E-commerce stocks have been Wall Street favorites for many years thanks to their ability to outgrow brick-and-mortar retailing peers. Yet with the digital sales channel still only accounting for about 10% of the wider retailing industry, there's a long runway for growth.
With that bright outlook in mind, we asked Motley Fool contributors for a few e-commerce specialists that look like attractive stock buys today. Read on to find out why Stitch Fix (SFIX -0.23%), Zillow (Z -0.16%) (ZG -0.26%), and Alibaba (BABA 1.65%) made that list.
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The fix is in
Demitri Kalogeropoulos (Stitch Fix): There's no shortage of smart-sounding reasons to believe Stitch Fix will fail to build an enduring position in the apparel retailing industry. Its push-based selling model, where personal shoppers chose a customer's clothing, is unproven, and most of its target market is still unaware of its brand -- or even how the service works.
But the e-commerce disruptor is making huge strides at solving those core challenges right now. Its last earnings report showed a healthy jump in its active user base and in average spending per order. Better yet, the company's customer satisfaction metric, best reflected in its repeat business trends, has improved in each of the last four quarters.
Looking ahead, CEO Katrina Lake and her team are hoping to build brand awareness through a cross-channel marketing campaign. They're also ramping up their men's and kids' offerings and pushing into key international markets like the U.K. Each of these initiatives carries the risk that Stitch Fix will fail to meet management's targets in these competitive industry niches.
Investors seeking a promising e-commerce stock might be happy accepting those risks, giving the huge returns Stitch Fix would generate if its subscription-shopping model endures.
Simplifying online homebuying
Steve Symington (Zillow Group): The real estate world isn't exactly the first e-commerce category to come to mind for many investors. But Zillow Group has made its name by disrupting the real estate status quo already with its leading group of online brands, which not only includes its namesake site and apps but also Trulia, New York City sites StreetEasy and Naked Apartments, apartment and rental search site HotPads, and RealEstate.com.
But now, Zillow is ramping its efforts to buy and sell properties through its Zillow Home Loans and Zillow Offers programs, providing homeowners and home shoppers a massively simplified and shortened real estate transaction experience in the process.
Shepherding that ramp up will be Zillow co-founder Rich Barton, who enjoys outstanding rapport with the investor community and returned to the helm as CEO four months ago. At the time, Zillow teased that within the next three to five years, it's target is to purchase 5,000 homes per month, which would result in annualized segment revenue of $20 billion. For perspective, last quarter, Zillow bought 898 houses and sold 414, generating just under $129 million in revenue in the process.
That said, Zillow stock has rallied nicely on the heels of last month's stronger-than-expected quarterly report. But it still trades around 35% below its 52-week high, and I think investors who buy today could enjoy outsized gains for years to come as Zillow's story continues to unfold.
China's e-commerce and cloud leader
Leo Sun (Alibaba): Alibaba, the largest e-commerce player in China, lost nearly 20% of its value over the past 12 months on concerns about the trade war and an economic slowdown in China. However, the tech giant -- which owns the largest e-commerce and cloud platforms in China -- continues to generate incredible growth.
Its total revenue rose 51% annually last year. Gross merchandise volume on its two core marketplaces, Tmall and Taobao, rose 31% and 19%, respectively. Annual active customers on its marketplaces grew 18%, to 654 million, as mobile monthly active users for its marketplaces grew 17%, to 721 million. On the bottom line, it grew adjusted net income by 12%.
Unlike Amazon, which uses its higher-margin cloud business to support its lower-margin marketplace business, Alibaba uses a higher-margin marketplace business -- which mainly facilitates customer-to-customer and business-to-business transactions -- to support its lower-margin cloud and digital-media initiatives. It's also expanding into other markets, like Southeast Asia, Russia, and Europe.
Those investments expand its ecosystem and widen its moat against Baidu, Tencent, and other aggressive rivals in China's crowded tech market. Alibaba expects its revenue to top 500 billion RMB ($72.8 billion) this year -- which would represent at least 33% growth from 2018.
Alibaba didn't provide any earnings guidance, but analysts anticipate 22% growth -- which is a solid growth rate for a stock that trades at 19 times forward earnings. Therefore, any good news about the trade war and China could bring investors running back to this "best-in-breed" e-commerce leader.
