Shares of high-flying e-commerce stocks including Stitch Fix (SFIX -0.93%), Sea Limited (SE -0.23%), and MercadoLibre (MELI -1.33%) were falling today on a broader sell-off in tech stocks. There was no major news out on any of these companies but they were likely falling in sympathy with Shopify (SHOP -0.10%), the e-commerce software company, which reported strong fourth-quarter earnings this morning but also warned that revenue growth would slow in 2021 as vaccines roll out, foreshadowing a slowdown across the e-commerce sector.
Also this morning, it was reported that retail sales jumped 5.3% in January from December, or 7.4% on a year-over-year basis, showing the impact of the $600 stimulus checks sent out at the end of December. While that report shows that the U.S. consumer is strong, it could also cool off demand for another large stimulus package. Similarly, bond yields are likely to rise as the economy recovers, which will cause some rotation out of high-growth stocks back into fixed income.
As of 12:43 p.m. EST, Stitch Fix was down 8.3%, Sea Limited had fallen 4.1%, and MercadoLibre shares were off 3.6%.
All three of these stocks have surged over the last year as the chart below shows.
Tailwinds in e-commerce have lifted the trio as MercadoLibre and Sea have posted blowout revenue growth through the pandemic, and Stitch Fix has surged lately on hopes for a strong rebound as the apparel sector was initially hit hard by the crisis.
Shopify posted 94% revenue growth in the fourth quarter to $977.7 million, but in its outlook for 2021, it said, "Our outlook coming into 2021 assumes that as countries roll out vaccines in 2021 and populations are able to move about more freely, the overall economic environment will likely improve, some consumer spending will likely rotate back to offline retail and services, and the ongoing shift to e-commerce, which accelerated in 2020, will likely resume a more normalized pace of growth."
That forecast carries implications for the rest of the e-commerce sector, and served as a dose of reality for investors thinking that the surging growth in these stocks would continue.
Stitch Fix is in a different position from most e-commerce companies as the personalized styling service has seen recent growth decelerate during the pandemic, though the company expects a strong rebound, forecasting growth of up to 40% in the second half of its fiscal year, which ends in October.
MercadoLibre, a Latin American e-commerce and digital payments platform, doesn't have exposure to the U.S. market, but will likely experience similar trends as vaccines are deployed across the region. In its most recent quarter, MercadoLibre saw revenue skyrocket by 149% to $1.12 billion with triple-digit growth in both payment volume and gross merchandise volume. However, that momentum will slow this year, especially in the second half of the year.
Finally, Sea Limited has been the biggest winner of the group as the company's digital platform includes gaming, e-commerce, and digital payments, and focuses on the Southeast Asian market. Revenue doubled in its third quarter to $1.21 billion, but the company will likely experience headwinds in all three of its business segments as consumers return to activities in the physical world.
During the bull market since last March, we've seen more than a few of these days when growth stocks seem to sell off in tandem. That should be a reminder to investors that the valuations for all three of these stocks are frothy compared to historical levels, and any jitters on news like Shopify's forecast threatens to undermine these stocks.
Still, Stitch Fix, Sea, and MercadoLibre are all strong businesses and the respective leaders in their categories. Over the long term, they should continue to outperform.