Digital Commerce Stocks Start 2023 On A Strong Note. Are More Gains In The Cards?

AMZN: Amazon logo

Our theme of E-Commerce Stockswhich is comprised of U.S.-based e-commerce companies as well as logistics and payment players, has fared pretty well this year, rising by about 33% since early January. This compares to the S&P 500 which remains up by roughly 7% over the same period. Now a bulk of the gains for the theme have come from a single stock, namely Carvana (NYSE:CVNA), which has more than doubled over the last few weeks. However, other key players have also fared quite well, with Amazon stock (NASDAQ:AMZN) up 13% and eBay stock (NASDAQ:EBAY) up 15%.

Inflation has cooled off a bit in recent months and this is a positive for e-commerce players, given that consumers had reined in spending on discretionary items as prices for essentials surged.  Moreover, the U.S. Federal Reserve is also going a bit easy on its interest rate hikes, with the last hike standing at just 25 basis points, compared to multiple hikes of 75 basis points last year. The slower pace of rate hikes is also likely turning investors’ attention back to technology and growth stocks which took a beating through the last year. The supply chain issues that were seen through the Covid-19 pandemic also appear to be easing, and this could help improve supply for e-commerce players.

Now the Q4 earnings from many of the major e-commerce-related players have actually been pretty mixed thus far. Amazon, for example, saw its bottom line miss estimates due to higher costs, although net sales came in ahead of estimates at about $149.2 billion rising almost 9% versus last year. UPS (NYSE:UPS) on the other hand saw its revenue decline by about 2.7% versus last year although cost management helped it to post better-than-expected earnings.

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However, we still think that the risk-to-reward positioning of the e-commerce theme still looks attractive at current levels. The secular shift from physical commerce to e-commerce is likely to continue over the long run. Valuations are also looking reasonable. For instance, e-commerce bellwether Amazon stock now trades at under 2x projected 2023 sales, down from over 4.5x previously, while eBay stock trades at just about 2.5x.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns Feb 2023
MTD [1]
YTD [1]
Total [2]
 AMZN Return -8% 13% 153%
 S&P 500 Return 0% 6% 82%
 Trefis Multi-Strategy Portfolio 0% 11% 250%

[1] Month-to-date and year-to-date as of 2/21/2023
[2] Cumulative total returns since the end of 2016

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