The e-commerce industry benefited enormously from the pandemic-led lockdowns last year, with a dramatic shift in consumer preference toward online shopping. Many conventional brick-and-mortar stores transformed their business strategies to boost their online presence in response to shifting customer behavior.
However, with significant progress in vaccinations and the easing of social distancing rules, brick-and-mortar stores have witnessed a substantial increase in foot traffic over the past few months. In addition, researchers found that approximately 40% of consumers prefer in-store shopping over online due to high delivery charges, shipping delays, and the opportunity to examine products in person before buying.
The increasing popularity of physical stores may make it difficult for e-commerce companies with bleak fundamentals to stay afloat. Therefore, we believe fundamentally weak e-commerce stocks Etsy, Inc. (ETSY) and Wayfair Inc. (W) are best avoided now.
Etsy, Inc. (ETSY)
ETSY is a global marketplace for handcrafted and vintage products that connects buyers and sellers in the U.S. The Brooklyn, N.Y.-based company offers approximately 85 million items in its various retail categories, including jewelry and accessories, clothing and shoes, home and living, toys, and other collectibles. In addition, ETSY provides Etsy Payments, Etsy Ads, and Etsy shipping labels to the sellers.
ETSY’s total operating expenses for the third quarter, ended September 30, 2021, increased 38.4% year-over-year to $295.03 million. The company’s income from operations decreased 29.1% from its year-ago value to $83.74 million. Its net income declined 2% from the prior-year quarter to $89.93 million. Also, the company’s EPS declined 11.4% year-over-year to $0.62.
ETSY’s EPS is expected to decrease 28.7% in the current quarter and 14% in the next quarter. The stock has fallen 11% in price over the past five trading days.
ETSY’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating which equates to a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
Also, the stock has an F grade for Value and a D grade for Stability and Growth. We have also graded ETSY for Quality, Sentiment, and Momentum. Click here to access all ETSY’s ratings. ETSY is ranked #54 of the 77 stocks in the F-rated Internet industry.
Wayfair Inc. (W)
Founded in 2002, W is a Boston-based e-commerce platform that offers some 22 million products under a wide range of brands, including Wayfair, Joss & Main, AllModern, Birch Lane, and Perigold for the home sector. The company’s products include furniture, kitchen appliances, home decors, and other home improvement products.
During the third quarter, ended September 30, 2021, W’s net revenue decreased 18.7% year-over-year to $3.12 billion. The company’s gross profit declined 23.1% from its year-ago value to $882.73 million. Its loss from operations came in at $69.8 million, compared to $221.85 million in income from operations in the prior-year quarter. Also, the company’s net loss amounted to $78.02 million, compared to $173.17 million in net income in the third quarter of 2020.
Analysts expect W’s revenue to decrease 2.5% year-over-year to $13.79 billion in its fiscal year 2021. Its EPS is expected to decrease 150.8% in the current quarter and 131% next quarter. Its stock has declined 23.2% in price over the past six months and 27.3% over the past nine months.
W’s poor prospects are also apparent in its POWR Ratings. The stock has an overall D rating, which equates to a Sell in our proprietary rating system. The stock has an F grade for Growth and a D grade for Sentiment.
In addition to the POWR Rating grades I have just highlighted, one can see W’s ratings for Stability, Quality, Value, and Momentum here. W is ranked #43 of 44 stocks in the B-rated Specialty Retailers industry.
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ETSY shares were trading at $251.70 per share on Thursday morning, down $7.58 (-2.92%). Year-to-date, ETSY has gained 41.48%, versus a 22.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Priyanka Mandal
Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research. More...
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