the year.

Index

Daily Percentage Change

Daily Point Change

Dow

(1.99%)

(654)

S&P 500

(3.20%)

(132)

Nasdaq

(4.29%)

(521)

Data source: Yahoo! Finance.
One area that has been hit especially hard lately is the e-commerce industry . Companies thrived in 2020 and 2021 as consumers had to resort to internet-based shopping during pandemic-related lockdowns. Now, though, the reopening trade has many investors feeling like the heyday of these stocks is over. Moreover, with geopolitical pressures emerging onto the global scene, some believe that the factors that made e-commerce as lucrative as it was could be fading. Below, we’ll look at some of the stocks seeing big losses and assess their longer-term prospects.
Image source: Getty Images.

Big losses in internet retail
Today’s session had some big losses, but many of the bottom performers were in the global e-commerce arena. Consider the following:
Latin America’s MercadoLibre (NASDAQ: MELI) fell 17%.
In Singapore, Sea Limited (NYSE: SE) was down more than 15%.
E-commerce supporter and buy now/pay later specialist Affirm Holdings (NASDAQ: AFRM) gave up more than 17% of its value.
Canadian e-commerce platform provider Shopify (NYSE: SHOP) fell 10%.
Online auto specialist Carvana (NYSE: CVNA) was down around 16.5% on the day.
South Korea’s Coupang (NYSE: CPNG) was one of the biggest losers, falling more than 22%.
As you can see, the selling was relatively indiscriminate and worldwide in scope. Even giants in the industry saw sizable declines, with Amazon.com (NASDAQ: AMZN) falling 5% and China’s Alibaba Group (NYSE: BABA) posting a nearly 6% drop.
Most of these declines merely added to much more extensive drops over the past several months. The six stocks in the bullet points above are all down between 60% and 90% from their best levels over the past year, and even Amazon and Alibaba have fallen 40% to 60%.
The long-term picture for e-commerce
E-commerce has made itself an integral part of the overall retail industry, and its long-term prospects remain favorable. Industry watchers see e-commerce continuing to gain market share from brick-and-mortar stores, with one analyst seeing $17.5 trillion in global digital commerce taking place by 2030, up from just over $4.2 trillion in 2020.
But just because there’s more e-commerce activity doesn’t automatically mean that investing in the space will be equally lucrative. Greater competition could drive margins down, while higher logistics costs could weigh on profitability as well. However, if retailers try to take back some of the features that have made e-commerce popular, such as fast shipping at little or no cost, it could set back prospects for internet retail growth.
The wild card in e-commerce is the extent to which the industry has relied on functional global supply chains. If the free flow of goods comes to a halt, it will have ramifications for the entire retail industry, but e-commerce in particular could see its anticipated higher growth rates come to a standstill.
Lastly, investors need to remember that despite their recent drops, most of these stocks are still sporting solid gains. Amazon has doubled since late 2017, while MercadoLibre and Shopify have tripled and Sea is up nearly 300%. Those huge swings serve as a reminder that the price of extremely high returns from high-growth stocks can be massive volatility, making it essential to find the best stocks earlier rather than later.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Dan Caplinger has positions in Amazon, MercadoLibre, and Shopify. The Motley Fool has positions in and recommends Affirm Holdings, Inc., Amazon, Coupang, Inc., MercadoLibre, Sea Limited, and Shopify. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy. –

Investors endured another round of selling in the stock market, piling on after last week’s turbulent performance. For six months now, major market benchmarks like the Dow Jones Industrial Average (DJINDICES: ^DJI), S&P 500 (SNPINDEX: ^GSPC), and Nasdaq Composite (NASDAQINDEX: ^IXIC) have consistently lost ground. The S&P is inching closer toward joining the Nasdaq in bear-market territory with a 17% drop from its highs at the beginning of the year.

Index

Daily Percentage Change

Daily Point Change

Dow

(1.99%)

(654)

S&P 500

(3.20%)

(132)

Nasdaq

(4.29%)

(521)

Data source: Yahoo! Finance.

One area that has been hit especially hard lately is the e-commerce industry . Companies thrived in 2020 and 2021 as consumers had to resort to internet-based shopping during pandemic-related lockdowns. Now, though, the reopening trade has many investors feeling like the heyday of these stocks is over. Moreover, with geopolitical pressures emerging onto the global scene, some believe that the factors that made e-commerce as lucrative as it was could be fading. Below, we’ll look at some of the stocks seeing big losses and assess their longer-term prospects.

Image source: Getty Images.

Big losses in internet retail

Today’s session had some big losses, but many of the bottom performers were in the global e-commerce arena. Consider the following:

Latin America‘s MercadoLibre (NASDAQ: MELI) fell 17%.
In Singapore, Sea Limited (NYSE: SE) was down more than 15%.
E-commerce supporter and buy now/pay later specialist Affirm Holdings (NASDAQ: AFRM) gave up more than 17% of its value.
Canadian e-commerce platform provider Shopify (NYSE: SHOP) fell 10%.
Online auto specialist Carvana (NYSE: CVNA) was down around 16.5% on the day.
South Korea’s Coupang (NYSE: CPNG) was one of the biggest losers, falling more than 22%.

As you can see, the selling was relatively indiscriminate and worldwide in scope. Even giants in the industry saw sizable declines, with Amazon.com (NASDAQ: AMZN) falling 5% and China’s Alibaba Group (NYSE: BABA) posting a nearly 6% drop.

Most of these declines merely added to much more extensive drops over the past several months. The six stocks in the bullet points above are all down between 60% and 90% from their best levels over the past year, and even Amazon and Alibaba have fallen 40% to 60%.

The long-term picture for e-commerce

E-commerce has made itself an integral part of the overall retail industry, and its long-term prospects remain favorable. Industry watchers see e-commerce continuing to gain market share from brick-and-mortar stores, with one analyst seeing $17.5 trillion in global digital commerce taking place by 2030, up from just over $4.2 trillion in 2020.

But just because there’s more e-commerce activity doesn’t automatically mean that investing in the space will be equally lucrative. Greater competition could drive margins down, while higher logistics costs could weigh on profitability as well. However, if retailers try to take back some of the features that have made e-commerce popular, such as fast shipping at little or no cost, it could set back prospects for internet retail growth.

The wild card in e-commerce is the extent to which the industry has relied on functional global supply chains. If the free flow of goods comes to a halt, it will have ramifications for the entire retail industry, but e-commerce in particular could see its anticipated higher growth rates come to a standstill.

Lastly, investors need to remember that despite their recent drops, most of these stocks are still sporting solid gains. Amazon has doubled since late 2017, while MercadoLibre and Shopify have tripled and Sea is up nearly 300%. Those huge swings serve as a reminder that the price of extremely high returns from high-growth stocks can be massive volatility, making it essential to find the best stocks earlier rather than later.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Dan Caplinger has positions in Amazon, MercadoLibre, and Shopify. The Motley Fool has positions in and recommends Affirm Holdings, Inc., Amazon, Coupang, Inc., MercadoLibre, Sea Limited, and Shopify. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy.

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