E-commerce giant Amazon is one of the best-performing stocks to have ever listed on the public markets. If you purchased shares in the company on its initial public offering (IPO) day in 1997 and held on, you'd be sitting on a return of over 174,200%. In other words, an investment of $10,000 back then would be worth $17.4 million today.
As consumers spend an increasing amount of money online, it can be wise to assess which companies might benefit next. Three Motley Fool contributors think Sea Limited (SE 1.92%), Etsy (ETSY 1.16%), and Global-E Online (GLBE -0.14%) are top candidates to soar higher amid the ongoing e-commerce boom.
E-commerce, with extras
Anthony Di Pizio (Sea Limited): Singapore-based Sea Limited is a triple threat when it comes to the digital economy. Beyond e-commerce, it has a bustling gaming segment and an emerging payments business called Sea Money. Together, they've combined to generate staggering growth in the last few years.
The company's e-commerce segment is underpinned by its Shopee hybrid retail platform. It facilitates both consumer-to-consumer and business-to-consumer transactions, and it has grown to become the top-ranked app by downloads in the shopping category globally. It's making strides in emerging economies like Brazil, where in the fourth quarter of 2021, Shopee delivered a 400% increase in gross orders year over year.
For the 2021 full year, Sea Limited's e-commerce segment generated $5.1 billion in revenue, and it's set to get even better, according to the company's forecasts.
Like Amazon, Sea Limited is more than just an e-commerce company. Its gaming business is led by its development arm, Garena, which is responsible for building the Free Fire battle royale mobile game that has amassed over 1 billion downloads. It remains one of the highest-grossing mobile games on the market, despite launching almost five years ago. In 2021, Sea Limited's gaming segment doubled its revenue compared to 2020 to $4.3 billion.
And its digital financial services segment, home to Sea Money, soared by 671% for the year, although it accounted for less than 5% of Sea Limited's overall 2021 revenue.
While Sea Limited has a long way to go to reach Amazon's $469 billion in annual revenue, it's generating enough growth to be a real player in the digital economy, especially in geographic regions like Asia.
Creativity for sellers, prosperity for investors
Jamie Louko (Etsy): For a long time, investors thought Amazon would crush Etsy's small marketplace where sellers can sell non-commoditized, creative, and handmade goods. However, the opposite has proved to be true and Etsy has gone on to dominate this niche e-commerce market with nearly $13.5 billion in sales on its platform in 2021.
Etsy's leadership in this space has been facilitated by a strong network effect. As more sellers come to the platform, which reached 7.5 million at the end of 2021, this attracts more buyers. When there are more buyers, it becomes more appealing for both existing and new sellers to offer more products.
This, in turn, makes it easier for buyers to increase their activity on Etsy. The company had over 96 million active buyers at the end of 2021, 36 million of whom were repeat buyers and 8 million were habitual buyers -- users spending $200 or more and making purchases six days or more over the past year. Repeat and habitual buyers grew 121% and 224% respectively over the past two years in 2021, showing the stickiness of Etsy's platform.
However, this network effect can work both ways: If sellers leave, that could hurt Etsy's business. This risk has been brought to light after 14,000 sellers went on strike in protest of Etsy's take rate increase, which jumped from 5% to 6.5%. This means the cut that the company takes from every transaction will be 1.5% higher, and that ruffled the feathers of some sellers. It is important to keep in mind that the sellers going on strike represent just 0.2% of the total sellers on the platform. This could turn into something large-scale, but right now it seems like Etsy could survive this.
Etsy trades at 7.4 times sales and just 34 times earnings, a reasonable valuation considering its dominance. At this price, the company has a chance to produce impressive returns over the next five years.
Simplifying cross-border e-commerce
Trevor Jennewine (Global-E): Running an international business is difficult. In each new geography, merchants must deal with language barriers and cultural differences like preferred payment options and shipping methods. They also have to address legal issues like import duties and foreign sales tax, which makes the situation even more complicated. That's where Global-E can make a difference.
Its platform integrates with and optimizes a merchant's digital storefront for international shoppers on a market-by-market basis. Global-E supports a variety of languages, currencies, and payment methods across 200 destination markets. The company also simplifies logistics with fulfillment services powered by an extensive network of shipping carriers, and it handles the calculation and remittance of import duties and taxes. In short, Global-E helps merchants boost international conversion rates, often by more than 60%.
That value proposition has fueled strong adoption. In 2021, Global-E grew its customer base 63% to 650 merchants, and the average customer spent 52% more. That underscores the stickiness of its service. In turn, revenue surged 80% to $245 billion, and the company generated positive free cash flow of $29 million, more than double what it made in 2020.
Forrester Research values the cross border e-commerce market at $736 billion by 2023. That puts Global-E in front of a big opportunity, and it should only get bigger as online shopping continues to take share from traditional retail. Better yet, Global-E believes its geographic footprint surpasses that of all rivals. That edge reinforces the network effects that power its business. As more merchants join, Global-E captures more market-specific data, improving its ability to surface insights that boost conversion rates. As that happens, more merchants should be drawn to the platform, starting the cycle over again. That's why this e-commerce growth stock is a smart buy.