The e-commerce market was already rapidly expanding long before COVID-19 showed up, but the pandemic has forced many people around the world to rely even more on the internet for daily necessities and local food delivery.
The online buying trend won't go away any time soon, even when things eventually go back to normal (whatever that looks like). This means that the companies that were well-positioned to benefit from e-commerce's growth before the pandemic are even more ready now to help businesses of all sizes sell their products to consumers. That's why investors should consider what Amazon.com (NASDAQ:AMZN), Shopify (NYSE:SHOP), and Mastercard (NYSE:MA) are doing in this space.
1. Amazon: The obvious e-commerce play
I know, Amazon is at the top of nearly every e-commerce stocks list, and seeing it at the top of this one may make some investors' eyes glaze over. But there are some very good reasons why the company deserves to be listed here.
First off, 40% of all online sales in the U.S. will happen on Amazon's e-commerce platform this year. Let that sink in for just a second. What other company can claim the same dominance in the market? The answer is none, because even Amazon's closest and most formidable retail competitor, Walmart, has just 5%.
Amazon's e-commerce service is more in demand than ever, and since the pandemic started in the U.S., the company has hired an additional 175,000 employees. That's not to say that Amazon doesn't have a few things to learn when it comes to managing employees, but it does show that more people are depending on the company's e-commerce platform than ever before.
Investors should know that Amazon, like most companies right now, is facing some tough times. Amazon CEO Jeff Bezos said in the company's recent quarterly earnings release that his company will spend $4 billion or more adapting to the changes created by the COVID-19 pandemic, which essentially eliminates the $4 billion in operating income the company would have made in the current quarter.
But over the long term, Amazon is in an amazing position to benefit from Americans' shift to e-commerce. The company was already dominating this market months ago. Going forward, no company is in better shape to lead the long-term shift to online shopping.
2. Shopify: The rising star
For investors who are less inclined to invest in an established e-commerce juggernaut like Amazon, and instead want a scrappy, fast-growing e-commerce star, look no further than Shopify.
If you're unfamiliar with the company, Shopify's services include website design, payment processing, shipping, and a number of other services that help businesses of all sizes sell their products and services online. Think of Shopify as the first place small businesses can go if they know nothing about selling online, and the platform they can stay on long after they've become e-commerce experts.
More than 1 million merchants use Shopify's e-commerce services right now, and they've helped the company's revenue grow 47% in fiscal 2019. And in the wake of the pandemic, more merchants have looked to Shopify's services to help sustain their businesses.
Shopify's CTO Jean-Michel Lemieux said last month that the company's platform was "handling Black Friday level traffic every day," indicating the surging demand for Shopify's services.
If there's one thing investors should keep in mind before buying shares right now, it's that Shopify's stock is currently on a tear, rising 52% last month, which has resulted in a skyrocketing valuation for the company. That doesn't mean Shopify won't deliver impressive gains over the long term, but investors should be ready for some volatility from the stock as the company continues to grow.
3. Mastercard: The hidden opportunity
It's easy to assume that the only way to invest in the e-commerce market is to find a technology company that's building a platform for buying and selling. But there are plenty of other hidden opportunities in the e-commerce space, and one of them is Mastercard's expanding digital transaction business.
Mastercard has the second-largest credit card payment network in the world, and as e-commerce has grown, so has the company's number of digital transactions. The company said last week that in April, card-not-present transactions accounted for more than 50% of switched volume (when a payment is authorized, cleared, and settled). These digital transactions grew more than 40% year over year, and Mastercard expects even more growth in the coming years.
Mastercard said that 60% of American consumers want to use less physical cash, which is great news for the company's already-growing digital payment platform.
Referring to contactless transactions, Mastercard CEO Michael Miebach said on the company's first-quarter earnings call: "Our recent consumer insights indicate that habits are being created today. It will last beyond the current situation. More than half of new tappers are saying they will continue to use contactless once this pandemic is over."
Investors looking to benefit from Mastercard's opportunity in the digital payment market have even more of an incentive to buy the company's stock right now. Shares of Mastercard have dropped 16% over the past three months, providing a prime opportunity to buy the company's stock at a discount.