The holiday season is a time when retail companies enjoy solid consumer demand. In the last few years, online shopping has gained significant traction, allowing e-commerce companies such as Shopify (TSX:SHOP) and Etsy (NASDAQ:ETSY) to experience a significant uptick in sales during the fourth quarter (Q4) of 2023. Let’s see why these two e-commerce stocks should be on your shopping list this year.
The bull case for Shopify stock
Valued at a market cap of $122.8 billion, Shopify is among the largest companies trading on the TSX. Shares of the tech giant have surged over 100% year to date but also trade 55% below all-time highs.
Investors are optimistic about Shopify’s accelerating revenue growth, higher subscription sales, and widening profit margins.
Shopify’s sales growth decelerated significantly in 2022 while expenses soared amid an inflationary environment. But in Q3 of 2023, the company reported a 30% growth in revenue, compared to a 28% growth in the year-ago period.
According to consensus estimates, Shopify is forecast to end 2023 with US$7 billion in annual sales, up from just US$3 billion in 2020. It suggests Shopify continues to gain market share while increasing engagement rates with its existing merchant base.
Shopify has yet to report consistent profits, but its cash flow trends have been encouraging in the last 12 months. In order to offset inflation, Shopify embarked on a cost-cutting spree in 2022. It reduced its employee base and exited the logistics business, allowing it to report an operating cash flow of US$600 million in the last year.
In Q3 of 2023, Shopify reported a net income of US$718 million. Comparatively, net losses have narrowed to US$525 million in the first nine months of 2023, compared to US$2.8 billion in the year-ago period.
Priced at 68 times 2024 earnings, Shopify stock is quite steep. However, analysts expect its profit margins to improve at an exponential rate once the macro situation improves.
Is Etsy stock a good buy right now?
Shares of Etsy are also down 76% from record highs, valuing the company at US$8.6 billion by market cap. Etsy has successfully created an ecosystem where it sells niche products such as handmade goods and vintage items. Its widening base of sellers and buyers has meant merchants who want to have an online presence in this niche will have to set up shop on Etsy and even pay a premium to list the products if required.
In Q3 of 2023, Etsy reported a gross merchandise volume of US$3 billion, an increase of 1.2% year over year. Comparatively, its sales rose by 7% to US$636.3 million and a net income of US$88 million. In the year-ago period, Etsy reported a loss of US$963 million.
Etsy also ended Q3 with 97.3 million active buyers, an increase of 3.4%, while active sellers surged 19% to 8.8 million. We can see that Etsy continues to grow its user base amid challenging macro conditions.
Etsy is forecast to report adjusted earnings of US$2.63 per share in 2024, compared to a loss of US$5.48 per share in 2022. So, priced at 27.4 times forward earnings, Etsy stock is not too expensive if it can continue to expand the bottom line.
