There's no question about it. 2020 has been a banner year for e-commerce stocks.

Online sales have soared at both pure-play e-commerce companies and brick-and-mortar giants, and almost every stock with exposure to e-commerce has gotten a tailwind from the pandemic.

A person shopping from a smartphone

Image source: Getty Images.

Among the big winners this year have been Etsy (NASDAQ:ETSY)Shopify (NYSE:SHOP), and Wayfair (NYSE:W), all three of which have doubled this year, or even tripled, as the chart below shows.

ETSY Chart

ETSY data by YCharts

Investors have bid these stocks higher primarily because they believe that the transition to e-commerce has been accelerated by years due to the coronavirus pandemic, and that the share gains in the online channel will stick after the crisis. Customers that have been converted to e-commerce aren't going to back to the old way of shopping. Many CEOs believe this, and have said that we likely won't return to pre-pandemic ways of doing business. Even the CEO of Walmart, the world's biggest retailer, said, "We think these new customer behaviors will largely persist and we're well positioned to serve customers with the value and experience they're looking for," referring to e-commerce.

The boom in e-commerce stocks is notably different from sectors like auto parts and consumer staples like cleaning products, where business has boomed, but stock growth has been relatively muted. In these sectors, investors seem to believe that the pandemic-fueled gains are a one-time benefit as opposed to the lasting momentum they see in e-commerce.

However, a recent data point from the Census Bureau may cool off hopes for a permanent shift to e-commerce.

A speed bump for now

For the first time since the financial crisis, e-commerce sales fell sequentially in the third quarter. Online sales growth continued to surge last quarter, but slowed noticeably from the second quarter when much of the country was in lockdown. On an adjusted basis, e-commerce sales jumped 44.5% in the second quarter, but slowed to 36.7% in the third quarter, falling 1% on a sequential basis in an environment when overall retail sales saw some of its fastest growth on record, jumping 7% year over year.

To be fair, 36.7% still represents phenomenal growth, but we're living in a pandemic, which has been a unique tailwind for online shopping. The circumstances driving the surge on online sales haven't changed much from the second to the third quarter, yet there was still a noticeable decline in e-commerce growth. As a percentage of overall retail sales, e-commerce sales fell from 16.1% to 14.3%. That compares to 11.8% at the end of 2019, a sign that the overall share of e-commerce sales could be regressing to its historical trend line.

One quarter isn't enough to make a trend, but investors should keep an eye on this data as it comes out every quarter as these companies will have trouble bucking the broader trend if online sales continue to decelerate.

Wayfair, for example, looks like the most vulnerable to a normalization of the economy as the online home goods seller has benefited from twin trends during the pandemic, increased demand for home goods, and a shift in purchasing from offline to online. Revenue growth at Wayfair has been strong in both the second and third quarters, but decelerated from 84% in the second quarter to 67% in the third quarter. Through the beginning of November, revenue was up about 50% in the fourth quarter.

While those remain exceptionally strong numbers, the trend is toward moderation, and the two tailwinds that have supported Wayfair during the pandemic will disappear once it's over. In February, before the pandemic had hit, Wayfair had projected revenue growth of just 15% to 17% in the first quarter. That's a sign that the business is maturing, and investors should expect growth to return to that rate when the pandemic ends. It's also worth remembering that Wayfair had never had a profitable quarter before the crisis struck.

Shopify's growth rate from the second quarter to the third quarter was nearly identical, with 97% revenue growth in the second quarter and 96% in the third, but the bulk of the company's growth has been driven by merchant solutions, which includes services payments, shipping, and fulfillment, which are highly dependent on gross merchandise volume.

Subscription services, which is now the smaller of its two business segments, by contrast tends to be less volatile. Revenue from merchant solutions jumped 148% in the second quarter and 132% in the third quarter, but that figure will decelerate sharply when the pandemic ends. In the first quarter, merchant solutions revenue rose 57% and overall revenue grew 47%. Thanks to its base of subscribers, Shopify's business shouldn't see as much volatility as Wayfair's in a post-coronavirus world, but the company is likely to experience a similar hangover in merchant solutions.

Etsy, the artisan-based online marketplace, has seen the strongest growth of all three of these companies with revenue up 137% in the second quarter and 129% in the third. With its army of crafty sellers, Etsy was able to pivot quickly during the pandemic, encouraging its sellers to make masks, and it's thrived in categories such as home goods, jewelry, and craft supplies. Gross merchandise sales surged 146% in the second quarter and 119% in the third quarter, and the company expects 65% to 85% growth in the fourth quarter.

Active buyers and sellers have also jumped sharply during the pandemic as different forces have brought both parties to the marketplace. Sellers may be looking to replace lost income or using extra spare time to pursue a hobby. Buyers are choosing to shop online as stores may not be safe. That increase in its user base could bode well for the company's long-term growth, and Etsy also has an advantage as a unique platform.

However, when the pandemic ends, the company will once again face renewed competition from flea markets, craft fairs, vintage stores, independent stores, consignment shops, and a whole range of physical retailers selling similar products. In the first quarter of this year, Etsy's revenue grew 35%, which may be a more realistic representation of its future.

As the chart above shows, all three of these stocks surged through the spring and early summer, but over the last few months they've traded mostly flat. The jumps in their valuation have pulled a lot of growth expectations, and with coronavirus vaccines on the horizon, it may be difficult for them to continue to surging higher.

Over the long term, e-commerce still looks like a promising trend, but investors should recognize that recent results for these kinds of companies have been an anomaly. Broad e-commerce growth already shows signs of normalizing and is likely to return to its historical growth rate of around 15%.

Investors in Etsy, Shopify, and Wayfair should expect growth rate moderation to pre-coronavirus levels as well. The combination of lapping 2020's results and facing the end of the pandemic when vaccines are distributed means that these stocks will face significant challenges over the next year. 2021 could be a much different story for this crop of e-commerce winners.