Wall Street still believes in Amazon, even though the basket of e-commerce companies tracked by Saxo Bank has fallen 47% since the start of the year

The S&P 500 and Nasdaq indices have recorded double-digit declines this year. By breaking them down into prime factors, we see that there are industries and companies that are falling sharply, but there are also those that are recording increases. One of the sectors losing the most is the e-commerce industry, i.e. the stars of the pandemic, as Saxo Bank analysts point out.

Local lockdowns in China and a tight commodity market will also continue to fuel inflation. These factors, combined with the policy stance of the US central bank, are further fueling the financial situation of some companies, which means that the outlook for equities in the short term is negative. We may see more of these short-term gains in two trading sessions, but they are just a distraction from the real trend. The bear market during the dotcom bubble saw many such opportunities, each of which turned out to be a false turn.

E-commerce looks really bad

The basket of e-commerce businesses created by the Saxo Bank team has seen a 47% drop since the start of the year, the biggest drop among the baskets. During the pandemic, e-commerce companies saw record increases in revenue and profits during the pandemic, which was reflected in stock valuations. Consumers are now fully aware of the effects of rising energy and food prices, which are changing their habits.

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Additionally, businesses are feeling the effects of rising logistics and order fulfillment costs sharply, while their volume is also shrinking. Additionally, Apple’s decision not to allow users to track their actions contributes to increased customer acquisition costs for e-commerce businesses that use Facebook’s ad targeting tools. As if that were not enough, consumer confidence is plummeting. – The pain in the e-commerce industry is enormous, but the future is probably not as bad as people think. Investors are encouraged to start researching which e-commerce businesses can become long-term winners and to plan to enter the market when the market bottoms out. During the dot-com crisis, many later winners, such as Microsoft, Qualcomm, Amazon and Intel, saw significant declines, and a similar pattern could repeat itself when the dust settles. – says Peter Granry of Saxo Bank. Investors will have to get used to the short term upsides of this weak stock market as this is perfectly natural and was a key feature of the weakness in 2000-2003 and 2007-2008.

There is a crisis of consumer confidence, which also affects e-commerce results.

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Investors spooked by bad forecasts

Ultimately, the question is how long consumers can continue to spend in the face of inflation. The difficult labor market has caused wages to rise, although less rapidly than prices, and consumers to save more, even if they are falling. Traditional retailers are not immune to the problems faced by e-commerce, but they may not be as badly affected by them. Again, stocks will likely trade based on company forecasts.

The slowdown in sales could continue for a long time. The problem is that during the pandemic of the past two years, many consumers have built up an inventory of tangible goods, buying everything from electronics and appliances to furniture. Many of these items will not need to be replaced or upgraded for many years.

People also go to stores to socialize. As the latest Placer.ai study showed, people are more likely to visit stores for social reasons, which means traditional places will always be a counterweight to the e-commerce industry.

Amazon failed in Q1’22, but Wall Street still believes in it

The stock price since the start of the year is down almost -40%, while in the last five trading sessions the price has fallen by -17%. This is an effect of how online retail sales and ad sales came in below consensus estimates, and forecasts disappointed. Nevertheless, most analysts stuck to their recommendations. According to FactSet, Amazon’s average target price also fell from $4,109 on March 31 to $3,703 on Monday, but was up 49% from last week’s close of $2,485.

AMAZON SHARE

Either way, Wall Street remains optimistic about the tech giant’s long-term development prospects, especially in the advertising and cloud computing segment. Others believe that Amazon Prime Day, which takes place in the third quarter of this year rather than the second, could be another catalyst. We will see who capitulates first – the market or the analysts.

Shopify follows the downtrend and falls short of market expectations

Shopify is a Canadian online store building platform company that is under the same pressure as all e-commerce companies. Wedbush analyst Ygal Arounian on Tuesday lowered his price target from $937 to $630, highlighting falling market multipliers and uncertainty regarding e-commerce spending in the near future. The new target still implies a 33% increase from the last levels. Shopify probably isn’t immune to the e-commerce trends and pressures we’re seeing in this industry, but we still think it’s in a good place. writes Arunian.

Shopify’s first-quarter performance fell short of analysts’ expectations, causing the stock to fall in line with the trend. The e-commerce company reported first-quarter adjusted earnings of 20 cents per share, below the estimate of 64 cents per share. Net income was $25.1 million, down from $254.1 million in the same period last year. That result was made up of $1.6 billion of net unrealized and realized losses on stocks and other investments.

Shopify CEO Harley Finkelstein explained that the unrealized and realized losses were due to market volatility impacting the company’s investments.

Shopify recorded sales of $1.2 billion, which is in line with the estimate of $1.24 billion. Gross sales increased 16% year-on-year to $43.2 billion. Merchant Solutions revenue grew 29% year-over-year, driven by the growing popularity of solutions such as Shopify Payments, Shopify Capital and Shopify Markets.

Analysts agree that macro issues don’t reflect Shopify’s structural weaknesses. In the long term, Shopify should benefit from the gain in e-commerce market share. He believes the company’s offering is crucial for small and medium-sized businesses looking to introduce e-commerce options, which is an important post-2020 trend. – In our opinion, Shopify is very well prepared for the future of trading. writes Arunian. While there could certainly be more declines and we would expect more volatility around e-commerce, we believe the current turmoil will prove to be a good entry point and buying opportunity.

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The company expects annual revenue growth to be weaker in the first half and higher in the fourth quarter of 2022, “Because the Covid-triggered e-commerce acceleration in the first half of 2021, resulting from government lockdowns and incentives, will not happen in the first half of 2022 r.” – said the company.

Revenue growth from merchant solutions could be more than double the growth from subscription solutions in the same year, meaning that the increase in gross profit dollars will be faster than the increase in revenue. Shopify plans to reinvest all gross profits back into business operations to expand its range of services, the company added. Capital expenditures will be approximately $200 million, and stock-based compensation expenditures and associated payroll taxes will be approximately $800 million.

Investors were nervous ahead of Shopify’s earnings announcement, given the mixed performance of other online retailers for this performance season, raising concerns about whether e-commerce could experience a post-pandemic downturn similar to that of ‘Amazon.

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