E-commerce stocks became some of the darlings of the pandemic in 2020 and 2021. Lockdowns forced consumers to turn to online options as health-related fears and closures reduced in-store shopping. Likewise, these stocks suffered in 2022 as consumers resumed most of their offline shopping habits.
This has made 2023 a pivotal year for the e-commerce industry. Will these companies resume pre-pandemic growth rates, or will changing technologies permanently alter their business cases? Investors may gain such insights as Amazon (AMZN 0.25%) and Pinterest (PINS -0.32%) release their earnings reports later in July.
Amazon
Amazon began its existence as an e-commerce pioneer. Today, it accounts for the majority of company revenue, and since most customers and investors think of it as such, that segment remains a critical part of Amazon's image.
Nonetheless, its Amazon Web Services (AWS) segment has generated some or all of the company's operating income for years. AWS has also made Amazon an artificial intelligence (AI) play. As a cloud company, AWS plays a critical role in supporting AI.
However, some tech industry leaders, like Bill Gates, have shown how AI can help customers bypass e-commerce and reduce the need for digital ads. This has left some investors wondering whether the technology will help or hurt Amazon stock.
For these reasons, investors need to watch Amazon closely. In the last few quarters, Amazon's growth has slowed, particularly with e-commerce, and investors will look to see whether its e-commerce segments can return to profitability.
Moreover, Amazon's e-commerce site has become a more prominent player in the digital ad industry. In the first quarter, ads drove $9.5 billion of its revenue, a 21% increase from year-ago levels. Given the fears about that industry, investors will probably watch that number to see whether AI has affected the business negatively.
Investors may get some answers to that question on the Q2 earnings report. Since AWS is Amazon's profit source, AI is likely a net positive for the company. Nonetheless, if the e-commerce and digital ad industry can sidestep some of the feared effects of AI, the stock could soar further.
As with Amazon, Pinterest investors will likely focus on e-commerce but for different reasons. When it first rose to popularity, Pinterest's primary source of income was promoted pins, which were ads that targeted customers based on their individual interests.
Under CEO Bill Ready's leadership, Pinterest has become a full-fledged e-commerce site, enabling e-commerce directly through its pins. To this end, it has partnered with Amazon, which will place its ads on Pinterest. This could dramatically increase average revenue per user (ARPU), an area where it has lagged other social media companies.
Admittedly, this has not yet shown up in the financials. In Q1, quarterly ARPU came in at $1.32, down from $1.33 one year ago. And its $603 million in revenue for the quarter grew by only 5% in one year.
Still, monthly active users (MAUs) grew 7% year over year to 463 million, which had declined before Ready took over. Also, its stock has risen by 40% over the last year, a sign of increased optimism.
Additionally, despite that climb, Pinterest sells at a price-to-sales (P/S) ratio of just 7. This is a low level by historical standards and one that could point to significant upside potential. Assuming the Q2 report shows more signs of progress, it could serve as yet another catalyst for Pinterest stock.
