Online. Shopping. Put the two words together and you probably spell out many people’s most enjoyable pastime. The phenomenon is not consigned to one country, age group, or gender but is a global activity accessible to anyone with a connected device.
According to Statista, e-commerce is growing at an exceptional rate and by next year, global online retail sales are expected to reach $4.9 trillion. With fast internet access still unavailable to vast populations across the globe, the trend will only increase over the next decade.
As in any expanding industry, there are many players vying for a piece of the lucrative cake. Amazon, naturally, currently reigns as the e-commerce king, but there are other smaller disruptors making headway. Using TipRanks’ Stock Comparison tool, we decided to take a look at two e-commerce tickers that are piquing the analysts’ interest in 2020. What’s more, both currently have a Strong Buy consensus rating from the Street. Let’s surf and browse the details, then.
Etsy Inc. (ETSY)
Etsy’s online marketplace deals in handcrafted and vintage flavored items. Anything from clothes to jewelry to art, are all imbued with a homey and handmade vibe. The company’s share price grew substantially since going public in 2015, only to pullback in the second half of last year. While the broader market enjoyed the 2019 bull run, Etsy’s share price declined by almost 7%. However, it’s back to its old ways so far in 2020, up by over 16% year-to-date.
The reason for Etsy’s poor market performance in 2019 wasn’t down to any particular business struggles. In fact, Etsy’s numbers were impressive; throughout the year’s first three quarters, management guided for a full-year revenue increase of 30% while also expecting all gross merchandise value to grow by 20%. Rather, investors were disappointed when the growth slowed down somewhat compared to 2018. Additionally, it is worth remembering Etsy’s sell off came on the heels of all-time highs.
For BTIG’s Marvin Fong, the pullback presents opportunity. The analyst has Etsy down as one of the company’s top picks for 1H2020. Fong said, “We believe ETSY’s risk-reward is very favorable and we are drawn to the company’s high and defensible market share and quality management team. Moreover, we believe one of the key issues confronting the company, the disappointing initial performance of the company’s free shipping & handling initiative, is fully within the company’s power to fix given it is a problem of its own making. We also see significant hidden margin potential from Etsy Ads and the recent Reverb acquisition.”
Fong reiterated a Buy rating on Etsy, along with a price target of $67. The figure implies upside potential of 30%.
Similarly, the vast majority on the Street take a bullish approach. Etsy’s Strong Buy consensus rating breaks down into 11 Buys and a single Sell. With an average price target of $63.82, the analysts see Etsy adding 24% to its share price over the next 12 months.
The RealReal, Inc. (REAL)
While Etsy’s platform deals with a downhome and rustic flavor, the opposite rings true for The RealReal. The company operates an online marketplace for luxury items. Although there are other sites specializing in the resale of luxury goods, REAL is unique in that all the items on its platform receive an authentication stamp from an expert.
The resale industry is still very much in its early stages and could potentially grow enormously over the coming years. A recent survey by Global Data & thredUP on the apparel resale category estimates more than 35% CAGR (compound annual growth) through 2023. On top of secular shifts towards digital commerce, a further tailwind for REAL is the cultural shift towards sustainability and the circular economy, increasingly important factors to millennial and Gen Z consumers.
REAL only went public last year, and like several other 2019 IPOs (Uber, Peloton, Lyft), endured a bit of a horror show after going public. The company’s share price exited 2019 down by almost 33%, with investors worried about the company’s authentication process. So, is The RealReal the real thing or a name to avoid?
Needham’s Rick Patel is firmly with the bulls. The analyst said, “The RealReal (REAL) is our top pick for 2020 as we anticipate a year of strong growth in GMS and sales, and significant progress towards margin improvement. By connecting luxury consignors with buyers, we view REAL as particularly well positioned to benefit from growth in the emerging resale industry and from growth in digital commerce and luxury. Positive momentum will be supported by self-help initiatives, including growing brand awareness, improving pricing, and building physical locations, in our view.”
Therefore, the luxury goods reseller gets a thumbs up from the Needham analyst. Along with a Buy recommendation reiteration, Patel kept his price target of $23 as is. The number conveys his confidence in REAL’s ability to add 32% to its current share price.
Does the rest of the Street think REAL is for real? Yes, it does. Buy ratings only - 5 in fact - coalesce into a Strong Buy consensus rating. The average price target comes in at $25.40 and implies upside potential of 46%.