The score will take care of itself ~ Bill Walsh

11ish Investing

How to Invest in eCommerce

COVID has blew the world economy into a crazy k shaped growth pattern. If a business promotes remote interactivity or productivity, it probably has had some incredible, if not, insane quarters. Everybody else basically got F’d.

Regardless of whether a business suffered from covid or not, there’s a pretty high chance that retail investors pulled their money out to invest in explosive growth opportunities. 

 

Since COVID is still carrying on like nobody’s business, I still recommend that you invest in the same frame of mind. Choosing stocks that have the fastest opportunity to recover if COVID ends is still too dangerous unless you have insights on what’s up. 

 

Let’s talk about one of my favorite success-story sectors: eCommerce. I think it has such a big potential, I actually transitioned my day-job into it. In this video, we’re going to talk about why eCommerce is so great, what stocks I recommend, and what risks you should be aware of, in investing in the baby e.

 

 

Why is eCommerce so great? Because eCommerce lets you buy ANYTHING off of the internet. It’s grown crazy fast in the last decade, but why does online spending only represent 21% of all retail sales in 2020? There’s this idea in business that people will rarely switch their existing behaviors for incremental gains. People will also not switch even if the improvement is more than incremental gain if their current behaviors are not irritating enough. If you CAN get them to switch though, just like before it’d become very difficult for them to switch back if the new product or service is in fact better.

 

In my opinion, eCommerce essentially had this problem. If you’ve been going to Target and Walmart all your life, you’d either need some incredible incentives or you need an event that forces people into using eCommerce. 

 

In comes COVID; eCommerce has taken over and grown faster than anyone could have anticipated. eBay for example publicly announced that they grew so fast their GMV equates to the last 7 years combined; that’s freaking insane!

 

So how might you look at this as an investment opportunity?

 

I’d look at it in 3 buckets. Businesses that are ecommerce, businesses that empower ecommerce, and businesses that deal with physical logistics of eCommerce.

 

Brief Warning

You can find tons of companies within each buckets, so it’s pointless for me to list them, so I’ll just comment on what’s interesting to me. First and foremost, I’d be very careful with established businesses that already have huge PE ratios. It’s not that they don’t have the potential to continue to grow, it has to do with the fact that IF they miss growth expectations and investor sentiments change, that is a long way to fall. That being said, we’re playing at a ridiculously frothy market, so if you’re playing the 3 to 6 months game then it’s pretty much invest in with a wary eye or don’t invest at all.

 

With that context what is interesting to me? 

Jumia is a high-risk high reward company that I brushed off when one of the members from the 11ish collective introduced it to me late last year #woops. It’s a German company helping power eCommerce in Africa. Granted, I still think it’s a pretty high-risk space for a plethora of reasons, you can’t help but think momentum is building and there is huge growth opportunities here. There are only so many developing economies in the world and my 2 favorite is South East Asia and Africa. If Jumia follows the trajectory of Sea Limited, which is my favorite eCommerce business in Southeast Asia, then your investment will be in for a treat! That fact that Jumia’s getting into food delivery in Egypt makes it even more interesting to me, now that I have tasted the sweet sweet nectar of 1st tier convenience or laziness, however way you want to classify it

 

Sea Limited is probably still my favorite. Backed by a shit ton of money, raised a shit ton of money, and has a shrewd CEO that is completely focused on growth and market ownership. More than one 11ish member confirmed that SE limited is beating out Alibaba in South East Asia.

 

Lastly, the obvious choice is Amazon. AMZN is the MSFT of eCommerce. Its PE ratio is actually not that high and the company is now just too big to fail and its only real risk is IMO not an economic downturn but the government breaking amazon up for being too big. 

 

If you’re looking for safer but slower eCommerce growth opportunities, I’d look into US physical logistical opportunities.

I mentioned PLUG mid-last year and now it’s up way too high, but that is the right direction for you to look. Investing in clean energy companies that can revolutionize the delivery business. Granted this is Hydrogen fuel cells, but until somebody solves the problem of the speed at which batteries charge, delivery companies just can’t easily rely on battery power. If you think they’d solve this problem sooner than Hydrogen companies can build infrastructure, then I’d recommend you buy into battery producers like Panasonic, Samsung (pain in the butt to invest though), or just battery ETFs.

 

If you want to go SUPER adventurous, I’d look into hardware that enables self-driving technology. Right now my favorite is Velodyne. I will actually do a separate video on that one next because I like Velodyne for more than this reason.

 

I also like UPS over FedEx for reasons highlighted in my previous video, but Fedex’s PE ratio is now pretty tasty so don’t brush that off either. Right now UPS is better at generating profits than FedEx, but if Fedex can crack that nut, the stock will return handsomely in no time.

 

Side note:

If you bet on specific industries then you better be vigilant because they can blow up or deflate overnight. But if you bet on the platform, it doesn’t matter what fad comes next, the platform will always be around as long as they own, maintain, and crater to their critical mass

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