It's easy to assume that the e-commerce market has reached maturity, considering that you can order everything from diapers to tonight's dinner online. But the reality is there's still tons of room for more growth.
U.S. e-commerce sales accounted for 15% of all retail sales in the first quarter of this year, leaving plenty of room for more growth. Furthermore, the global e-commerce market will be worth an estimated $7 trillion by 2025, up from $5 trillion in 2022.
To tap into this massive opportunity, check out what three top e-commerce stocks -- Chewy (CHWY 2.99%), Shopify (SHOP 1.11%), and Amazon (AMZN 3.43%) -- are doing right now.
Image source: Getty Images.
1. Chewy
Chewy is an online pet store that expanded its e-commerce brand into pet insurance and healthcare. Investors have slowly walked away from the stock this year after Chewy reported in March that its active customers declined 1% in 2022 to 20.4 million.
But some investors are missing the bigger picture with Chewy. For one thing, the company significantly increased prices last year, which resulted in net sales per active customer increasing 15% year over year in the fourth quarter. The company's ability to significantly increase the amount of money it earns from customers more than offsets the small decline in total customers.
Additionally, the company has successfully converted more customers into subscribers. The percentage of Chewy customers who are subscribers rose to 73% in the fourth quarter, up from 70% in the year-ago quarter.
Chewy's ability to increase prices and gain more subscribers indicates that the company should weather any potential economic slowdown well. And when you factor in that Chewy is profitable and had $119 million in free cash flow in 2022, there's little to worry about with the company's financials if a slowdown occurs.
2. Shopify
There's no getting around the fact that high inflation and rising interest rates are causing some retail companies to experience a slowdown right now. But don't put Shopify in that club. The company is just coming off of a strong quarter, showing that its e-commerce platform is resilient.
The company's sales increased 25% year over year in the first quarter to $1.5 billion, and the total gross merchandise volume (GMV) -- the amount spent through its platform -- rose 15% to $49.6 billion. Adding to the company's strong performance was the fact that Shopify continues to add high-value merchants to its platform, with Shopify Plus now accounting for 34% of monthly recurring revenue, up from 30% in the year-ago quarter.
Not everything was rose-colored for the company in the first quarter, as it laid off 20% of its workforce and exited its logistics business. But Shopify's sales and GMV increases show that even during a tough economic time, the company still attracts retailers to its platform.
And with Shopify already well established in the e-commerce platform space, there's likely more room for it to benefit as e-commerce grows.
3. Amazon
It should be no surprise to see Amazon on this list. The company has been a dominant force in the e-commerce market for years -- with more than 200 million global Prime members right now -- and it's not letting off of the gas any time soon.
Amazon has its hands in many markets across the globe, but the U.S. is still its most significant. The company's U.S. sales increased 11% in the most recent quarter to $76.9 billion. Some investors weren't impressed with that growth, but a broader economic slowdown is likely to blame rather than any concerns over Amazon's underlying business.
Amazon's customers continue to tap into the company's expanding services, as evidenced by 26 million customers ordering one-day shipping items in the first quarter, an impressive 50% increase from the year-ago quarter.
And with Amazon currently holding onto 40% of the entire U.S. e-commerce market, investors should feel confident that Amazon's rivals won't be able to wrestle away its dominance anytime soon.
E-commerce and the economy
Investors may rightly wonder what will happen with e-commerce stocks if the economy continues slowing down. There's no denying that some of them could be negatively impacted if the U.S. enters a recession, but to what degree they're affected may depend on how severe the recession is.
The important thing for investors to keep in mind is that e-commerce isn't going anywhere. A temporary slowdown in the market could open up good buying opportunities for e-commerce stocks for investors who believe this massive market will bounce back following a potential economic slowdown.
