One of the most impactful ways that technology and the internet have changed the economy and consumer behavior is the rise of online shopping. With the tap of a finger, people can buy nearly anything they want from the comfort of their own homes.
This has huge investment implications. Even after its monumental rise in the past decade, online shopping still only commands just 15% of overall retail sales in the U.S. There's still so much room for expansion as we look far out into the future.
For investors, there are many choices when looking to put money to work behind e-commerce companies. Let's consider the options.
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The elephant in the room
There's no doubt that Amazon has been at the forefront of this powerful secular trend. What started as an online bookstore has now become not only a site that sells almost everything but a platform that allows third-party merchants to run their own operations. And this expansionary strategy has made Amazon one of the most valuable businesses in the world, with a current market cap of $1.4 trillion.
The company's dominance is notable. There were a whopping 2.5 billion visits to amazon.com in June, according to data provided by Semrush. And Amazon has a leading market share when it comes to online sales in the U.S. at 38%. Walmart is a distant second.
Amazon generated online sales of $53 billion in the last quarter (ended June 30), its largest revenue source. And it registered revenue of $32 billion, up 18% year over, by offering various services to third-party sellers. These figures are massive, and they speak to Amazon's long history in the e-commerce space. Moreover, the company's success is bolstered by the popular Prime membership that offers free delivery, as well as a vast logistics and fulfillment network underpinning the entire organization.
While e-commerce might be Amazon's bread and butter, investors can't forget the tech giant's smaller but faster-growing segments: Amazon Web Services and digital advertising. These revenue drivers are set to become more important to the overall business.
Different ways to gain exposure
You can play the growth of e-commerce in other ways too. For example, Shopify provides the technology and tools for merchants to operate online storefronts. The company's customer base is in the millions, and they are from nearly 200 countries across the globe. Despite ongoing macro uncertainty, Shopify was able to increase revenue by 31% last quarter.
Investors can consider adding Etsy to their portfolios as well. The online marketplace for unique and handcrafted goods posted gross merchandise sales of $3 billion in the most recent quarter, up from $1.1 billion in the same period of 2019, indicating this business is much larger than it was before the pandemic.
PayPal, a leader in digital payments for more than two decades, has seen its total payment volume, which was $1.4 trillion in the last 12 months, grow on the backs of greater e-commerce penetration. As the most widely accepted digital wallet in North America and Europe, PayPal gives consumers a seamless checkout option and provides merchants with an easy way to accept payments.
There are also many industry-specific businesses benefiting from the popularity of online shopping. Premium athletic apparel retailer Lululemon received 42% of its revenue in the fiscal 2023 first quarter (ended April 30) from the digital channel. Chewy sells various pet products online, and it's focusing on the subscription model.
And if you're willing to take on more risk for the opportunity of added upside, Carvana might warrant a closer look due to its superior customer experience and massive market opportunity. Plus, with the stock 89% off its all-time high, there is the potential to achieve outsized returns should the business return to strong growth.
