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3 E-Commerce Stocks You Can Buy and Hold for the Next Decade

By Will Healy – Sep 10, 2021 at 9:27AM

Key Points

  • Despite Amazon's massive size, it is still growing at an impressive clip.
  • Long-struggling e-commerce pioneer eBay appears poised for a comeback.
  • Niche player Etsy's community of sellers and buyers provides it with a powerful competitive advantage.

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Amazon, eBay, and Etsy should keep delivering gains to investors' doors.

While the pandemic has been awful in plenty of ways, it has generally had a positive effect on the e-commerce industry as more consumers turned to the socially distanced safety of online shopping options. Even so, the pandemic has only really front-loaded growth in the space, as e-commerce expansion has been a long-standing trend.

Internet and direct marketing companies such as Amazon (AMZN 0.58%), eBay (EBAY -1.58%), and Etsy (ETSY -0.69%) are poised to benefit, whether the pandemic is brought under control or not. Let's take a closer look at these three e-commerce stocks and why they might be worth buying and holding over the next decade.

An online shopper browses on a laptop at a dining room table while sipping coffee.

Image source: Getty Images.

1. Amazon: Enviable growth rates, despite its already large size

The business world's version of the law of large numbers suggests that the larger a company's market cap becomes, the harder it becomes for that company to maintain a high percentage growth rate. Amazon -- which is currently valued at around $1.8 trillion -- can't escape that truth. It just ignores it and continues to deliver impressive growth, year after year.

While most think of Amazon first as an e-commerce juggernaut, retailing remains a low-margin business. Amazon now makes the largest share of its profits in a different area -- cloud computing, which it offers through Amazon Web Services (AWS).

For the first six months of 2021, the company's overall revenue of $221.6 billion represented a 35% increase versus the same period in 2020. Although AWS accounts for just 13% of that top-line revenue, its growth was on par with the e-commerce segment. Profits surged 104% during that period to $15.9 billion, primarily due to lower expenses from non-core businesses.

What's worth noting here is that AWS had an operating margin of 29% over the last 12 months, versus operating margins of 4% in North America and 2% internationally for Amazon's e-commerce operations. Consequently, AWS earned $8.4 billion in operating income in the first six months of the year versus $8.2 billion for the e-commerce business. So AWS's high margins and its (relatively) small size are helping the overall company maintain its strong growth rate.

With economic activity starting to return to something resembling its pre-pandemic normal, Amazon management has offered limited guidance -- understandable, given that it's unclear to what degree an increase in offline retail activity might hurt the company. In part due to those concerns, the stock has been on a bumpy, sideways road for the past year. It's currently up by around 12% over the last 12 months, lagging the S&P 500's nearly 36% gain.

That relative stagnation, though, has helped bring its P/E ratio down to a multi-year low of 60. That gives investors an unusual opportunity to buy this still-growing tech giant at a relatively reasonable valuation. 

2. eBay: New leadership brings renewed interest in this stock

At first glance, eBay might seem like a strange stock recommendation. As a company, the online auction pioneer has been eclipsed by lower-cost and easier-to-use e-commerce sites over time. Moreover, former subsidiary PayPal rapidly outpaced its parent following its 2015 spinoff, and now sports a market cap nearly seven times larger than eBay's.

However, new CEO Jamie Iannone, who previously held executive roles at Walmart, may be giving investors a reason to take an interest in the company again. Industry analysts credit Iannone for much of Walmart's recent e-commerce success. At eBay, he has made improvements such as an easier listing process, storefronts for mobile devices, and a managed payments system that brings digital wallet capabilities to the platform.

The top and bottom lines have reflected these changes. In the first half of 2021, revenue surged 28% from year-ago levels to $5.3 billion due in large part to the payments system. This occurred as gross merchandise volume (GMV) fell 7% year over year during Q2 as more consumers returned to offline shopping. Still, as CFO Steve Priest mentioned on the Q2 2021 earnings call, GMV has risen 19% since Q2 2019.

Additionally, income from continuing operations fell during this period as a higher cost of revenue from payments costs and interest expenses negated the revenue improvements. However, thanks to $10.5 billion in income from discontinued operations, net income during the period rose 174% to $11.4 billion.

As the pandemic continues to disrupt economies, the company's immediate future remains uncertain, but management is projecting year-over-year revenue growth between 6% and 8% in Q3. Nonetheless, eBay's stock price has risen by more than 40% over the last 12 months. Also, its price-to-sales (P/S) ratio of below 5 remains well under Pinterest's sales multiple of 15. Given that eBay continued to outperform its pre-pandemic results, it may be one of the better bargains in e-commerce stocks.

A consumer stands in her home surrounded by furniture holding up a piece of clothing she purchased online and had just removed from its shipping box, which sits on a table next to her

Image source: Etsy.

3. Etsy: Expanding its niche operation into more countries

Etsy has thrived with a unique approach to e-commerce, serving craftspeople, craft supply sellers, and vintage item dealers, and creating an online community of buyers and sellers. It attracts sellers by allowing them to list items for as little as $0.20 and connects buyers to unique product offerings through its specialized search tool.

While it operates primarily in the U.S., in recent years, it has taken this concept to countries such as the U.K., Germany, and Australia. More recently, it bought Elo7, often referred to as the "Etsy of Brazil" for its similar business model.

It may need to make more such moves to continue its growth. In the first six months of 2021, those increases led to revenue of $1.1 billion, 64% higher than in the same period last year. Slower growth in the cost of revenue, lower income taxes, and positive income from outside sources allowed Etsy to earn $242 million during that period, 122% more than in the same time last year.

Admittedly, Etsy, like other e-commerce players, remains cautious in its outlook due to ongoing uncertainty about the course of the pandemic and how changing consumer behaviors will impact the company. Also, the 14% revenue increase management has forecast for Q3 would equate to slowing growth, at least temporarily.

Nonetheless, investors have favored Etsy -- the stock is up by more than 90% over the last 12 months. Despite that increase, a 62 P/E ratio places its valuation on par with Amazon. As more sellers worldwide gravitate to the platform to market their unique creations, Etsy's stock should continue to craft more gains.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Will Healy has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Etsy, PayPal Holdings, and Pinterest. The Motley Fool recommends eBay and recommends the following options: long January 2022 $1,920 calls on Amazon, long January 2022 $75 calls on PayPal Holdings, short January 2022 $1,940 calls on Amazon, and short October 2021 $70 calls on eBay. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Amazon Stock Quote
Amazon
AMZN
$93.95 (0.58%) $0.54
eBay Stock Quote
eBay
EBAY
$44.33 (-1.58%) $0.71
Etsy Stock Quote
Etsy
ETSY
$119.48 (-0.69%) $0.83

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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