The pandemic tailwind to the e-commerce industry might soon come to an end. Following the news of a 90% effective vaccine developed by Pfizer, Inc. (PFE) and BioNTech SE (BNTX), many e-commerce stocks including Amazon.com, Inc. (AMZN) and Etsy, Inc. (ETSY) declined, over the assumption of reduced online shopping henceforth. While AMZN fell 5.1% since yesterday, ETSY declined by 17.1%.

Though investors’ assumptions regarding the future of the e-commerce industry might make the stocks a speculative investment bet at the moment, it should be noted that Pfizer and BioNTech’s COVID-19 trial drug is pending FDA authorization.

Also, the e-commerce industry has been thriving since before the pandemic, given the aggressive pricing and customer satisfaction strategies its companies followed. According to a survey conducted by Barron’s analyst Rick Patel, 55% of the cohort said that they would continue to shop online at the same level, while 17.5% is likely to increase the volume of online shopping in the future, irrespective of the vaccine availability. Approximately 70% of the sample have demonstrated a permanent preference for online shopping.

With the digital era here to stay irrespective of the medical research outcome, buying e-commerce stocks amid the current market dip should help investors generate significant capital gains in the future. Both AMZN and ETSY are established players in this field. While e-commerce giant AMZN is known for supplying retail products on a global level, ETSY operates with a more intimate supply chain connecting local sellers with buyers.

Both stocks have generated significant returns over the past five years. While ETSY gained 1277.3% over this period, AMZN returned 379.6%. In terms of year-to-date performance as well, ETSY is the clear winner with 173.6% gains versus AMZN’s 70.1% returns.

But which stock is a better buy now? Let’s find out.

Latest Movements

AMZN recently opened fulfillment centers in Missouri, North Dakota, Nebraska, Texas, and Kansas, consolidating its supply chain in the United States. This move is expected to improve AMZN’s reach to the remote parts of the country, accounting for higher demand and thereby revenues.

In light of the rising demand for cloud services, AMZN announced the construction of a second infrastructure region in India, catering to the Asia Pacific region. Estimated to be operational by 2022, this should boost the Amazon Web Services (AWS) operations across the Asian subcontinent, as cloud services are gaining traction under the remote working culture. Construction of a data center for AWS is underway in Switzerland as well, which is expected to operate in the European areas from 2022.

On October 29th, AWS announced the general availability of Nitro Enclaves, allowing users to securely process highly sensitive data. Its high encryption and security measures are likely to appeal to a wider demographic, thereby boosting AMZN’s revenues from its cloud computing segment.

AMZN’s hefty discounts and affordable pricing regime paved the way for $3.50 billion in sales globally during the Amazon Prime Day sale, up 60% year-over-year.

ETSY also undertook several measures to capitalize on the pandemic and boost its sales over the past couple of months. In August, the company raised $650 million through senior notes offering. A portion of the proceeds is expected to fund the company’s issuance of common stock to replace convertible senior notes.

ETSY updated its website to enhance its user-friendliness, attracting a higher number of potential consumers. The improved site performance, relevant recommendations through machine learning algorithms, and innovative marketing strategies have increased consumer retention, as well as the percentage of active buyers.

Recent Financial Movements

AMZN’s net sales increased 37% year-over-year to $96.10 billion in the third quarter ended September 2020. Net income grew 200% from the year-ago value to $6.30 billion, while EPS rose 192.4% from the same period last year to $12.37.

ETSY’s general merchandise volume increased 119.4% year-over-year to $2.63 billion in the third quarter ended September 2020. Revenue grew 128% from the year-ago value to $451.48 million, while net income grew 520% from the same period last year to $91.76 million. EPS rose 525% year-over-year to $0.75.

Past and Expected Financial Performance

AMZN’s revenue and EBITDA increased at a CAGR of 29.3% and 50.1% respectively, over the past three years. ETSY’s revenue and EBITDA, on the other hand, increased at a CAGR of 49.2% and 114%, respectively, over the same period. AMZN’s total assets increased at a CAGR of 34.8% over the past three years, while ETSY’s total assets rose at a CAGR of 56.8% over this period.

Analysts expect AMZN’s EPS to increase 9.4% in the current quarter, 51.5% in the current year, 30.1% next year, and at a rate of 36.4% per annum over the next five years. Consensus revenue estimates indicate 36.6% growth in the current quarter, 35.4% in the current year, and 18.2% next year.

ETSY’s EPS is expected to increase by 132% in the current quarter, 175% in the current year, 3.3% next year, and at a rate of 57.1% per annum over the next five years. Analysts estimate revenues to grow 87% in the current quarter, 97.1% in the current year, and 12.1% next year.

Thus, ETSY has an edge over AMZN here.

Profitability

AMZN’s trailing 12-month revenue is 252.13 times what ETSY generates. However, ETSY is more profitable with a gross margin of 70.6% versus AMZN’s 40.2%.

ETSY’s ROE and ROA of 43.9% and 9.8% compare favorably with AMZN’s 25% and 5.2% respectively.

Valuation

In terms of forward non- GAAP P/E ratio, AMZN is currently trading at 91.36x, 89.3% higher than ETSY, which is currently trading at 48.25x. AMZN is also more expensive in terms of trailing 12-month PEG ratio (1.78x versus 0.53x).

However, ETSY’s trailing 12-month price/sales ratio of 10.50x is 133.1% more expensive than AMZN’s 4.51x.

POWR Ratings

Both AMZN and ETSY are rated “Buy” in our proprietary POWR Ratings system. Here’s how the four components of overall POWR Rating are graded for both these stocks:

AMZN has an “A’ for industry Rank, and “B” for Trade Grade, Buy & Hold Grade, and Peer Grade. It is currently ranked #4 out of 58 stocks in the Internet industry.

ETSY has an “A” for Industry Rank, “B” for Trade Grade and Peer Grade, and “C” for Buy & Hold Grade. It is currently ranked #11 in the same industry.

The Winner

Both AMZN and ETSY are leading industry players, as reflected by their global supply chain and recent financial reports. Though ETSY has higher growth potential as per consensus estimates, the current dip in the e-commerce industry might act as a barrier to the company’s growth potential in the upcoming months. This is mainly because people are likely to buy vintage and handmade products in person following the rollout of an effective vaccine, reducing ETSY’s consumer traffic.

Conversely, AMZN has made its position as the biggest e-commerce seller in the world through its aggressive pricing strategy and enhanced focus on consumer satisfaction. Also, the company has multiple other business channels such as cloud computing and online streaming service, which have taken off over the past couple of months. Thus, the vaccine’s impact is expected to be short-lived on the stock.

However, the Department of Justice’s potential antitrust lawsuit and investigation on AMZN, as well as the European Union’s potential antitrust complaint regarding sales data against the company might raise red flags for investment at the moment. However, given the company’s financial strength, and brand loyalty created across most of its operational regions, it is likely to continue being a key player in the market despite the outcome of these potential trials. 

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AMZN shares were trading at $3,035.02 per share on Tuesday afternoon, down $108.72 (-3.46%). Year-to-date, AMZN has gained 64.25%, versus a 11.58% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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