E-commerce stocks have gotten smashed this earnings season.
Normally reliable names like Amazon (AMZN 1.67%) and Shopify (SHOP) have fallen sharply on earnings, with Amazon even reporting a modest decline in first-party sales. Etsy posted a decline in gross merchandise volume, and eBay and Wayfair both reported lower revenue.
It's clear why the industry is running into a wall. The first quarter of 2021 was the last full period before COVID-19 vaccines were available to the general public in the U.S. In the second quarter, the economy began to "reopen" and consumers began to return to pre-pandemic habits like shopping in stores rather than online.
Despite those headwinds, one e-commerce stock delivered a standout first-quarter report. GXO Logistics (GXO 1.02%) just posted 19% organic revenue growth. It raised its revenue guidance for the full year as well, calling for 11% to 15% organic growth in 2022.
An e-commerce win-win
GXO is the world's biggest pure-play contract logistics company. It operates high-tech warehouses for multinational companies like Apple, Nestle, and Carrefour. Spun off from XPO Logistics (XPO 1.44%) last August, GXO isn't a retailer, but it still offers significant exposure to the e-commerce sector. 70% of the company's sales pipeline is from e-commerce, omnichannel retail, and consumer technology firms.
Those companies turn to GXO to outsource logistics, but the company's exposure to both e-commerce and omnichannel buffered the headwinds in online retail as many of its customers saw demand shift to the brick-and-mortar stores. For GXO, that made little difference to its business as products still got shipped, and GXO will benefit from the growth in both omnichannel and e-commerce.
The company remains bullish on e-commerce, and its investments in areas like reverse logistics, or processing returns, also make it attractive to retailers selling online. Much of its growth from existing customers came from e-commerce in the first quarter.
First-time outsourcing was also the #1 driver of new business for the company, showing that GXO is expanding the third-party logistics market with the help of technology like collaborative robots, robotic picking arms, vision technology, and software.
A recession-resistant company
GXO operates in the cyclical transportation industry, but the company's recent results, including its strongest quarter of new business growth and its increase in guidance, show its confidence in its business over the rest of the year. While there are signs that the economy is weakening, including a pullback in stocks, rising interest rates, and even layoffs from some companies, GXO isn't experiencing any of those headwinds.
If a recession does come, the company is prepared. Nearly 40% of its contracts are "cost-plus," and that will rise to 50% after the Clipper acquisition is completed in the second half of the year. Cost-plus means the company charges customers a price based on a fixed margin on its own costs. That insulates GXO from inflationary pressures and also helps protect its margins. The company also has minimum volume requirements in many of its contracts to protect it on the downside, and uses take-or-pay clauses, ensuring that customers pay a fee if they don't ship the volumes they've committed to.
Chief Investment Officer Mark Manduca also sees a recession as a potential opportunity to grab market share, as a recession would be harder on less efficient competitors, making GXO more attractive by comparison. The company has a history of mergers and acquisitions as a part of XPO Logistics, and another benefit of a downturn would be that target companies would become cheaper, opening up potential acquisition opportunities.
Shopify's own acquisition of Deliverr and Amazon's launch of "Buy with Prime" show that the stakes in e-commerce logistics are getting higher as e-commerce companies seek to use logistics to differentiate themselves. That trend will favor GXO, a company with nearly 1,000 warehouses globally and billions of dollars of investments in technology.
GXO is penetrating an addressable market worth $430 billion at a double-digit growth rate, and the stock looks well-priced at the moment, trading at a price-to-earnings ratio of just above 20 based on this year's adjusted earnings-per-share forecast of $2.70 to $2.90. The company will continue to benefit from the growth of e-commerce, demand for outsourcing, and growth in areas like reverse logistics.
As other e-commerce stocks face headwinds, GXO looks well-positioned, and should win no matter which companies prosper at the retail level.