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This week’s disappointing earnings results from eBay (EBAY), Wayfair (W), and Etsy (ETSY) show that online retailers continue to struggle, and their growth outlooks remain uncertain. The current environment was a sharp reversal from the pandemic era when a surge in demand took online retailer stocks to lofty price levels that have been largely or entirely erased.
The Proshares Online Retail Index is down nearly two-thirds from its pandemic record high and has dropped -16% from a recent peak earlier this month. Robert W. Baird & Co said, “the street isn’t putting up with anyone who can’t generate free cash flow,” and results from Wayfair showing a wider-than-expected loss and a steep drop in active customers “shows we’re not going back to the growth rates we saw at the peak of Covid.”
On Thursday, Wayfair plunged -23% in reaction to its disappointing earnings results, and eBay fell more than -5% after reporting a decline in active buyers and giving a revenue forecast that failed to inspire confidence. Earlier this month, Amazon.com (AMZN) said its online retail business lost money for a fifth consecutive quarter as online store sales fell -2%, and Shopify’s (SHOP) forecast also missed estimates. The reports showed that online retailers continue struggling in the post-pandemic era.
A bright spot for online retailers was Etsy, which rallied more than +2% Thursday after reporting strong revenue in the holiday quarter, although it did give a weaker-than-expected forecast for gross merchandise sales. The Census Bureau of the Department of Commerce has estimated that Q4 retail e-commerce sales, adjusted for seasonal variation, fell -0.1% q/q. While total e-commerce sales last year rose +7.7% y/y, that trailed the +8.1% y/y increase in total retail sales for 2022.
The Proshares Online Retail Index trades at a forward price-to-book value of 3.6, nearly even with the Solactive ProShares Bricks and Mortar Retail Store Index. Some analysts remain upbeat on the online retail sector’s longer-term prospects. Profund Advisors LLC said the Census Bureau report showed that e-commerce accounted for 14.6% of total sales last year, a proportion that ultimately will be “far higher” in the future, and it “doesn’t make sense for e-commerce to be trading at roughly at parity with brick-and-mortar.”
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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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