The COVID-19 pandemic has brought many industries to the forefront and center of investor awareness. This includes e-commerce companies and China Alibaba is one of the largest online retailers in the world. Obviously, it makes investors wonder if they should buy some shares because of the big business. But this has recently been hampered by two worrying news reports: the Chinese government has launched an anti-monopoly investigation into Alibaba, and founder Jack Ma seems to have disappeared from the public eye.
Some suggest that Mom now just stay out of the spotlight; I personally hope that this is true and that he is doing well. Furthermore, Alibaba could still be a good investment once China’s investigation is completed. But it is by no means the only major e-commerce business out there. I actually believe it Etsy (NASDAQ: ETSY) and Pinterest (NYSE: PINS) offers investors greater potential returns than Alibaba over the next five to ten years. This is why these are two e-commerce businesses that you need to know.
Image Source: Etsy.
1. Etsy: the handmade niche player
According to the Census Bureau, total e-commerce sales increased by 36.7% year-on-year in the third quarter of 2020. While impressive, it’s a yawning growth rate compared to Etsy’s. For its third quarter, Etsy’s revenue increased by 128% compared to the previous year. And its revenue increased by 102% in the first three quarters of 2020 compared to the comparable period of 2019.
Etsy grew in 2020 through new customers and new sellers. At the end of 2019, the company had 2,699 active sellers and 46,351 active buyers. At the end of the third quarter, Etsy had 3,681 active sellers and 69,649 active buyers, up 36% and 50% respectively in just nine months. Expect strong growth to continue as well. An expanding user base is likely to attract more new sellers, and more new products will attract more buyers.
Over time, Etsy can earn its growth in new ways. For example, the company started advertising off-platform products in May. Not only does it offer Etsy products to a larger audience, but the company is also cutting 12% to 15% of these sales, making it possible to leverage sales growth to even greater revenue growth .
Here’s another thing that is explicitly noted: because Etsy does not own or ship merchandise, much of the cost has been fixed and it can utilize its revenue growth to profit at the bottom end. Through the first three quarters of 2020, Etsy’s operating income soared 312% higher to $ 263 million. The huge increase in profitability should at least make investors stop and consider investing in Etsy.
Image Source: Getty Images.
Pinterest: A more positive social media platform
Currently, Pinterest operates in one business segment and according to the most recent submission, all revenue is generated through advertising. However, investors should not underestimate the recent integration of the image-based social network with Shopify. With a single click, companies can upload their product catalogs to Pinterest’s platform.
As Pinterest users study the images on the platform, they may fall for items they like. Maybe users will eventually start logging on simply because they know they want to something but do not quite know what, so Pinterest’s algorithm can guide them through similar images until they find what they are looking for. It is unclear whether the business intends to earn it differently than it earns in time. But regardless of the ultimate monetization strategy, it makes Pinterest a unique play for e-commerce.
Here’s a simple explanation of why I really like Pinterest in the long run: it attracts new users at an impressive pace. In the third quarter of 2020, global monthly active users increased by 37% compared to 442 million. Also in the third quarter, the average revenue per user (ARPU) increased by 15% year on year to $ 1.03. There is still plenty of room for ARPU to grow, and e-commerce will play a key role in this.
Through my investment math, user base growth multiplied by ARPU growth equals exponential growth for Pinterest – the kind of upside I’m looking for.
ETSY data by YCharts.
E-commerce for the win
Both Etsy and Pinterest crushed the market in 2020, and these three-digit annual returns are difficult, if not impossible, to replicate in 2021. If you give these growth stories enough time to play, I am confident that they can do so create meaningful shareholder value and beat the market in the long run – the best time to invest in stocks.