Why e-commerce stocks Wayfair, Farfetch and Global-E Online were down today
E-commerce stocks were hit hard as the broad market resumed selling after a brief respite today.
Investors still looked spooked after Federal Reserve Chairman Jerome Powell essentially told Wall Street that the central bank would continue to raise interest rates until inflation was brought under control, even if that meant rising unemployment and a recession.
This morning, initial jobless claims came in below expectations, showing that the labor market remains strong. Just 193,000 Americans filed for unemployment for the first time last year, the lowest total since April. This data point is likely to encourage further interest rate hikes.
E-commerce stocks like Wayfair (W -8.74%), Farfetch (FTCH -7.25%)and Global-E online (GLBE -4.03%) were down today as the sector is exposed to rising rates in multiple ways. First, rising rates tend to penalize growth stocks because they make earnings in the far future less valuable as discount rates rise in financial models. They also make the risk of recession more likely, which would weigh on consumer spending. Finally, rising interest rates have also made the dollar stronger against international currencies, a challenge for global companies like Farfetch and Global-E Online, as international companies’ dollar-denominated earnings are worth less when the dollar is strong.
As of 12:49 p.m. ET, Wayfair was down 8.2%, Farfetch was down 7.6%, and Global-E Online stock was down 3.8%. At the same time, the Nasdaq had lost 3%.
Even before last week’s fall, these stocks were already struggling. All three have seen a sales boom during the pandemic as consumers flocked to online retail sites like Wayfair and Farfetch.
However, as the global economy has reopened, consumer spending has shifted to other channels like brick-and-mortar stores and services like travel and restaurants. As a result, the revenue growth of a number of e-commerce businesses fell sharply and even turned negative in some cases.
For example, Wayfair, an online furniture retailer, saw its revenue drop 14.9% in its most recent quarter to $3.3 billion. The stock is now down about 90% from its peak during the pandemic and nearing its nadir during the March 2020 stock market crash. After briefly becoming profitable during the pandemic, Wayfair is losing money again . He released an adjustment earnings before interest, taxes, depreciation and amortization (EBITDA) loss of $108 million and a net loss according to generally accepted accounting principles (GAAP) of $378 million in the quarter. Although year-over-year comparison will become easier, rising interest rates and an increased risk of recession will only make it harder for the company to return to growth.
Farfetch, an online luxury fashion company, was also a pandemic-era darling as it was one of the few clothing companies to experience strong growth during the period of social distancing. This speaks to the strength of the luxury sector and the attractiveness of Farfetch’s leadership position online. Farfetch not only sells clothing, but also helps fashion brands manage their own online businesses through Farfetch Platform Solutions.
In the second quarter, gross merchandise value increased only 1.3%, or 7.6% in constant currency, and the company recorded an adjusted EBITDA loss of $24.2 million. The company’s once-strong growth is over for now, and the strong dollar has hit it hard since most of its revenue comes from outside the United States.
Finally, Global-E Online saw its share price drop almost two-thirds from its peak last year as headwinds built up in the e-commerce sector. However, the company, which offers a platform for cross-border e-commerce sales, continued to show strong revenue growth with revenue up 52% to $87.3 million. It also posted adjusted EBITDA profit of $11.1 million, although it lost money on a GAAP basis. The company actually expects revenue growth to accelerate to 70% in the third quarter, but noted economic uncertainty in its earnings report. A stronger dollar could weigh on the company’s performance.
While Global-E Online has performed well in the current economic climate, e-commerce stocks in general have faced strong headwinds. No one knows how long the Fed expects to raise interest rates, but for now, US monetary policy seems to be the market’s primary concern. It will likely take an unexpected catalyst to change that.
Jeremy Bowman has no position in the stocks mentioned. The Motley Fool holds positions and recommends Farfetch Limited and Global-e Online Ltd. The Motley Fool recommends Wayfair. The Motley Fool has a disclosure policy.