The American consumer's shift toward online shopping accelerated in a big way this year. Domestic e-commerce sales are on pace to grow by 32% in 2020 to $795 billion, a level that the analysts at eMarketer had originally expected wouldn't be reached until 2022. The market analysis firm now forecasts that U.S. e-commerce revenues will reach $1.2 trillion in 2024.
This market will evolve and change over time, but a few giants are already grabbing outsize shares of it. All of the companies below are beating the market year to date, and seem poised to continue doing so for years to come. Here are the four largest e-commerce stocks by market cap in mid-November 2020, for your consideration.
1. Amazon: $1.56 trillion market cap
This is probably the first name that springs to mind when you think about e-commerce. Amazon (AMZN 4.44%) has built an online retail empire, bolstered by a massive logistics system and a highly profitable cloud computing service. Its revenues rose 37% year over year in the recently reported third quarter, setting the stage for a phenomenal holiday season.
The company is huge in North America, but has only just begun to nibble on international markets. In the first nine months of 2020, 70% of its e-commerce revenues came from the domestic market, and its international operations continued to report operating losses. It's a big world out there, and I expect Amazon to lean into international expansion while also exploring new business ideas. This growth stock will have legs for many years to come.
2. Alibaba: $695 billion
While it's often described as the Amazon of China, Alibaba Group (BABA 2.78%) actually utilizes a very different business model. Amazon keeps a huge network of warehouses stuffed with goods, selling products directly to consumers, and also managing shipments for third-party sellers. By contrast, Alibaba is more similar to online marketplace operator eBay (EBAY 1.70%), which manages transactions between businesses and consumers without holding inventory or shipping packages itself.
Comparisons between Amazon and Alibaba are still inevitable because Alibaba dominates China's e-commerce market with the same authority that Amazon holds in North America. Alibaba managed $1 trillion of gross merchandise volume in 2019, meeting a goal that management set five years earlier and accounting for one-sixth of all retail sales in China last year.
The company is also expanding its operations outside China, launching or acquiring e-commerce businesses across Southeast Asia, and it has ambitions to eventually enter the European and North American markets.
3. Walmart: $430 billion
I'm including retail giant Walmart (WMT 0.18%) in this list because the company takes its digital sales channels seriously. E-commerce sales grew 79% year-over-year in the third quarter, combining direct-to-home shopping with placing orders online for pick-up at a local store. The company recently launched Walmart+, a free shipping service in the mold of Amazon Prime, aiming to earn a greater share of its customers' shopping budgets.
"The lines are blurring between e-commerce and stores, and it's all about serving the customer the way they want to be served, whether that's having the customer be welcome to shop in-store, pick up at the store, or delivery," Walmart U.S. CEO John Furner said on the Q3 earnings call.
Walmart makes waves wherever it goes, and it will in the e-commerce world too. It's still relatively early, but management's desire to build out a larger online presence is clear.
4. PayPal: $227 billion
Online payments veteran PayPal (PYPL 1.43%) used to be a wholly owned division of eBay, but times have changed. These days, eBay accounts for just 7% of PayPal's payment volume, and that slice is shrinking fast. Instead, PayPal caters to a broad set of online shoppers and the e-commerce stores they patronize, like a financial lingua franca of sorts.
That's a powerful market position to occupy.
PayPal won't just rest on its laurels, though. The company is expanding its portfolio of financial services at breakneck speed. For example, its popular Venmo money-transfer service is getting a credit card that will have a QR barcode on it -- a tool that will make it even easier to handle tasks like splitting up the bill around a restaurant table. PayPal will soon let you buy and sell cryptocurrencies such as bitcoin on its app and in Venmo. Eventually, consumers will be able to use cryptocurrencies to cover purchases wherever PayPal is accepted.
PayPal's financial tools will process more than $900 billion worth of payments in 2020 for 375 million customers, up from $649 billion and 305 million customers in 2019. This is a financial powerhouse that's built to thrive in a digital future that many traditional banks tried to stave off for too long.