Arguably no technology trend has positively disrupted the world as much as e-commerce. But not every e-commerce business will survive and thrive over the long term -- and that can create peril for investors who put their money to work in the wrong stocks.
So we asked three top Motley Fool contributors to each find an e-commerce stock they believe you would be wise to consider buying now. Read on to learn why they chose lululemon athletica (LULU 1.43%), Alibaba (BABA 0.28%), and Shopify (SHOP 0.23%).
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It's no stretch to consider this a top e-commerce play
Steve Symington (lululemon athletica): Lululemon might not be the first name you think of as you consider leaders in the e-commerce space. But the yoga apparel specialist is perfectly positioned to benefit from the rise of online shopping.
In fact, Lululemon shares soared late last week, after the company's latest quarterly growth smashed expectations. Revenue climbed 26% to $1.17 billion, while earnings rose more than 80% to $1.85 per share. In part, management credited the fact that Lululemon's e-commerce sales climbed to 26% of total revenue last year, exceeding a goal the company had previously only targeted reaching by 2020.
Lululemon's business in China was "particularly robust," according to COO Stuart Haselden, with e-commerce sales skyrocketing 140% in the fourth quarter. Over the longer term, Lululemon believes online sales will represent around half of total revenue in the Middle Kingdom.
And Lululemon isn't stopping there. During the subsequent conference call with analysts, Haselden noted that the company has yet to implement investments on "a lot of opportunities" to improve conversion through not only the website, but also on social media and digital marketing channels. As these new investments begin to yield fruit, it should only serve to help Lululemon sustain and accelerate its incredible momentum.
A play on the Chinese economy
Anders Bylund (Alibaba): Like many overseas e-commerce retailers, Chinese e-commerce giant Alibaba is primed for a huge comeback. I think Latin American industry peer MercadoLibre (MELI -1.01%) set a solid precedent here, rising 77% in the first quarter of 2019. That company delivered a fantastic earnings report in February, sending share prices skyward in a hurry. Analysts and investors were caught flat-footed by MercadoLibre's 62% currency-adjusted revenue growth and the positive economic trends that drove these surging results.
Latin America is far from the only market experiencing an upswing at the moment. In particular, March reports hot off the presses showed that China posted its strongest manufacturing activity since July. The trade war between Beijing and Washington is still going on, but the Middle Kingdom's long-term economic improvements can only be held back for so long.
Alibaba could see the business tailwinds from pent-up demand explode in its next earnings report, scheduled for May. It could also take a bit longer. But one thing is for sure: The longer you wait, the more likely you are to miss the surge. Because it most definitely is coming, and I don't think we'll have to wait much longer. Today, the stock has gained a mere 2% over the past 52 weeks, compared to MercadoLibre's 49% rise. This is the time to take action on Alibaba's undervalued shares.
Shopify is still on fire
Chris Neiger (Shopify): It's hard to believe, but we're still in the beginning stages of the e-commerce market. Sure, Amazon.com's massive size and scale make it seem as if online sales have been happening forever, but the picture becomes just a little clearer when you see that many small and medium-sized business are still trying to figure out how to build their online presence and sell their goods.
And that's precisely where Shopify comes in. The company helps businesses of all sizes get their online shops set up, processing credit card transactions, tracking orders, and even helping them do online marketing. Shopify is a one-stop shop for businesses trying to make it in an ultra-competitive e-commerce world -- and it's going gangbusters.
Shopify had 500,000 businesses on its platform by mid-2017, but that figure now exceeds 800,000. In the latest quarter, Shopify's revenue jumped 54% year over to $343.9 million, and the company's merchant solutions business, Shopify's largest revenue segment, popped 63% to $210.3 million. The company believes there's far more growth ahead as well, with management forecasting sales in the range of $1.46 billion to $1.48 billion for the full 2019, a 37% jump at the midpoint.
Investors should keep in mind that Shopify isn't profitable just yet, but its net loss narrowed from $3 million in Q4 2017 to just $1.5 million in Q4 2018. The company's share price is up 70% over the past year, and with the e-commerce market just getting started, it's likely that Shopify's business is nowhere near done growing yet.
The bottom line
We can't guarantee any stock will outperform the market or its peers, particularly in a fast-evolving industry like e-commerce. But whether we're talking about Lululemon's enviable online momentum, the tailwinds working in Alibaba's favor, or Shopify's central position enabling these early stages of the e-commerce industry's growth, we think they're each primed to do exactly that.
