Online marketplace stocks look cheap as many search for alternate options
Yes, we know, they’re down bad. E-commerce has been one of the hardest-hit sectors of the year. Stocks that were up many multiples during COVID have lost over 50% of their value. But, we also like a good bargain at the flea market.
A marketplace for everything
Online marketplaces bring sellers and buyers together. Furniture (Wayfair), luxury goods (Farfetch), handcrafted items (Etsy)… name a category, and we’ll find you an online marketplace.
They’ve fallen out of favor among investors this year.
- Past: Historically, higher growth and the promise of disruption gave online marketplaces higher valuations than traditional retailers.
- Present: These disruptors have fallen so low that they’re trading at near or even cheaper levels than traditional retailers.
It’s expensive to build out these platforms. Internet marketplaces often have high marketing expenses to attract buyers and sellers.
Many are losing money — and the sight of profitability is getting further away. Raising fresh capital has become more difficult and expensive.
Running out of options…
Cash is a concern, losses are growing and sales are slowing. Depending on which company you look at, their run rate (how many months of cash remaining) can range from years to months.
In the current environment, it’s uncertain how far online marketplaces will go. Here’s how they’re ensuring their survival:
- Luxury furniture platform 1stDibs.com (NASDAQ:DIBS) is considering options to sell itself, buy another company or enter a partnership.
- Secondhand apparel platform Poshmark (NASDAQ:POSH) recently announced an acquisition by South Korean internet giant Naver (15% premium).
Still, the success of major marketplaces like Amazon, eBay and Etsy continues to attract investors.
Investors: Chasing the Amazonian dream
The OG marketplaces, eBay and Amazon, have survived several recessions and topped the S&P 500. But not all marketplaces are built the same. Other marketplaces shut down or were acquired.
Today, we’re seeing similar dynamics, and there may be more consolidation on the way. Let’s hone in on one online marketplace and take a look below.