After a stellar performance in 2020, several e-commerce stocks have cooled off this year. The reopening of economies has decelerated revenue growth rates in 2021, lowering the valuations of e-commerce stocks in the process.

However, long-term investors should view the pullback as a serious buying opportunity, given the shift towards online shopping has gained pace amid the pandemic, making shares such as  ContextLogic (WISH) and Amazon (AMZN) interesting potential investments.

While Amazon is one of the largest companies in the world, ContextLogic is a mid-cap stock that has grossly underperformed the equity markets in recent months.  Between the two companies, let’s see which should be part of your e-commerce portfolio today.

The bear case for ContextLogic

ContextLogic is generally referred to as Wish, which is the company’s e-commerce platform. WISH stock went public last December at $24 per share. However, it’s since down almost 90% from 52-week highs burning significant investor wealth in the process.

Wish offers an online marketplace that connects buyers with sellers. A majority of these sellers are located in China, and the buyers are located in more than 100 countries. While the company can undercut the competition on price, it may take several days for the orders to ship and arrive at your doorstep.

Further, several merchants on the Wish platform have been accused of selling substandard or counterfeit products, and the time to process refunds is longer than usual.

Wish managed to increase sales from $1.9 billion in 2019 to $2.54 billion in 2020, amid the pandemic. However, Wall Street expects sales to decline by 17% to $2.11 billion in 2021 and by another 16% to $1.78 billion in 2022, making it one of the worst-performing e-commerce companies in terms of revenue growth.

The company’s monthly active users topped 107 million in 2020 but fell to 90 million in Q2 of 2021. This led to a 6% year-over-year decline in the company’s Q2 revenue.

The bull case for Amazon

In the last 10 years, Amazon stock has returned 1,760% to investors compared to the S&P 500 gains of 377%. While AMZN stock has been a massive wealth creator for investors, here’s why I’m extremely bullish on the company’s ability to keep delivering market-beating gains in the future.

A report from e-Marketer estimated the Amazon platform to account for more than 40% of online sales in the U.S. in 2021. Over 200 million customers have signed up for Amazon Prime, allowing the e-commerce heavyweight to provide products at a lower price than traditional retailers.

In addition to e-commerce, Amazon is among the top players in other growth verticals, including public cloud, online streaming, and digital advertising. Amazon Web Services, which is the company’s cloud business, derives a majority of profits for the firm.

In the last decade, Amazon shares have been valued around 30x its operating cash flow. Wall Street expects Amazon’s cash flow to touch $314 per share by 2024, indicating the stock may touch $9,420 per share in the next three years, providing investors with significant upside potential.

The verdict

It’s easy for me to choose between Amazon and ContextLogic. ContextLogic is grappling with falling sales and negative profit margins despite being part of an expanding addressable market.  

While Amazon is a market leader in most industries where it operates.  Amazon is well poised to deliver market-thumping gains for investors going forward and I believe it deserves a place in your portfolio.

WISH shares were trading at $4.07 per share on Tuesday afternoon, down $0.03 (-0.73%). Year-to-date, WISH has declined -77.69%, versus a 25.85% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditya Raghunath

Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist. More...

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