Many e-commerce companies have enjoyed huge tailwinds amid the coronavirus pandemic, with social distancing prompting consumers to do their shopping through online channels and driving record sales momentum for leading companies in the space. However, it looks like pandemic-related restrictions are beginning to ease in some parts of the world, and that could mean weaker growth for many online retail players.
With that in mind, we asked three Motley Fool contributers to provide some color on the outlooks for major players in the e-commerce industry. Read on to see if they think these online retail stocks have what it takes to thrive in a post-pandemic world.
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Everyone loves a bargain
Keith Noonan (ContextLogic): The Wish e-commerce platform at the center of ContextLogic's (WISH +0.00%) business has been the single-most downloaded online retail app worldwide since 2017. After seeing its share price battered in the recent pullback for stay-at-home stocks, the stock is looking attractive despite continued potential for volatility.
ContextLogic's Wish platform specializes in low-cost goods and off-brand alternatives in categories including cosmetics and electronics, and it could have a long runway for growth. While it looks like the world should be able to get back much closer to normal, there's still a very favorable long-term outlook for e-commerce and budget-focused online shopping. Many consumers will still be looking for bargains and ways to save money with economic uncertainty still on the horizon.
The e-commerce stock started pulling back right around the time that the market lost its appetite for highly growth-dependent, stay-at-home companies. However, ContextLogic looks oversold at current prices, and investors who are willing to embrace potential volatility could wind up seeing strong returns from the stock. The company's share price has fallen roughly 59% from the high it hit in February, and it's also down roughly 43.5% from the $24 per share price that the company listed at for its initial public offering last December.
ContextLogic now has a market capitalization of roughly $8.4 billion and is valued at approximately 2.5 times this year's expected sales. The stock has seen volatile trading following its IPO, but it's slumped to enticing levels and could wind up delivering big wins for patient investors.
Come for the reopening trade, stay for the crypto opportunity
Jamal Carnette (Square): At first glance, it appears Square (SQ +6.71%) is firing on all cylinders as the company reported full-year revenue growth of 101%. However, the real story is more nuanced. Square's revenue growth was essentially due to wonky generally accepted accounting principles (GAAP) conventions that count Bitcoin transactions fully as revenue.
Ex-bitcoin -- a significantly better measurement of Square's growth -- full-year revenue grew 17%, which is low for a company in the high-growth fintech space.
However, Square's business model was more impacted by the pandemic than other fintech payment providers like PayPal Holdings due to its strong presence among brick-and-mortar small businesses that bore the brunt of the pandemic. Square's "seller ecosystem" (merchant solutions) division was able to eke out revenue growth of 2%, but card-present gross payment volumes declined 4% during the year.
Square certainly didn't rest on its laurels. The payments facilitator began working with these sellers to build out their e-commerce presence. This omnichannel approach should lead to a stickier customer experience for sellers going forward and increased swipe fees for Stripe as America reopens.
Reopening aside, investors shouldn't ignore the long-term opportunity from crypto. Square's Cash App might be the simplest way to take advantage of the second wave of Bitcoin adoption, which is as a transactional currency. Cash App allows users to perform Bitcoin transactions and transfers for free and will likely soon offer it as a payment method for merchants like PayPal's "Checkout with Crypto" function.
Admittedly, Square isn't a cheap stock. Shares currently trade at 185 times forward earnings. The company will need to continue to post strong growth to keep those lofty valuations. Analysts expect strong growth on the back of America's reopening and more transactions and engagement from crypto users via Cash App, estimating 46% top-line growth this year.
The omnichannel giant
Joe Tenebruso (Target): Target (TGT 0.60%) offers investors the best of both worlds during an economic recovery: a booming e-commerce business and an expanding retail store base.
Target's online operations have performed spectacularly during the COVID-19 crisis. The retail giant provided a lifeline to millions of people who were unable to safely leave their homes during the pandemic. Target's digital sales, in turn, increased by a staggering $10 billion in 2020, fueled by a 235% surge in its same-day delivery and pickup services.
Yet Target's stores have also performed surprisingly well in recent months. Its same-store sales rose by an impressive 6.9% in the fourth quarter. With coronavirus vaccinations ramping up and stimulus checks rolling in, more people are likely to spend more money at Target's stores in the months ahead. Thus, investors should expect Target's in-store traffic and sales figures to continue to impress.
Yet Target isn't just resting on its laurels and waiting for a post-pandemic recovery to fuel its growth. The retail titan recently announced plans to invest $4 billion annually over the next several years to bolster its in-store and e-commerce operations. Target is also accelerating its new store openings, prompted by the success of its new small-format stores.
"The bold investments planned for the next few years will scale key capabilities across stores, fulfillment, and supply chain to drive deeper engagement with new and loyal guests, continued market share gains, and long-term, profitable growth," CFO Michael Fiddelke said in March.
All told, Target is a company that's firing on all cylinders -- and investors who buy shares today stand to earn handsome returns.
