E-commerce companies are currently witnessing declining traffic and sales as people return to shopping at brick & mortar stores with the reopening of the economy. While Cars.com (CARS) and iMedia Brands (IMBI) possess impressive growth potential given their innovative products and services and substantial market reach, conversely, Rakuten (RKUNY) and Farfetch (FTCH) might suffer declines in the near term due to their weak fundamentals. 

The e-commerce industry emerged as the backbone of the retail industry last year, generating $4.28 trillion in sales, representing a 27.6% year-over-year rise in 2020. These companies are investing heavily in tech solutions to analyze trends in consumer behavior and improving product filtering options and review sections to provide a personalized shopping experience to their users.

Rising investor optimism in the e-commerce industry is evidenced by the Global X E-commerce ETF’s (EBIZ) 49.8% returns versus the SPDR S&P 500 Trust ETF’s (SPY) 34.1% gains over the past year.

However, with rising brick-and-mortar sales with the reopening of the economy, e-commerce companies have been seeing lower traffic and orders. Therefore, we believe popular e-commerce stocks Cars.com Inc.  and iMedia Brands, Inc. are well-positioned to gain in the coming months owing to their strong fundamentals and loyal customer base. However, due to declining financials and weak market reach, we think shares of Rakuten Group, Inc. and Farfetch Limited could continue witnessing corrections in the near term.

CARS is a leading digital automotive marketplace that helps car shoppers and owners buy, sell and service their vehicles. The company also offers online subscription advertising products, credible user and automotive and dealer reviews, sale of display advertising, and other digital solutions.

On May 4, 2021, CARS reached a milestone of 10 million reviews from car buyers on its platform, powered by its DealerRater technology. The company hopes to become the broadest and largest automotive review platform because  more customers are reading these reviews before purchasing vehicles. In an announcement on April 29,  Dealer Inspire, a CARS company that provides disruptive technology and digital advertising solutions to the automotive industry, said it had  been selected by FordDirect, a Ford Motor Company (F) digital marketing and advertising platform, as a preferred website and technology platform provider for its 3,000 local U.S. dealerships. As the car shopping and buying process becomes more active digitally, with Dealer Inspire’s platform, FordDirect hopes to bring more efficiency in their marketing, operations and sales process, thus, delivering a better  customer experience.

CARS’ total revenue increased 3.5% year-over-year to $153.30 million for its fiscal year 2021 first quarter, ended March 31. CARS’ operating income was  $16.55 million, compared to a $905.06 million operating loss in the prior-year period. Its net income is reported at $5.28 million for the quarter, compared to a $787.43 million net loss in the year-ago period. CARS’ EPS was  $0.08, compared to a $11.76 loss per share in the prior-year period.

A $0.41 consensus EPS estimate for the current quarter, ending June 30, 2021, represents a 240.2% improvement year-over-year. The $153.11 million consensus revenue estimate for the current quarter represents a 50.1% gain from the prior-year period. Analysts expect the stock’s EPS to grow at a 15% rate per annum over the next five years. The stock has gained 102.6% over the past year and closed yesterday’s trading session at $14.59.

CARS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with the weighting of each optimized to improve overall performance.

The stock has a B grade for Value, Growth and Sentiment. Click here to see the additional ratings for CARS (Quality, Stability and Momentum).

CARS is ranked #8 of 71 stocks in the Internet industry.

iMedia Brands, Inc. 

IMBI is a multiplatform interactive video and digital commerce company that offers a mix of brands directly to consumers through  engaging and informative shopping experiences through television, online and mobile devices. The company’s products include jewelry and watches, home and consumer electronics, beauty, and fashion and accessories.

On April 29,  IMBI launched 34 new brands on its national television networks ShopHQ, ShopBulldogTV and ShopHQHealth during the first quarter of 2021. The company hopes to improve the customer experience and expects to generate significant revenues from the sale of these brands’ collections.

In March, IMBI signed a licensing partnership with ReStore Capital, a Hilco Global company,  in which  IMBI will operate and grow the Christopher & Banks business throughout all sales channels, including digital, television, catalog, and brick and mortar retail. In addition, IMBI will  carry  Christopher & Banks television program on its ShopHQ network every week to promote the brand’s website, two retail stores and its soon to be launched Christopher & Banks Stylists online interactive video platform. For its fiscal year 2021 first quarter, ended May 1, IMBI’s total revenues increased 18.2% year-over-year to $113.20 million. The company’s revenue from the ShopHQ segment increased 6.9% year-over-year to $100.30 million. Its gross profit increased 29.4% year-over-year to $46.01 million. IMBI’s adjusted EBITDA is reported at $8.14 million for the quarter, compared to a $1.65 million loss in the prior-year period.

A $490.81 million consensus revenue estimate for its  current fiscal year, ending January 2022, represents an 8.1% gain from the prior-year period. It surpassed the Street’s EPS estimates in each of the trailing quarters. Analysts expect the stock’s EPS to grow at a 30% rate per annum over the next five years. The stock has gained 170.8% over the past year and closed yesterday’s trading session at $10.21.

IMBI’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system.

The stock has an A grade for Sentiment, and a B grade for Momentum. Click here to see the additional ratings for IMBI (Growth, Value, Stability and Quality).

IMBI is ranked #9 in the Internet industry. 

Stocks to Avoid:

Rakuten Group, Inc.

RKUNY is a Japan-based company that provides consumer and business focused services that include internet services, e-commerce and retail, internet finance and life insurance services, digital content, communication and messaging services. The company also invests in seed-stage technology start-ups.

On April 28,  RKUNY and Japan Post Co., Ltd., a Japan Post Holdings Co., Ltd. company engaged in postal, logistics, banking and life insurance business,  formed a joint venture under the name JP Rakuten Logistics, LLC. as a wholly owned subsidiary of RKUNY. The heightened demand for unattended redelivery and labor shortages in the domestic e-commerce market of the Japanese logistics industry is expected to allow this joint venture to provide a healthy and sustainable logistics environment.

For its fiscal 2021 first quarter, ended March 31, RKUNY’s non-GAAP operating loss increased 74.2% year-over-year to ¥31.59 billion ($286.44 million). This was attributed to ongoing prior investments in the mobile segment. The company’s net loss came in at ¥25.14 billion ($228.02 million), which represents a 28.8% year-over-year decline. Its loss per share decreased 29.4% year-over-year to ¥18.37.

The stock has lost 9.8% over the past month and closed yesterday’s trading session at $11.42, 23.2% lower than its 52-week high.

RKUNY’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, which equates to Sell in our proprietary rating system.

The stock has an F grade for Growth, and a D grade for Quality. Click here to see the additional ratings for RKUNY (Value, Sentiment, Stability and Momentum).

RKUNY is ranked #32 of 44 stocks in the D-rated Internet – Services industry.

Farfetch Limited

Headquartered in London, FTCH operates an e-commerce website for the global fashion industry, connecting brands, retailers and consumers. The company also offers supply chain capabilities to its platform partners–from content creation to its global fulfillment network– which integrates delivery partners from around the world in a single interface.

In  February, FTCH partnered with Aurora Mobile Limited (JG), a leading mobile developer service provider in China, to enhance FTCH’s smart operation capabilities. Through the partnership, JG will leverage its AI-driven technology and intelligent operational analytics to help FTCH personalize smart retail experiences and provide more efficient and targeted services to their customers.

During its fiscal year 2021 first quarter, ended March 31, FTCH’s operating loss increased 9.9% year-over-year to $118.43 million. Its adjusted EBITDA came in with a $19.20 million  loss which  represents a 14% year-over-year decline. Its adjusted loss per share decreased 9.1% year-over-year to $0.22.

Analysts expect FTCH’s EPS to remain negative in 2021 and 2022. The stock’s EPS is expected to fall at a 57.1% rate over the next five years. FTCH lost 17.8% over the past three months to close yesterday’s trading session at $47.58.

FTCH’s poor prospects are also apparent in its POWR Ratings. The stock has an overall D rating, which equates to Sell in our proprietary rating system.

The stock has an F grade for Value, and a D grade for Stability. We have also graded FTCH for Growth, Sentiment, Momentum and Quality. Click here to access all FTCH’s ratings.

FTCH is ranked #61 of 71 stocks in the F-rated Internet industry.

RKUNY shares were unchanged in after-hours trading Friday. Year-to-date, RKUNY has gained 18.41%, versus a 13.40% rise in the benchmark S&P 500 index during the same period.