When it comes to investing for the long-term, you need to focus on buying and holding stocks that have the potential to increase revenue and earnings at a higher pace compared to the overall market. Technology stocks are a top bet for this very reason, but due to the disruptive nature of the industry, it is difficult to find stocks that can consistently generate market-beating returns.
While you may think of trillion-dollar giants such as Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), and Alphabet (GOOGL) among others, that have built massive wealth for long-term investors, tech investors have also experienced losses by holding companies including Nokia (NOK), BlackBerry (BB), GoPro (GPRO) and Fitbit.
Therefore it’s important to identify companies that are part of expanding addressable markets. The e-commerce space has come especially into focus in the past year as people had no option but to shop online because of the coronavirus pandemic. Multiple e-commerce companies including, Amazon and Shopify (SHOP), crushed the broader markets in 2020.
This shift in consumer behavior is likely to continue in a post-pandemic world, which means it makes perfect sense to take a look at companies that are well-poised to beat the S&P 500 and other indexes over the upcoming decade.
The bull case for Poshmark
Poshmark (POSH) went public on January 14, 2021, at a price of $42, but when shares opened for trading the stock reached $104.98. Since then the stock price has fallen to more reasonable prices and is currently trading at about $60.
The company owns and operates a social marketplace. This platform is used to buy and sell lifestyle products in the U.S. and Canada. POSH sells apparel, footwear, beauty, and home products as well as accessories and jewelry.
As POSH is a social marketplace the company encourages repeat purchases ensuring a high customer engagement rate. It ended the September quarter with 31.7 million active users, 6.2 million active buyers, and 4.5 million active sellers.
POSH claims active users spent 27 minutes on average each day on its platform in 2019 which resulted in 20.5 billion social interactions. While the company’s sales rose 38% year over year in 2019 to $205 million, its net loss widened by 236% to $49 million.
In the first three quarters of 2020, sales were up 28% at $193 million. Further, the company was also able to turn profitable and reported $21 million in net income.
The bull case for eBay
eBay (EBAY), which is a well-known name in the e-commerce space, reported its Q4 results earlier this month and ended 2020 with record numbers. The company’s sales volume was up 28% year over year which was higher than management forecasts that were provided last October. This meant the company’s gross merchandise volume for 2020 rose 17% year over year to over $100 billion.
eBay claimed more than 185 million shoppers made a purchase on its platform in 2020, and its active buyers were up 7% in Q4, up from the 5% growth in Q3.
Similar to most other online marketplaces, eBay has an asset-light model which means it is able to improve earnings at a higher pace than revenue. In Q4, the company’s operating margin rose by 220 basis points to 23.6% driven by lower expenses and additional fees eBay derived from ad services to sellers.
It also generated $2.65 billion in free cash flow which accounted for 26% of sales. In 2021, the company’s management said they want to focus on maintaining the market share eBay captured in 2020 and it will continue to invest heavily in developing a robust technology infrastructure.
It's quite clear both companies will benefit from the accelerated shift towards e-commerce buying over the next decade. However, because POSH recently IPO'd it will likely remain volatile this year, as most IPOs do. An earningsor revenue miss, or even disappointing guidance, could send the stock spiraling downwards.
Therefore, I favor EBAY in 2021. For investors with a lower risk appetite, like myself, EBAY presents a less volatile opportunity to generate outsized gains this year than POSH.
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POSH shares were trading at $59.37 per share on Friday morning, up $2.59 (+4.56%). Year-to-date, POSH has declined -41.51%, versus a 2.49% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.Poshmark vs. eBay: Which E-Commerce Stock Is a Better Buy? appeared first on StockNews.com