The historic route in Amazon’s share price last week highlights how difficult the environment has become for e-commerce stocks after their pandemic-driven boom, with investors set for another roller coaster in coming days.
Etsy, Wayfair and Shopify are hurtling toward earnings reports this week in the shadow of Amazon’s worst sell-off since 2006. The tech giant triggered the rout with a weaker-than-expected revenue forecast, adding to evidence of slowing e-commerce growth.
“It’s a canary in the coal mine,” said Oktay Kavrak, director and product strategist at Leverage Shares. “If Amazon is hitting a speed bump, other names could crash. People were expecting a slowdown in growth following the pandemic, but I don’t think they expected as drastic a drop as we saw.”
The rally e-commerce stocks saw at the height of COVID-19 lockdowns in 2020 has reversed as consumers returned to their pre-pandemic habits and cooled their spending. Amazon executives said they were watching for whether shoppers will trim their purchases to offset rising prices as fuel and labor costs bite.
Etsy has slumped 58% this year, making it the third-worst performer on the S&P 500 Index, while Wayfair has tumbled 60%. Shopify just posted its worst month on record and it is also the biggest loser on Canada’s S&P/TSX Composite Index this year. All these stocks extended their decline Monday.
Despite that relentless selloff, dip buyers have been hard to come by. That might have to do with how expensive they still are. Shopify is trading on a whopping 128 times projected profits over the next 12 months and Wayfair has a multiple near 95, while Etsy’s figure is 21 — suggesting they continue to be priced for rapid growth. That compares with about 17 on the S&P 500 and 21 for the Nasdaq 100.
However, analysts have been paring back their expectations for the upcoming quarterly results. Wayfair’s revenue was projected to fall about 15% this quarter, while the 26% growth expected at Shopify would be its lowest since at least 2014, according to data compiled by Bloomberg.
Etsy reports on May 4, while Wayfair and Shopify are slated to release results on May 5.
The average consensus for Shopify’s earnings has been reduced by about 9% over the past week, according to data compiled by Bloomberg. For Etsy, its average earnings projection has dropped by 2.6% over the past month and is down almost 30% over the past 90 days. Its revenue estimate has declined by more than 9% over the past quarter.
Despite near-term risks, some are staying upbeat when it comes to future growth. Poonam Goyal, a senior retail analyst at Bloomberg Intelligence, has a positive view on the long-term prospects for e-commerce.
“We’re very bullish on e-commerce, which should be able to grow at a double-digit clip for the next several years,” she said in a phone interview. “Comparisons will only get easier from here.”