It seems nearly every company reporting earnings now references a strategy to deal with Amazon (AMZN) due to Amazon's command of e-commerce sales. Beyond the simple delivery of packages and hard goods, AMZN is moving into many other areas like grocery, air transportation, etc. I discussed this in a post a few months ago. In that post I highlighted the profitability of Amazon's cloud business (AWS) and the company using AWS profits to fund growth in other industries.
Yesterday, the U.S. Census Bureau reported quarterly retail e-commerce sales for the second quarter of 2017. Not a surprise to many now, e-commerce sales continue to grow at a high rate, i.e., up 16.2% on a year over year basis for Q2. Traditional brick and mortar sales were up a small 2.9% year over year. The other notable highlight from the Census Bureau report, e-commerce sales now account for 8.9% of total retail sales. This is nearly three times larger than ten years ago.
Finally, due to the success of e-commerce broadly, many of the related stocks have been pushed to valuation levels far above the market's valuation. As the below chart shows a quick price run up can just as quickly turn in to a price decline. Are these e-commerce equities setting up investors for disappointment?
Certainly, valuations can become more stretched and these stocks can move higher for an extended period of time; however, investors with outsized positions in this industry should evaluate their overall exposure relative to their entire investment portfolio.
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