E-commerce stocks were big winners during the pandemic, but in the post-pandemic recovery, the sector has struggled. Consumer spending has shifted back to brick-and-mortar stores and services like travel, entertainment, and restaurants that were generally off-limits during the pandemic.
However, just because e-commerce growth has slowed, that doesn't mean that there aren't opportunities in the sector you can take advantage of. Online retail still represents less than 20% of U.S. retail spending, and e-commerce should continue to gain share as delivery gets faster and shopping online gets more convenient.
Here are three stocks that look like good bets to outperform over the next decade.
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1. MercadoLibre
While most e-commerce stocks have seen growth slow, MercadoLibre (MELI 3.09%) has bucked that trend. The Latin American e-commerce marketplace and digital payments platform have continued to deliver strong results. In the first quarter, revenue was up 58% to $3 billion, and profits soared as well, with earnings per share jumping from $1.30 to $3.97.
MercadoLibre also benefits from a network of complementary businesses that give it a competitive advantage. Those include its e-commerce marketplace; its digital payment platform, Mercado Pago; its logistics service, Mercado Envios; and a financing arm, Mercado Credito.
Those businesses have helped make MercadoLibre the e-commerce leader in Latin America and created barriers to entry for other companies. At the same time, the company has been able to layer higher-margin businesses over what was originally a direct-selling e-commerce operation. Those include its third-party marketplace, digital payments business, lending business, and its fast-growing advertising business, which leverages the company's position at the bottom of the marketing funnel, making it attractive to the businesses that sell on the platform.
With profit margins expanding and revenue growth continuing to be strong, MercadoLibre has a bright future, especially as Latin America's middle class keeps expanding.
2. Etsy
While MercadoLibre is still delivering strong growth, Etsy (ETSY 0.34%) has stumbled. The company, known for its online marketplace of handmade and vintage goods, saw sales skyrocket during the pandemic as consumers stocked up on items like handmade face masks, jewelry, home goods, apparel, and craft supplies.
In its first-quarter earnings report, the recent challenging trend persisted, with gross merchandise sales, or the total volume of goods sold on its platform, falling 4.6% to $3.1 billion. Revenue rose 10.6% to $641 million thanks to an earlier fee increase.
Despite challenges on the top line, Etsy still looks like a promising stock to own over the long term. First, the company is highly profitable, with a net income margin of 11.6% and a 26.6% margin on adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
Etsy also faces little direct competition in the handmade and vintage categories in e-commerce. Amazon's own competitive business, Handmade, failed to gain traction, and Etsy's marketplace business model has developed strong network effects, as the company now has nearly 8 million active sellers and more than 95 million active buyers.
The stock looks well priced at a valuation of roughly 15 times EBITDA, as it's now down more than two-thirds from its peak in 2021.
Etsy's growth should eventually rebound, and when it does, the stock could move significantly higher.
3. Revolve Group
Apparel is a competitive business, but Revolve Group (RVLV 1.96%) has gained an edge by tapping social media influencers to help market its products as it sells to Gen Zers and millennials, with a focus on occasion wear like dresses.
The company has seen growth take a step back due to the trends affecting other e-commerce and apparel businesses, but it is still solidly profitable, with $14.2 million in net income on $280 million in revenue.
Revolve's business model helps it deliver reliable profits, a rarity for a growth stock, and the company can achieve superior gross margins thanks to its higher price point. In the first quarter, gross margin was 49.8%, down from 54.5% in the quarter a year ago.
Like Etsy, Revolve's stock also looks well-priced at the moment, trading at a price-to-earnings ratio of 23.
If historical trends return, Revolve's growth will accelerate, giving the stock a lot of upside potential, as it should return to gaining market share in the massive apparel industry.
