E-Commerce Stocks’ Digital Sales Spike for Two Drastically Different Retail Companies

Emily Mirabelli

E-commerce stocks have offered investors an alternative to buying shares in traditional brick-and-mortar retailers for several years.

Some e-commerce stocks operate businesses that are solely online. However, in light of COVID-19, many traditional retailers that sold goods to customers who visited their stores are shifting their focus to their e-commerce platforms and planning for their customers to follow suit.

So, which e-commerce stocks have fared the best during the pandemic? Is it the e-commerce-only businesses, the brick-and-mortar businesses that have switched their efforts to e-commerce platforms, or is it a combination? The simple answer: it’s a mix.

Take two radically different retailers, Etsy (NASDAQ:ETSY) and Nike (NYSE:NKE) with each having a different business model. The first focuses solely on e-commerce, and the other is mostly associated with its business model based on selling from its retail stores. Both companies are showing strong performances while filling different niches and catering to different consumer needs.

Etsy Exceeds Expectations with Mask Production

Etsy is a one-of-a-kind global marketplace. The e-commerce-only retailer invites consumers to shop for handmade, vintage, custom and unique gifts. Unlike many retailers, the company does not have a warehouse, as it is a collection of sellers from all corners of the world. Aside from truly acting as an online marketplace, Etsy is set apart from many companies because it provides customers the ability to interact directly with sellers.

In early March, Etsy lost roughly half of its value based on concerns that the coronavirus would cause an economic slowdown and hurt consumer sales. However, as an e-commerce platform that boasts unique and handmade gifts, its vendors began selling masks, and consumers responded favorably.

On March 20, the company’s stock hit bottom, closing at $31.69, but since then, its stock price has nearly tripled, closing at $101.28 on June 25.

According to an article on CNBC, Etsy’s shares spiked 5.1% on Tuesday, June 23, to a record high of $101.22 after the financial service company RBC Capital Markets raised its target price to $117 from $79, and Goldman Sachs increased its target on ETSY to $120 from $88.

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In its first-quarter earnings report, the company announced that it sold more than 12 million masks, amounting to $133 million in mask sales, in April alone. The company is expected to release its second-quarter earnings reports on July 30, 2020.

“Up until a few days ago, markets were shrugging off the COVID-19 data because the rising case numbers were not seen as impeding any statewide reopening efforts,” counseled Jim Woods, who leads the Successful Investing, Intelligence Report and Bullseye Stock Trader

Advisory services. “Moreover, government officials at the federal, state and local levels have been remarkably consistent, saying that unless the coronavirus numbers get significantly worse, there won’t be another widespread economic shutdown.”

However, market sentiment changed Friday morning, June 26, when Texas Gov. Greg Abbot cited rising COVID-19 cases in declaring that most outdoor gatherings of 100 or more people would need approval from local governments.

“At this time, it is clear that the rise in cases is largely driven by certain types of activities, including Texans congregating in bars,” Abbott said in a statement. 

Etsy CEO Credits Strong Sales to Unique Retail Platform

Josh Silverman, the CEO of Etsy, in an interview with CNBC, credited the massive mask sales during the spread of COVID-19 to the company’s vendors. He praised the sellers for their ability to produce hundreds of thousands of masks in rapid order to serve growing customer demand for protective masks during the COVID-19 crisis.

The Etsy vendors produced and sold hundreds of thousands of masks a day in a matter of weeks, Silverman said.

“And I don’t know many other retailers who could do something like that,” Silverman said.

E-Commerce Stocks Include Nike, Which Continues to ‘Just Do It’

Nike, founded in 1964, began as a shoe manufacturing company but found great success and branched into apparel and digital and non-digital accessories. The Oregon-based company has stores worldwide and caters to both men and women. Though the coronavirus forced it to shut the physical doors at its retail stores for a period of time, its success was proven as its loyal customers adapted to online shopping.

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While March was a tough month for Nike, as it was for most companies, Nike continued to prove its retail prowess with its fiscal third-quarter earnings results.

Not only did the company report earnings of $0.53 per share on revenue of $10.01 billion, but it also validated its online-retail success, reporting a digital sales increase of 36% from the prior year.

Fourth-Quarter Earnings Predictions Lag but Analysts Remain Hopeful

 At the market’s close on June 25, Nike will report its fourth-quarter results, and analysts’ predictions forecast a weaker quarter than the previous one. According to The Street, analysts are predicting that the company will report adjusted earnings per share of $0.10 on revenue of $7.4 billion.

While this is overall lower than third-quarter results, Nike traded around $94 per share late in Friday’s session for a one-day drop of 7.29% after having jumped 19% in the past three months through Thursday, June 25.

In an interview with Yahoo Finance before the June 26 retreat, Sam Poser, an analyst with Susquehanna Financial Group, called Nike the “king of the hill.”

He said that the company is going to report a rough fourth quarter, but investors need to continue to look ahead to get a true sense of what’s to come.

“Q4 is going to be a tough quarter,” Poser said. “There’s nothing you can do about it, it’s really what they’re going to say about next quarter.”

Key comments will address how well Nike’s sales are going with its reopening of stores and how order flow may look right now, Poser added.

Though the company is best known for its brick-and-mortar retail settings, Poser said that its online sales will help the company recover from its fourth-quarter challenges.

“If their digital businesses are working the way I think [they’re] going to work, regardless of what the results are for the fourth quarter, people are going to see through that,” Poser said.

Cowen Equity Research Analyst Believes Nike’s Digital Sales Will Prove Powerful

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 John Kernan, a Cowen research analyst, said that he would not be surprised if Nike saw revenues from its digital platforms up triple-digit percentages year over year.

“But again, if you get the triple-digit-plus digital growth, which I think it will, we’ll have to give them a lot of credit for that,” Kernan said.

He opined that Nike’s customers are excited to watch the company grow its digital platform and that while investors will be looking at the fourth-quarter earnings report, they will look past it as well.

“But I think they’ll look through a lot of the Q4 disruption,” Kernan said, “and really start thinking about what the earnings power is in two or three years as you get this massive transformation towards digital.”

Two Different E-Commerce Stocks Show Strength

Etsy and Nike are two very different companies, and they fill different needs. What isn’t different is that they are both showing great success with their online retail platforms.

While Etsy caters to customers looking for “unique” gifts, its marketplace structure has proven successful as its vendors have adapted to the pandemic and targeted an item that all consumers need: masks.

After the CDC’s latest guidance that cloth masks are preferred, the vendors went to work designing and producing one-of-a-kind masks for all different types of consumers. This paid off, and Etsy has raked in hefty mask sales.

Nike, a tried and true brand, continues to prove its power as it forges through the pandemic by improving and growing its digital retail platform. After Nike’s strong fiscal third-quarter results, its fourth-quarter results are expected to be lower, but analysts still have faith that the company will resurface stronger than ever, in part, thanks to its growing e-commerce business.

Though many retailers are beginning to open their doors, consumers may remain loyal to e-commerce platforms, and investors may want to keep an eye on companies showing results from digital sales.

Emily Mirabelli is an editorial staffer at Eagle Financial Publications and she also writes for www.StockInvestor.com.

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