We recently published a list of 10 Best Internet Retail Stocks to Buy Now. In this article, we are going to take a look at where Wayfair Inc. (NYSE:W) stands against other best internet retail stocks to buy now.
What’s Happening In The Internet Retail Sector?
According to a report published by FTI Consulting, the United States e-commerce is experiencing a revival after a period of stagnation post-COVID. After 18 months of slow growth, e-commerce sales began to pick up again in early 2023 as consumers resumed shopping habits that had been altered during the pandemic. The report notes that e-commerce sales growth represented 46% of total retail sales growth in 2023 and surged to 57% in the first quarter of 2024, marking its highest contribution since 2017, excluding pandemic spikes.
Consumers have adopted the trend of shopping online as despite the reopening of physical stores, many consumers continue to prefer online shopping. The report indicates that foot traffic in stores remains lower than pre-pandemic levels, with many Americans choosing to shop online rather than visit physical locations. This shift suggests a long-term change in consumer behavior, as evidenced by ongoing declines in in-store visits and increased e-commerce market share.
Talking about the pandemic era from 2020 to 2022 total retail sales in the United States (excluding auto and gas) increased by 31%, compared to only 12.2% from 2017 to 2019. The report suggests this translates to an additional $1.9 trillion in retail spending above pre-COVID norms. This increased spending benefited the e-commerce segment as it was able to capture 87% of the increase in total retail spending during the height of the pandemic lockdowns.
Looking forward, the United States’ e-commerce sales are projected to grow at a sustainable rate of high to mid-single digits annually. This is a significant slowdown from the mid-teens growth rates seen before COVID but still sufficient for continued market share gains against traditional retail channels.
Moreover, the report also highlighted that newcomers including Temu, Shein, and TikTok Shop are entering the US e-commerce market. These newcomers are disrupting the established players through a strategy of becoming low-cost retailers. For instance, Temu achieved $14 billion in global gross merchandise value (GMV) sales in 2023 and is targeting $30 billion for 2024. On the other hand, Shein captured 40% of the fast fashion market domestically and had an estimated global GMV of $42 billion in 2023. Moreover, TikTok Shop was launched in 2023 and is aiming for $50 billion in global e-commerce sales by 2024.
The report suggests that while these platforms may attract budget-conscious consumers, they may not significantly threaten established e-commerce giant’s dominance due to perceived differences in product quality and brand positioning.
Looking ahead as per FTI Consulting the US online retail sales are expected to hit $1.2 trillion in 2024 translating to a 9.8% increase year-over-year. Moreover, the e-commerce market share is also expected to increase from 21.6% in 2023 to 22.7% by the end of the current year.
Moreover, some of the key trends identified by the reports are a sharp increase in the closing of physical retail stores due to increased labor costs, rents, and the feasibility of selling online. In addition to this, another key trend is the use of artificial intelligence among internet retailers, which helps engage with customers more closely and enables a personalized shopping experience.
We have also covered the 7 Best E-commerce Stocks To Buy According to Hedge Funds. Here’s an excerpt from the article:
“E-commerce is growing faster than expected and as new avenues of selling online open up, companies are bound to keep up with trends and innovative strategies. According to a report by Forbes, the e-commerce industry is expected to grow to a valuation of $7.9 trillion by 2027 from $6.3 trillion in 2024. In 2027, 23% of retail purchases are expected to be made online, up from 20.1% in 2024.
In the United States, low-income households, with a yearly income of $50,000 or less, happened to spend the most on online spending compared to other groups. On October 17, Reuters reported that retail sales in September increased, as gas prices fell, allowing consumers to spend elsewhere. Overall, the average consumer in the United States spent mostly on clothing, health and personal care stores, and miscellaneous items. Amid rising consumer confidence and spending, the Atlanta Fed raised its GDP estimates for Q3 to 3.4%, up from a previous guidance of 3.2%. Overall, retail sales grew by 0.4% last month.”
Our Methodology
To compile the list of 10 best internet retail stocks to buy now we used the Finviz stock screener. Using the screener, we shortlisted the internet retail stocks by their market capitalization. Next we used Insider Monkey’s Q2 2024 hedge funds database to rank the stocks by the number of hedge fund holders. Please note that the stocks are arranged in ascending order of the number of hedge funds.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
An elegant home décor with a stunning furniture piece, showcasing the company’s premium online selections.
Wayfair Inc. (NYSE:W)
Number of Hedge Fund Holders: 46
Wayfair Inc. (NYSE:W) is an international online retailer specializing in home goods and furniture, offering a vast selection of products through its e-commerce platform. The company operates a comprehensive online marketplace where customers can browse and purchase a wide variety of home products, including furniture, home decor, home improvement, and outdoor furniture.
The company primarily generates revenue through product sales, where it profits by purchasing products in bulk from suppliers and selling them at a markup. The company also generates revenue by offering services such as shipping and installation. Moreover, it offers advertising services to its suppliers for premium placement of their products on the company’s platform.
The holistic slowdown of the housing sector has created a challenging macro environment for Wayfair Inc. (NYSE:W). As a result of this tight market condition, the total revenue of the company fell by 2% year-over-year to $2.9 billion during the third quarter of fiscal 2024. While the United States revenue was down 2.3% year-over-year, the international revenue of $372 million remained constant.
Moreover, the slowdown in the market resulted in the total active customers of the company falling to $21.7 million, a decrease of 2.7% year-over-year. On the bright side, the Last Twelve Months’ revenue per active customer increased by 1.3% during the same time indicating that its existing customers were placing more orders and these orders were higher-value items.
The CEO, Niraj Shah, highlighted that in the third quarter, the company has remained resilient during tough conditions maintaining its customers. Shah also noted that the company has implemented strict cost discipline, which has allowed the company to achieve a mid-single-digit Adjusted EBITDA margin for two consecutive quarters.
You can read more about the housing market crisis and how it is affecting the furniture industry in 7 Best Furniture Stocks To Invest In According to Analysts. Wayfair Inc. (NYSE:W) ranks as the 9th best internet retail stock to buy now as it was held by 46 hedge funds in Q2 2024, as per Insider Monkey’s database.
White Brook Capital Partners stated the following regarding Wayfair Inc. (NYSE:W) in its Q3 2024 investor letter:
“During the quarter, White Brook Capital sold its position in PetIQ near the takeout price and reinvested proceeds in three new investments: Wayfair Inc. (NYSE:W), Okta, Inc (OKTA), and Krispy Kreme, Inc (DNUT). Wayfair adds to White Brook’s thesis in a housing recovery backed by a still healthy US consumer. There is a perceived risk in the event of a Trump election that Wayfair’s business model is endangered should Trump erect very high tariffs. White Brook believes that risk is overblown, that the business will thrive regardless of the extent of tariffs, and that the company is well positioned to generate significant free cash flow in the near and long term.”
Overall, W ranks 9th on our list of best internet retail stocks to buy now. While we acknowledge the potential of W to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for a promising AI stock that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.