Wall Street loves Amazon.com Inc., but not enough to ignore the broad sell-off that hit U.S. stock markets on Friday.
Amazon, along with several other online retail-related stocks, sold off during the stock market downturn that began Friday, with Overstock.com Inc. taking the biggest hit, losing nearly 25% of its value.
However, several investment advisers with expertise in e-commerce say the steady growth in online shopping likely will prevent any long-term decline in the value of e-retail companies.
“On the broader e-commerce space, performance has been well above the overall market, so as investors look to take some profits on a pull-back, it’s not surprising to see a bit more volatility in this sector,” says Colin Sebastian, a senior equity research analyst at investment firm Robert W. Baird & Co. who covers Amazon and other e-commerce companies. “That said, on a longer-term basis, we would argue that e-commerce is still one of the attractive areas for investors given the positive secular growth tailwinds of online shopping. Amazon, Alibaba and Wayfair are a few of the companies taking a lot of market share, and eBay is now also exhibiting faster growth, so [there are] a lot of opportunities for investors.” Wayfair Inc., No. 16 in the Internet Retailer Top 500, is an online retailer of home furnishings. Alibaba Group Holding Ltd. is China’s leading e-commerce company.
Amazon, No. 1 in the Top 500, whose stock price soared by nearly 6% in after-hours trading Thursday after reporting a blockbuster fourth quarter, gave back virtually all of its gains by end of day Monday. That was especially notable because Amazon is one of the richest companies in the world by stock market value, with a market cap of about $678 billion.
Amazon’s stock rallied late Tuesday, though it was still 2% below its share price following the post-earnings rally late last week.
Amazon was not alone among e-commerce companies following the market downturn. An Internet Retailer analysis of 10 publicly traded companies involved in online retailing—including eBay Inc. and vendors Shopify Inc. and ChannelAdvisor Corp.—shows that their stock prices collectively fell 6.34% during the sell-off Friday and Monday. That was in line with the declines in major stock exchanges, which also fell roughly 6%-7%.
But the recent downturn in the e-retail stocks does not necessarily foreshadow a long-term decline in their value, says Stuart Rose, managing partner at investment advisors Tully & Holland and head of the Multichannel Merchant group, whose practice includes investments in online retailers and other direct sellers.
“I think e-commerce stocks will fare well in the long term and this is just a correction,” Rose says. “First, they are growth stocks for the most part, and the future remains bright for them. Second, they tend to be asset light—mostly inventory.” That means they don’t require as much capital as, for example, manufacturers would. “So, when interest rates rise, they will be less affected,” Rose says. “Third, they tend to be retail stocks. As inflation increases, and, finally, wages increase, they should be able to raise prices, finally (again), and keep pace.”
Nine of the 10 e-retail stocks Internet Retailer analyzed lost value during the two-day sell-off, with the sole exception being meal-kit delivery service Blue Apron Holdings Inc., No. 197 in the Internet Retailer Top 500. Blue Apron, whose stock price has fallen precipitously from its IPO in June, was up 2% at Monday’s market close from Thursday’s closing price.
The biggest e-retail loser in the sell-off was Overstock.com, No. 30 in the Top 500. Its shares were off more than 25% during the two-day market rout.
However, that comes after a year in which Overstock’s price rose dramatically from under $20 in February 2017 to nearly $87 in early January 2018. That big jump came as Overstock CEO Patrick Byrne disclosed plans to invest more heavily in blockchain technology and sell off or take private the online retail part of Overstock’s business.
With stocks beginning to turn back up late Tuesday, Overstock had pared its loss since Thursday to about 18%.
Overstock declined to comment on the company’s stock performance.
The next-biggest loser was online T-shirt retailer CafePress, No. 277 in the Top 500, whose shares lost more than 7% of their value Friday and Monday. The smallest decline was registered by ChannelAdvisor, a provider of marketing services to online retailers, whose shares fell less than 1% during the two-day sell-off. By late Tuesday, ChannelAdvisor’s stock was back up to roughly what it had been before the stock market started falling Friday morning.