We recently compiled a list of the 7 Best E-commerce Stocks to Buy According to Hedge Funds.In this article, we are going to take a look at where Sea Limited (NYSE:SE) stands against the other e-commerce stocks to buy according to hedge funds.
The Retail Debreif: Growing Consumer Confidence in the US
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.
Chinese E-commerce Platforms: A Threat or Opportunity?
Chinese e-commerce stocks have been on the rise, despite uncertain macro-economic conditions in the country. As the Chinese government attempts to stimulate the economy, these companies may perform better than expected, meaning other global e-commerce stocks will have to ramp up their investments in sustainable growth strategies. On October 21, Reuters reported that the world’s largest luxury brands in France and Italy reported a decline in quarterly sales as the growing second-hand and grey market for luxury goods in China continues to expand, and demand for luxury brands falls. The second-hand luxury goods market is estimated to be valued at $57 billion, fueled by platforms such as DeWu, where used luxury products are sold at discounted prices. Reuters estimates that DeWu reported a 19% increase across its 48 brands during Q2 2024. Since China makes up 25% of the revenues in the retail sector, consumers shifting to local platforms may cause a hit to global commerce and retail companies.
On October 9, Reuters reported that amid fierce market competition online shopping has been increasing in Europe and other parts of the world. The online shopping market in Europe is expected to reach EUR 958 billion in 2024, up from EUR 887 billion in 2023, representing an increase of 8%, or 5% in inflation-adjusted terms. However, e-commerce experts in Europe share concerns over the growing popularity of cheap e-commerce platforms, especially Temu, increasing competition for local brands. On the flip side, Temu states that it believes in supporting local brands and has invited local merchants in the United Kingdom, Germany, France, Italy, and Spain to join the platform.
The e-commerce industry is rapidly changing and growing, thanks to technology, macroeconomic conditions, and geopolitics. Despite the turmoil, some stocks continue to outperform others. That said, let’s take a look at the 7 best e-commerce stocks to buy according to hedge funds.
Our Methodology
To compile the list of the 7 best e-commerce stocks to buy according to hedge funds, we looked at holdings of e-commerce ETFs and screened for Internet Retail companies on the Finviz stock screener. We sorted our screen by market cap and looked at the 20 largest e-commerce companies. We picked stocks that were the most widely held by institutional investors, as of Q2 2024. The list is in ascending order of the number of hedge fund holders for each stock.
Why are we interested in the stocks that hedge funds pile into? 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).
Is Sea Limited (SE) the Best E-commerce Stock To Buy According to Hedge Funds?
Sea Limited (NYSE:SE) ranks sixth on our list of the best e-commerce stocks to buy according to hedge funds. The technology company operates across three segments including e-commerce, digital financial services, and digital entertainment. The Singaporean company launched its e-commerce platform, Shopee in 2015, which is now functional in 8 countries.
While Shopee had negative EBITDA in Q2 2024, its revenue grew by 34% to reach $2.8 billion. In addition to that, Sea Limited (NYSE:SE) expects Shopee to report positive EBITDA by Q3 2024, consequently revising its gross merchandise value (GMW) growth rate guidance to mid-20%. During the quarter, the company worked on improving its ad take rate by developing stronger ad algorithms. In the same quarter, sellers who pay for ads went up by 20%.
As far as product deliveries are concerned, Sea Limited (NYSE:SE) is making significant progress. SPX, also referred to as Shopee Xpress, is an integrated logistics service by Shopee that delivered over 70% of orders placed in Asia within 3 days in Q2 2024. During the same quarter, the company also launched a “no questions asked return” program. This policy pushed buyers to manage order returns as efficiently as possible, oftentimes within 24 hours.
Overall, in Q2 2024, Shopee saw a 40% increase in gross orders and a 29% increase in gross merchandise value. The company has a strong presence in its markets with solid fundamentals and consistent financials.
"Top contributors to performance for the quarter included Southeast Asian e-commerce leader Sea Limited (NYSE:SE). Sea rose due to an improved competitive environment in its Shopee e-commerce business that set the stage for commission increases, while a positive inflection in its gaming business surprised market participants."
Overall SE ranks 6th among the 7 best e-commerce stocks to buy according to hedge funds. While we acknowledge the potential of SE as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than SE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
