E-commerce was already transforming the way we shop before the pandemic hit, but the impact of being stuck at home and reluctant to venture into stores has accelerated the transition.
According to data from the U.S. Census Bureau, e-commerce sales in the U.S. jumped by 32% last year, doubling from a historical growth rate around 15%, to reach nearly $800 billion, or nearly 15% of total retail sales. That growth is expected to continue as retailers keep investing in faster and more convenient delivery, and consumers grow more accustomed to shopping online.
2020 was a banner year for e-commerce stocks, but there are still some great options out there today. Let's take a look at three.
Most e-commerce stocks were winners last year, but one sector proved to be an exception: apparel. With Americans working from home and avoiding social events, demand for clothes plunged, and online apparel sellers were affected.
Revolve Group (RVLV 1.95%), an influencer-driven online apparel business targeting Gen Zers and millennials, saw sales decline by 3% last year to $580.7 million, but managed to deliver 25% adjusted EBITDA growth to $69.2 million, and it more than doubled free cash flow to $71.4 million. That's a credit to management's ability to successfully steer the company through the crisis and manage inventory appropriately.
Looking ahead, the company should be among the biggest beneficiaries in e-commerce from the economic reopening as its business is driven primarily by social events and "occasion wear." Dresses are its biggest category, and with most of the U.S. population likely to be vaccinated by this summer, there will probably be a surge in social events and gatherings like concerts that help drive business for Revolve.
The company's solid performance and rising profit margins during the pandemic are a testament to management, and growth should ramp up as early as the second quarter, especially as it laps the impact of the pandemic. Co-CEO Mike Karanikolas said on the recent earnings call: "We believe the world is on an exciting path to reopening, and our customer can't wait to get back out again and enjoy the active social lifestyle that she loves and has come to associate with Revolve. As a brand built and centered around this social lifestyle, Revolve is ideally positioned to benefit as the world reopens."
Even with a recent rebound in the stock, it looks reasonably priced at a P/E around 50.
CarParts.com (PRTS 0.98%) was a big winner in 2020, riding twin trends in auto parts and e-commerce, but most of the market is still ignoring this auto parts disruptor.
The company, formerly known as U.S. Auto Parts, has been around since the dawn of the internet, but was a laggard for much of its history. That changed in 2019, when new CEO Lev Peker came in and initiated a turnaround strategy, bringing in a new management team; consolidating the company's brands under CarParts.com; and investing in technology, new distribution centers, and private-label products that allow it to undercut its competitors on price.
The company is also expanding into mechanical parts, which make up the majority of the auto-parts market, after previously just selling auto body parts, allowing it to tap into a huge opportunity.
The results so far speak for themselves. Gross margin has steadily improved, a key contributor to the company's underlying profitability, and revenue jumped 58% last year to $443.9 million, capped off by 90% revenue growth in the fourth quarter to $119.7 million.
Auto parts sales have been strong across the industry during the pandemic as demand for used cars has spiked and Americans have used some of their extra free time to work on their cars, just like they've spruced up their homes. But 2021 should also be a solid year for the industry as vehicle demand is likely to remain elevated while Americans continue to adjust to remote work and as the latest round of stimulus checks should help boost spending on auto parts.
The stock continues to look undervalued, trading down 40% from its peak at the beginning of the year.
Based in Singapore and focused primarily on the Southeast Asian market, Sea is more than just an e-commerce company. In addition to its Shopee e-commerce marketplace, the company owns the Garena mobile gaming platform, which makes the popular mobile game Free Fire, and it has an emerging business in digital payments with SeaMoney.
All three businesses have been on fire lately, helped by the pandemic, and the company saw revenue double to $4.4 billion last year. Its e-commerce business grew at a blistering pace of 160%, reaching $2.2 billion. That business is still unprofitable, finishing the year with an adjusted EBITDA loss of $1.3 billion, but its e-commerce marketplace is still young and building out scale.
Its digital entertainment segment is highly profitable, generating $2 billion in adjusted EBITDA on $3.2 billion in bookings last year, allowing it to invest in e-commerce.
In its guidance, Sea management called for more breakneck growth in e-commerce, forecasting a revenue increase of 112.3% to a range of $4.5 billion to $4.7 billion. And it sees 38% bookings growth in its digital entertainment business. Sea should also benefit from the Chinese government's crackdown on Alibaba's Lazada, Shopee's main competitor in Southeast Asia. And the e-commerce business has had success in South America, a region it entered in 2019, showing the platform can expand beyond its home region.
With a promising digital payments business and a new investment arm called Sea Capital, Sea Limited looks to have a promising future -- and Shopee, whose revenue is more than doubling on an annual basis, is a major reason why.