Is the future of the e-commerce sector still bright? May 27, 2022
The recent relaxation of COVID19 restrictions worldwide, has led to increased demand and inflation. However, demand for e-commerce platforms has inversed, resulting in a dive. The e-commerce, or electric commerce, industry has experienced its biggest surge in the pandemic stricken era of mid-2020, but the easing of pandemic rules has dealt a severe blow to the sector.
This article will discuss:
- The e-commerce industry’s current down period
- American e-commerce stores and platforms, post Q1 2022 and the comparison with their Southeast Asian counterparts
- E-commerce stock trading opportunities
2020 experienced an unprecedented crisis– a global pandemic which plagued most industries and resulted in the rapid expansion of the e-commerce industry.
As online shopping became a necessity, e-commerce became one of the safest bets on the stock exchanges.
However, it seems that the expansive growth of e-commerce is coming to a halt. The easing of COVID-19 restrictions in most countries has driven the demand for physical retail stores despite cheaper online offers, making it evident that consumers are desperate for a lifestyle change.
The bleak prospects of the e-commerce industry have been intensified recently by delayed supply chain amid the Russia-Ukraine war, and sky-high inflation.
Analysts believe that there will be no turnaround for the industry anytime soon, as they feel it is unlikely that the e-commerce industry will experience a boom again.
However, the sector may still be a good investment opportunity when the prices rise again. The opening bell on 6 May 2022 signaled steep drops for even the strongest of e-commerce giants. Etsy (NASDAQ: ETSY), an online arts-and-crafts store, fell almost 18% on 5 May 2022. Amazon (NASDAQ: AMZN), which has been steadily dropping since mid-April, saw a disappointing 7% growth in Q1 2022, compared to its 44% growth in the same period last year1. This has been the slowest growth period for Amazon in nearly 21 years, though Amazon’s Web Service (AWS) continues to generate high levels of revenue, it was not enough to offset the losses.
Fig 1. Shopify shares on May 6 2022
Canada-based e-commerce platform Shopify (NYSE:SHOP) missed forecasts significantly as it announced its Q1 2022 earnings, with only 20 cents per share reported against the expected 77 cents per share. Its shares saw a significant dip following the announcement, and the downward trend continued on May 6 (Refer to Fig 1).
However, Shopify’s latest and so far, biggest USD2.1 billion acquisition might offer a ray of hope for those looking to buy or hold the counter.: The company aims to streamline its logistics and delivery with its acquisition of Deliverr, which began as an e-commerce fulfilment start-up2.
In comparison, dominant e-commerce companies in Singapore, Southeast Asia and China saw slower drops. Though Shopee (NYSE: SE) has been steadily sliding, it has yet to experience a significant crunch with investors, since trade volumes have remained fairly consistent.
However, the earnings report of Sea Limited, Shopee’s owner, for Q1 2022 on 17 May has certainly helped in taking the first steps towards reversing this trend. Sea Limited reported better than expected figures in its quarterly report, causing a sharp hike in its stock3.
Alibaba (NYSE: BABA), China’s primary e-commerce platform, suffered a sharp 6.6% decline over 5-6 May 2022.
The detention of a man named ‘Ma’, who shares founder Jack Ma’s name was pointed as the cause of this, with the stock recovering after a clarification was issued.
With China’s lockdown on Shanghai and Beijing, it seems more than likely that people will turn to Alibaba-owned e-commerce stores Taobao and T-Mall for their retail needs.
The e-commerce industry has changed from a safe haven to a rocky terrain with the easing of COVID-19 restrictions.
In the US, the sector is experiencing a two-year low, but since the companies are expected to recover in the long-term, investors can take this as a buying opportunity to expand their portfolio in the e-commerce sector.
Across the globe, the e-commerce industry is waiting on bated breath to see how the Q1 2022 earnings and China’s COVID-19 policy will affect the economy.
Take this opportunity to expand your trading portfolio with our wide range of products including Stocks, CFDs, ETFs, Unit Trusts and more across 15 global exchanges available for you anytime and anywhere. Elevate your trading experience with our POEMS Mobile 3 App! Keep up with daily financial news on our Telegram channel or read more articles from our market journals here.
About the author
Shamir Thair is a Content and Community Executive with the POEMS team.