The e-commerce industry is rapidly expanding, thanks to the rise of online marketplaces, social commerce, and quick commerce. Increasing adoption of innovative strategies like livestream selling, dropshipping, AI-driven personalization, and direct-to-consumer models are creating exciting growth opportunities for the industry.

Given the industry’s robust prospects, investors could consider adding quality e-commerce stocks Shopify Inc. (SHOP), Sea Limited (SE), and Etsy, Inc. (ETSY) to their watchlists. As online shopping grows, these e-commerce players are positioned for long-term market dominance and strong stock performance.

Easier access to the internet, convenience, and changing consumer preferences have rapidly changed the e-commerce market. The number of users in the e-commerce market in the U.S. has been growing each year and is projected to grow continuously from 2024 to 2029, resulting in a total of 60 million users, an increase of 21.9%.

With increased accessibility, companies prioritize and invest in customer engagement and online retail sales. U.S. online retail sales are projected to reach $1.2 trillion this year, reflecting a $108 billion or 9.8% increase from last year.

Additionally, the rise of second-hand marketplaces appeals to consumers seeking high-quality products at low prices with easier payment options. Also, dropshipping helps business owners to sell online without holding any inventory, reducing costs and simplifying operations overall. Given this trend, U.S. e-commerce revenue is projected to increase significantly by $657.8 billion, or 53.79%, from 2024 to 2029.

Considering these conducive trends, let’s examine the fundamentals of the three e-commerce stocks.

Shopify Inc. (SHOP)

SHOP is a commerce company that provides a commerce platform and services in Canada, the United States, Europe, the Middle East, Africa, the Asia-Pacific, Australia, China, and Latin America. The company’s platform enables merchants to display, manage, market, and sell their products through various sales channels, manage products and inventory, and process orders and payments.

In terms of its trailing-12-month return on total capital, SHOP’s 6.27% is 125.4% higher than the 2.78% industry average. Likewise, its 16.40% trailing-12-month net income margin is 339.4% higher than the 3.73% industry average. The stock’s 0.74x trailing-12-month asset turnover ratio is 19.1% higher than the 0.62x industry average.

SHOP’s revenues for the fiscal second quarter, which ended on June 30, 2024, increased by 20.7% year-over-year to $2.05 billion. Its adjusted gross profit rose 24.6% over the prior-year quarter to $1.05 billion. SHOP’s adjusted net income and adjusted net income per share attributable to shareholders were $345 million and $0.26, reflecting year-over-year increases of 93.8% and 85.7%, respectively.

For the quarter ending September 2024, SHOP’s revenue and EPS are expected to increase 23.2% and 12.4% year-over-year to $2.11 billion and $0.27, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters.

Over the past year, SHOP’s stock has gained 43.8% to close the last trading session at $78.45.

SHOP’s POWR Ratings reflect this optimistic outlook. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

It has an A grade for Sentiment and a B for Momentum. SHOP is ranked #19 out of 26 stocks in the Internet – Services industry. To access the additional grades of SHOP for Value, Growth, Stability, and Quality, click here.

Sea Limited (SE)

Headquartered in Singapore, SE engages internationally in digital entertainment, e-commerce, and digital financial service businesses. The company provides Garena digital entertainment platform to access online games, eSports operations, and other entertainment content and a Shopee e-commerce platform for integrated payment and logistics infrastructure and seller services.

In terms of the trailing-12-month levered FCF margin, ETSY’s 10.88% is 36.2% higher than the 7.99% industry average. Moreover, the stock’s 0.78x trailing-12-month asset turnover ratio is 57.5% higher than the 0.49x industry average.

For its fiscal second quarter that ended June 30, 2024, SE’s revenue increased 23% year-over-year to $3.81 billion. The company’s operating income came in at $82.89 million, and its gross profit was reported to be $1.58 billion, increasing 9.2% year-over-year. Its net income and EPS also came in at $79.91 million and $0.14, respectively.

Street expects SE’s revenue for the fiscal third quarter ending September 2024 to increase 20.1% year-over-year to $3.98 billion. Its EPS for the same quarter is expected to grow significantly year-over-year to $0.54. It surpassed Street revenue estimates in all of the trailing four quarters which is impressive.

SE’s stock has gained 83.9% over the past six months and 121.8% over the past year to close the last trading session at $97.49.

SE’s POWR Ratings reflect its optimistic outlook. SE has B grades for Growth, Sentiment, Quality, and Momentum. It is ranked #24 out of 52 stocks in the Internet industry.

Beyond what we have stated above, we also have given SE grades for Value and Stability. Get all the SE ratings here.

Etsy, Inc. (ETSY)

ETSY and its subsidiaries operate two-sided online marketplaces that connect buyers and sellers in the United States, the United Kingdom, Germany, Canada, Australia, and France. Its primary marketplace is Etsy.com, which connects artisans and entrepreneurs with various consumers.

In terms of the trailing-12-month net income margin, ETSY’s 10.36% is 128.1% higher than the 4.54% industry average. Likewise, its 13.35% trailing-12-month EBIT margin is 67.5% higher than the 7.97% industry average. Moreover, the stock’s 1.11x trailing-12-month asset turnover ratio is 11.4% higher than the 0.99x industry average.

For the fiscal second quarter that ended June 30, 2024, ETSY’s revenue grew 3% year-over-year to $647.81 million. Its gross profit increased 5.3% year-over-year to $463.72 million. The company’s adjusted EBITDA came in at $179.38 million, increasing 7.0% year-over-year. Additionally, ETSY’s net income was reported to be $53 million.

Analysts expect ETSY’s revenue for the fiscal third quarter ending September 2024 to increase 2.8% year-over-year to $653.91 million. Its EPS for the same quarter is expected to grow marginally year-over-year to $1.08. It surpassed the Street revenue estimates in three of the trailing four quarters.

ETSY’s stock has declined 5.1% over the past month to close the last trading session at $52.30.

However, ETSY’s solid fundamentals are reflected in its POWR Ratings. It has an A grade for Quality and a B grade for Momentum.

ETSY is ranked #38 in the A-rated Internet industry. Beyond what we have stated above, we also have given ETSY grades for Growth, Value, Stability, and Sentiment. Get all the ETSY ratings here.

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SHOP shares were trading at $78.78 per share on Wednesday morning, up $0.33 (+0.42%). Year-to-date, SHOP has gained 1.13%, versus a 20.54% rise in the benchmark S&P 500 index during the same period.

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.

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