E-commerce is on fire this year as the pandemic kick-started a behavioral shift in consumers and accelerated online retail. Stitch Fix’s (NASDAQ: SFIX) saw its shares rise nearly 50% this week after reporting stellar results, along with accelerated customer growth and upbeat outlook. But it is the e-commerce behemoth Shopify (NYSE:SHOP) that surpassed eBay (NASDAQ:EBAY) this year, as the second-largest e-commerce platform in the U.S. by sales volume after Amazon (NASDAQ:AMZN). This was quite a blow for eBay, the world’s first online auction platform for person-to-person transactions. This explains why Shopify stock has soared more than 3,700% over the past half of a decade, with Amazon stock growing 375%, leaving eBay far behind at 76% increase. Here is a deeper look into Shopify’s success story.
1. New e-commerce is decentralized
eBay’s platform could have been revolutionary back at its days, but today, it has been overrun by Etsy (NASDAQ: ETSY) as well as social media platforms like Pinterest (NYSE: PINS) and Facebook‘s (NASDAQ: FB) Instagram who have integrating online purchases into their ecosystems.
Shopify that gathers over a million merchants helps them set up online stores, process payments, manage their marketing campaigns and fulfill orders. In other words, Shopify operates behind the scenes to help companies establish their own online presence without being dependant on Amazon or eBay. This is what being disruptive means. Earlier this year, Shopify even launched Shop, a consumer-facing app that provides searchable listings for its merchants.
Its decentralized approach gives merchants the freedom to expand their online footprint without diluting their identity in a crowded marketplace. It makes it easy for merchants to achieve economies of scale as their business grows.
2. Fortune favors the bold
Over the past half of a decade, eBay’s business has been shrinking. Back in 2015, it spun off PayPal (NASDAQ: PYPL) and shut down its fixed-price subsidiary Half.com in 2017. This year, it sold its online tickets platform StubHub and it plans to sell its online classifieds platform. It also reduced its marketing spending last year in an effort to boost its profit and the percentage of each sale it retains as revenue. By prioritizing profit over growth, eBay is confirming it is a mature company which therefore implies, its growth prospects are limited.
On the other end, since its IPO in 2015, Shopify has expanded significantly by acquiring the digital consulting and product development firm Boltmade in 2016, the drop-shipping platform Oberlo in 2017, and the warehouse automation company 6 River Systems last year. It has partnered with Amazon to let merchants sell products on Amazon from their Shopify stores. It has added similar integrations with Facebook, Alphabet’s Google (NASDAQ: GOOGL), Snap’s (NYSE: SNAP) Snapchat, and ByteDance’s TikTok.
Shopify has also expanded its own payments platform, Shopify Payments, which processed nearly half of its gross merchandise volume (GMV) last quarter. It launched its own fulfillment network to offer additional services via its own app, along with tweaking its premium Shopify Plus tier for larger merchants. These efforts only confirm Shopify’s is reinvesting cash to keep growing as opposed to cutting costs to protect its bottom line.
3. Emphasis on continuous growth
eBay’s revenue’s sluggish growth of 1% last year was blamed on reduced marketing expenses and higher internet sales taxes in several states across the US. Adjusted net income rose just 5%, but its earnings per share were boosted 22% by big buybacks. This year, eBay expects its revenue and adjusted EPS to rise approximately 20% but these favourable growth rates are attributable to the overall acceleration in online sales due to the pandemic. This will no longer be the case next year, revenue and earnings are expected to grow only 7% and 9%, respectively, next year.
Last year, Shopify’s revenue rose 47% and its GMV surged 49%. Its adjusted EPS did drop 30% but this is due to 6 River Systems being integrated into its new fulfillment network. But this year, analysts expect revenue for the full year will be boosted 81% with adjusted EPS expanding more than 10x. Analysts expect Shopify will continue generating high double-digit sales growth, but its earnings growth could remain unpredictable due to the ongoing investments to expand its ecosystem.
A rapidly evolving market
The pandemic gave online retail a push greater than any other in history. COVID-19 has accelerated the e-commerce industry’s growth and more and more businesses are embracing this business revolution. Companies that previously embraced the e-commerce trend are experiencing expansion while traditional retail was struggling just to stay afloat.But as the market keeps evolving at a rapid face, it arguably favors disruptive players like Shopify that lets merchants build their own online brands and optionally links them to Amazon and social networks as opposed to trapping them in a walled aquarium filled with price wars.
HP and Dell Rejoice as Offices Reopen
As companies continue commiting funds to lure employees back into offices by improving their experience, PC demand keeps on going strong.
During Tuesday’s extended trading, HP Inc’s (NYSE: HPQ) shares jumped 8% after the computer hardware maker reported better-than-expected quarterly results and provided strong guidance for the undergoing quarter. Dell Technologies Inc (NASDAQ: DELL) also posted strong results, aided by commercial PCs and sales of high-end consumer devices, pulling its stock up 0.6% in after-hours trading.
HP’s quarter results
The PC and printer maker generated sales of $16.68 billion exceeding the expected $15.4 billion, according to Refinitiv. Sales increased 9.3% from the year-ago period. It made $3.1 billion in net income, including a one-time $1.78 billion legal settlement, also exceeding Wall Street estimates. It made $0.94 in adjusted earnings, exceeding the expected $0.88.
Although consumer PC sales dropped 3% compared to last year’s lofty figure, commercial PC revenue expanded 25%. However, total PC unit sales were down 9%. Personal systems net revenue rose 13% YoY as it came in at $11.8 billion.
Printing business saw its revenue grow 1% YoY as it generated sales of $4.9 billion. Commercial printing revenue was up 19% YoY while consumer printing revenue fell 6%.
According to HP CEO Enrique Lores, in an environment shaped by supply constraints, the company is prioritizing its commercial clients due to better margins.
The (mixed) pandemic effect
HP’s PC business boomed and the sale of home printers also increased, but the shutdown of offices across the globe weighed on its ability to revitalize its important print-services business. Fortunately, this is no longer the case as offices have started reopening.
According to IDC, HP ranked second in world-wide PC shipments over the latest quarter. It is close behind Lenovo Group Ltd. (OTC: LNVGY) but it managed to beat Apple Inc (NASDAQ: AAPL) and Dell. However, its shipments were down almost 6% in reference to last year’s comparable figure year while nearly all of the other top companies’ shipments increased YoY. Mr. Lores did state that the strong results are owed in part by emphasizing shipments of more-lucrative models.
HP expects strong demand for its personal computers to linger for the foreseeable future. For the undergoing quarter, it expects to earn $0.92 to $0.98 per share and for the full fiscal year that is due to end on October 31st, 2022, it expects them to be in the range between $3.86 to $4.06, with both forecasts beating Wall Street expectations.
The PC maker reported its strongest-ever third quarter due to strong growth of commercial PC and high-end consumer devices. Dell generated sales of $26.4 billion that resulted in $3.9 billion in profit. It also topped expectations as it expects revenue of the undergoing quarter to increase at least 12% from the year-ago period and reach $27 billion to $28 billion. Chief Financial Officer Tom Sweet expects growth to continue next year.
Despite chip supply shortages and port congestions causing delays, the holiday quarter seems promising. According to International Data Corp, the global PC market has grown for six consecutive quarters and these challenges have stopped sales from taking off even more. Therefore, HP and Dell seem to be covered as they are making the best of the situation in an environment defined by mess COVID-19 created across global supply chains.
Ford Is Doing Whatever It Takes To Overthrown Tesla
The legendary Blue Oval has its eyes set to become the biggest US-based EV manufacturer. To pull that off, Ford Motor (NYSE: F) needs to greatly ramp up its production so it doesn’t come as a surprise that the company is now expecting to produce 600,000 EVs per year globally by end of 2023, which is double compared to the original plan. According to Automotive News, this figure will be made by Mustang Mach-E, F-150 Lightning and E-Transit. Moreover, Jim Farley Tweeted this will happen before Blue Oval City and other EV sites come online.
Ford is now feeling much more confident
Ford is enjoying much stronger EV demand than expected. The Mustang Mach-E is being sold on three continents. Since it was unveiled, the Ford F-150 Lightning has been as popular as it gets by receiving 100,000 reservations within the first three weeks, after which they increased to 160,000. Due to the high demand for America’s bestselling vehicle, the F-150 pickup, Ford previously decided to invest $250 million to boost its production, creating 450 new jobs to help it make 80,000 trucks a year but it remains to be seen how will that change considering it doubled its manufacturing goal.
Bonus points for dropping joint vehicle with Rivian
A large, legacy manufacturer tying up with a new startup that has the right technology and specs to make an electric version of an American favorite — the SUV, sounded as a match made in heaven. Although the companies remain linked as Ford still holds a 12% stake in Rivian Automotive (NASDAQ: RIVN) with shares now worth billions of dollars, the two companies canceled their plans to jointly develop an electric vehicle publicly on November 19th .
Rivian’s successful public debut
Since its IPO on November 10th, Rivian’s market capitalization skyrocketed to mindblowing $110 billion, leaving Ford behind at $78.2 billion. The start-up became the third most valuable automaker behind Tesla Inc (NASDAQ: TSLA) and Toyota Motor (NYSE: TM), pushing Volkswagen (OTC: VWAGY) to fourth place with only two models in its portfolio- the R1T being produced and its R1S production postponed with earliest deliveries pushed back from January 2022 to March-April 2022 due to supply chain disruptions no carmaker is immune to. But, the interest for its vehicles is there.
Ford doesn’t need Rivian anymore
Several points indicate Farley may be right about Ford not needing Rivian any longer. Reservations for Ford’s electric pickup truck, the F-150 Lightning, surpassed 150,000 units in September as the model appears designed to benefit from immense and lasting popularity of US’ best selling pickup – the Ford F-150, emulating much of its utility. The Lightning is also more of a “workhorse truck” than the Rivian R1T that is being marketed mainly for recreation.
Ford also announced an $11.4 billion joint investment with a South Korean battery maker, SK Innovation, so it clearly has a bigger picture in mind. Rivian helped the legacy automaker gain courage and ground while it was making its first EV steps.
Ford potentially gained a major boost for its EV plans by separating from the EV start-up.
According to CNBC, Ford accumulated approximately 102 million shares in all, spending a total of $820 million in the process for its current 12% stake that is now worth approximately $13 billion. By selling these shares, which it now no longer needs since it is not partnering with Rivian on any future projects, Ford has cash at its disposal to boost and accelerate its EV plans.
There is the risk of Rivian’s shares dropping after the initial IPO euphoria, resulting in a greatly reduced cash windfall for Ford who would still make immense gains above the initial average $8.04 it paid. Whatever the case, Ford has the near-future option to enhance its liquidity with billions of additional dollars if it sells its Rivian shares. These gains would be taxed, but they wouldn’t be burdening the company’s balance sheet with debt.
However, Ford hasn’t given any indications of doing that and it will presumably have to wait for the lockup post-IPO period to expire.
Competitors aren’t standing still
Before it achieves its ultimate goal as the US-based leader, Ford first needs to become the second largest behind Tesla. It remains to be seen whether it can achieve that with 600,000-a-year production target. Meanwhile, its long-time Detroit rival General Motors (NYSE: GM) is expecting to sell 1 million electric vehicles by 2025 across the globe so it is also ramping up production. Then there are many other start-ups such as Atlis Motor Vehicles and Hercules Electric Vehicles whose electric pickups are scheduled to hit the roads next year, with both of their models being equipped with ground-breaking solar technology by Worksport Ltd’s (NASDAQ: WKSP) subsidiary TerraVis Energy.
In Farley’s words, the legacy automakers’ approach was reflected when it built ventilators and personal protective equipment to contribute to the battle against COVID-19. Whatever it takes, Ford finds a way- and its strategy seems to be working.
With its aggressive investments such as its massive Blue Oval City EV, fast-moving construction of cutting-edge facilities such as battery factories, and strong progress on the Lightning, Ford seems to be on track with its electrifications plans. Along with the addition of a reserve of cash accessible by liquidating its Rivian shares, Ford now has more flexibility and greater resources to support the production of its EV lineup.
The Mighty Alibaba Has Fallen
Last Thursday, the all-mighty Chinese multinational technology company missed revenue and earnings expectations for the September quarter. Moreover, Alibaba Group Holdings Limited (NYSE: BABA) warned of weaker growth this year as China’s economy slows and Beijing continues its regulatory crackdown with the latest fine hitting the company over the weekend.
Fiscal second quarter figures
For the quarter ended in September, the company’s earnings per share declined 38% YoY as it earned 11.20 yuan per share, below the estimated 12.36 yuan. Its EBITDA fell 27% YoY to 34.84 billion, but this is largely due to investments into new businesses.
But overall revenue grew 29% YoY, as it amounted to 200.69 billion yuan which translates to $31.4 billion) but still below the estimated 204.93 billion yuan.
The revenue of its core commerce business expanded 31% YoY but also missed expectations as the segment generated 171.17 billion yuan. Cloud computing, one of its most important assets that the company is building its future upon, grew 33% YoY to 20 billion yuan with adjusted EBITA for the segment amounting to 396 million yuan. This is a great improvement from 567 million yuan loss it made in last year’s comparable quarter.
However, the largest portion of the company’s sales comes from customer management revenue (CMR) and that segment grew only 3% YoY due to slow growth of sales on its platform. As China’s economy slowed down, so did consumption. Besides the slowing market conditions, Alibaba is also facing an increasingly crowded e-commerce market in China.
An increasingly crowded market
JD.com Inc (NASDAQ: JD) hasn’t been the only one giving it a headache, as newer players such as Pinduoduo Inc (NASDAQ: PDD) and even TikTok-owner ByteDance are putting up a good fight. Both Alibaba and JD.com achieved record sales on Singles Day record but this will be reflected in the undergoing quarter’s report. Both companies also touted their commitment to a more sustainable future during the event, but it seems that this wasn’t enough for Beijing.
Beijing is determined to teach the country’s largest tech firms to behave with a slew of new regulations. Alibaba, Tencent (OTC: TCEHY) and Baidu (NASDAQ: BIDU) were among the corporations who were all slapped with fines over the weekend for violating antitrust laws. Alibaba was already fined $2.8 billion back in in April as part of an anti-monopoly probe.
The company slashed its current fiscal year revenue guidance from expecting revenue to amount 930 billion yuan, which would have been about 29.5% YoY growth to now expecting only 20% and 23% YoY growth.
The CEO Daniel Zhang emphasized that Alibaba continues to firmly invest into its three strategic pillars to establish solid foundations for long-term sustainable growth. Alibaba is betting on domestic consumption, globalization, and cloud computing to create firm grounds for a more sustainable future, but regulatory action threatens to derail its growth prospects. Only time will tell if the e-commerce tech giant can rise from these unfavourable circumstances.
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