To The Moon

When $Amazon.com(AMZN)$ tumbled 14% after the Q1 earnings last week,  we believe investors worried about its growth and profit consistancy. Revaluation shall be on the way.

This week, some other e-commerce companies performed the same, by miss the estimates and lowering guidances. Investors could confirm  a change in e-commerce industry.

The online retail ETF $ProShares Online Retail ETF(ONLN)$ fell 7.9% in a single day yesterday, while its constituents showed a substantial retracement.

• Merchant online retail platform, from Canada$Shopify(SHOP)$It fell by 17.7%;
• The largest home e-commerce company in North America$Wayfair(W)$It fell by 16.7%;
• E-commerce platform started with handicraft products$Etsy(ETSY)$It fell by 13.7%;
• The largest second-hand platform trading website$eBay(EBAY)$It fell by 9.2%;
• The largest used car e-commerce website in North America$Carvana Co.(CVNA)$It fell by 14.8%;
• Fashion e-commerce platform including luxury goods$Farfetch Ltd(FTCH)$It fell by 9.4%;
• The largest pet e-commerce platform$Chewy, Inc.(CHWY)$It fell by 8.2%;

In addition, there is a decline $Global-E Online Ltd.(GLBE)$10.4%,$Poshmark, Inc.(POSH)$Down 12.1%,$Coupang, Inc.(CPNG)$Down 8.8%,$Blue Apron Holdings Inc.(APRN)$Down 7.5% and so on.

How did online retail stocks, once hot, become the target of public criticism overnight?

We believe that, Under the background of raising interest rates, investors' worries about stagflation are affecting the retail industry step by step. The e-commerce has gradually used up it's luck in the pandemic.

Therefore, the profit prospects of e-commerce enterprises are being questioned, and the valuations pushed up during the epidemic may have to be returned.

Taking Amazon as an example, Q1 revenue growth slowed down significantly, and the growth rate of three-party sellers fell to single digits for the first time, while The year-on-year growth rate of self-operated e-commerce retail is declining At the same time, the expected reduction also makes investors think that the e-commerce business may enter "negative growth" in 2022. As a result, Amazon's biggest source of cash flow may face the biggest headwind in history in the next few quarters.

Blue: Online stores; Red: Third-party seller

What impact does the "sudden" inflation that lasted for half a year have on e-commerce?

First of all, the rising energy cost increases the logistics cost. For example, from April 28th, Amazon will charge 5% fuel and inflation surcharge to American e-commerce companies using Fulfillment by Amazon ("FBA") in order to alleviate the problem of rising costs caused by rising oil prices and inflation. This is also the first time in history.

Second, the ex-factory price of industrial finished products has risen.It is not friendly to small and medium-sized businesses under the non-remote direct supply mode (M2C). They rely more and more on intensive platforms to reduce costs by scale effect, and some even withdraw from competition directly.

Third, the price rises too fast, not only decrease the consumption demand of sensitive consumers It will further accelerate consumers' demand for wage growth and push up the spiral of "wage-price". If wages reach a bottleneck of rising, demand will be reduced, resulting in an embarrassing stagflation situation in which only price increases do not increase demand.

In addition, e-commerce in different sub-sectors will also be affected by industry changes. For example, e-commerce companies in housing and household will be affected by rising loan interest rates, as people reduce the demand for housing replacement.

In terms of valuation, some companies that used to rely on high growth to obtain extremely high valuation multiples are also the companies with the strongest callback this year. At present, companies that exceed the industry benchmark Amazon's 2.88 times market sales ratio and 38 times P/E ratio still face the risk of continuing callback.

What's more, Amazon itself is also undergoing the test of profitability. Before share split, Amazon was mainly a game between large institutions, and pricing also depended on institutions and quantitative strategies. Individual investors should pay close attention to whether those funds that hold Amazon for a long time will reduce their holdings in the future (which may already be in progress).

Is it time for the e-commerce industry to quit?