Today is Cyber Monday, which means that, in terms of e-commerce stocks, tomorrow will be Overreaction Tuesday. If the past is our guide, tomorrow will bring a rash of articles analyzing the reported total online sales today and what they mean for Amazon (AMZN), Shopify (SHOP), and the like. In reality, though, what happens today will have little or no bearing on the value of and e-commerce stocks, and those two in particular. Whatever the numbers, both are buys for long-term investors.
The prices of AMZN and SHOP are not based on today’s sales but what they are expected to do over the next ten years. They are true growth stocks, whose value is predicated on assumptions about what the future holds, not on past performance. So, while Cyber Monday numbers are useful indicators of trends over time, any reaction in stocks based on one day’s data is an overreaction, almost by definition.
The numbers bear that out, too. The expected total for online sales for today is just over $11 billion. That is a lot of money but when you consider that Amazon has produced over $500 billion in revenue over the last year, even a big percentage difference between the expected and actual sales on Cyber Monday will be just a drop in the ocean.
It will make more of a difference in percentage terms to Shopify, which has a trailing twelve-month revenue of just over $5 billion, but the most important number for SHOP is not revenue, per se, it is revenue growth. As expectations have fallen and pessimism about that growth potential has set in this year, both SHOP and AMZN have dropped dramatically. One day’s sales won’t change that, no matter how good or bad they may be.
That is why, as strange as it may seem given that I own AMZN and am looking to buy both it and SHOP in the near future, I am rooting for a “bad” Cyber Monday sales total. If that is what we see, it is likely that both stocks will drop again, even though I said above, it means nothing in terms of multi-year potential. I am holding off on making those trades in the hope of picking up the stocks cheaply should that be the case. However, if it is not, I will still be a buyer of both, because the really influential number is already out, and it is a doozy: Black Friday online sales this year were over $9 billion.
That is a new record which, without Covid lockdowns or anything else forcing people towards online versus in-person shopping, is telling. It means that there is a likely permanent hangover from the forced shift to online activity that we saw in 2020. The higher percentage of total sales coming from online purchases that we saw then no longer looks like a one-off, but rather a long-term trend. However, stocks like AMZN and SHOP, which soared as that dynamic became evident in 2020 and 2021, have given back all that ground and then some.
In other words, we are beginning to see some hard evidence of a permanent and still rapid shift to e-commerce by U.S. consumers just as the prevailing negative sentiment towards e-commerce stocks has led to them being priced as if that shift were a thing of the past. That creates an opportunity for long-term investors in stocks like AMAN and SHOP, regardless of what the Cyber Monday sales numbers show.
In addition to contributing here, Martin Tillier works as Head of Research at the crypto platform SmartFI.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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