Online sales have exploded during the coronavirus pandemic, as consumers try to stay home more. Online sales at Walmart, Target, and Best Buy in the first quarter increased by 74%, 141%, and 155%, respectively. Meanwhile, the 800-pound gorilla that is Amazon (AMZN 0.78%) continued its steady march, growing global online sales by 24% (Amazon's fiscal quarter ends a month before the other retailers mentioned).
Most analysts believe the spike in e-commerce activity will persist, accelerating the secular shift from in-store shopping to online shopping. As digital commerce continues to grow, Amazon stands to be a big winner, as it dominates the market. But here are three alternative ways to invest in the acceleration in e-commerce.
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1. Check out this checkout button
PayPal (PYPL +1.28%) holds a dominant position in the checkout flow for online retailers not named Amazon. PayPal is practically essential for smaller competitors to increase sales as it makes it easy for its 300 million customer accounts to checkout.
"Our market research indicates an approximate 50% lift in consumer willingness to buy when PayPal is present at checkout," CEO Dan Schulman said on the company's first-quarter earnings call. "On average, merchants who accept PayPal experience a 60% increase in purchase conversion."
It's no surprise then that PayPal has a 30% market share of U.S. online retail, travel, and entertainment and media, according to MoffettNathanson analyst Lisa Ellis. Its next closest competitor for checkout buttons is Amazon, which holds a 5% market share. And smaller retailers have good reason to be wary of giving Amazon any insight into their customer-checkout data.
PayPal has seen strong adoption amid the pandemic. Net new actives hit new records in April, and management said May 1 was its largest single transaction day ever (as of May 6). Checkout revenue grew 35% in April.
2. You can't use cash online
If you're shopping digitally, you need to use some sort of digital payment. The two biggest facilitators of digital payments are probably in your wallet -- Visa (V 1.73%) and Mastercard (MA 2.03%). Their names and logos are printed on the majority of credit and debit cards, which are practically necessary for shopping online.
While both payment-network operators are vulnerable to a downturn in overall shopping due to a coronavirus-induced recession, the acceleration in the shift to e-commerce ought to be lucrative for both companies. "The reality is that we get a lot higher share from those transactions that go to e-commerce than we get in the face-to-face world," Visa CEO Al Kelly said on the company's second-quarter earnings call. That's for the same reason it's also good for Mastercard -- cash isn't a competitor.
There are also opportunities for both companies to sell security and fraud-prevention software and other infrastructure for e-commerce. Both companies offer a number of services, including CyberSource at Visa and Simplify at Mastercard.
3. The digital billboard
A key source of traffic for online retailers is Facebook (FB +0.14%). The company owns both Facebook and Instagram, which have both made moves over the past year or so to enable more e-commerce. But services like Checkout and Shops are really just designed to increase e-commerce advertising on its platform.
Around 20% of Facebook's ad revenue may come from e-commerce-related ads, according to Bank of America analyst Justin Post. Management reported stability in e-commerce ad spend during its first-quarter earnings call, which likely contributed meaningfully to its report that ad revenue stabilized through the first three weeks of April.
It's worth pointing out Amazon has built a $12 billion advertising business almost entirely related to e-commerce. And it's still growing quickly. So, there's a considerable opportunity in e-commerce. And while Amazon is a threat in digital advertising, it's a bigger threat to Alphabet's Google than it is to Facebook, as Amazon ads are generally search-related like Google versus the passive billboard-style ads on Facebook and Instagram.
Follow these stocks
Before you go out and buy up all of these companies, it's important to note the market has already pushed these stocks higher amid the accelerating trend. PayPal shares are up 30% over the last month. Facebook is up 20%. Visa and Mastercard have had more modest growth, up about 13.5% each. All of them have considerably outperformed the S&P 500 index, which is up just 5.5%.
But the long-term shift in retail to e-commerce should benefit all of these companies for a long time to come. It's worth following these stocks and looking for buying opportunities on any pullbacks.
