Our latest Carlsquare report on the e-commerce sector delves deep into these dynamics, providing a comprehensive overview of the market’s current trends and valuations.
For busy readers in a nutshell:
Profitability and growth: a new paradigm
- Investors now prioritize profitability, favouring businesses with proven models and strong market positions. The valuation gap between high-growth companies and their slow-growth peers has turned on its head. Previously-unloved profitable companies are back in vogue.
- In the current high-interest-rate environment, growth companies are reversing years of overinvestment under cheap capital and reducing headcount. As they emerge from the near-universal 2022 supply chain crisis, businesses must achieve higher profitability sooner.
Rise of the e-commerce enablers
- Brands are nimbler than ever. Thanks to subscription tools that allow them to establish a scalable e-commerce proposition, companies can come to market quickly – and with a smaller upfront investment.
- Companies that offer online shopping infrastructure, fulfilment, lending, payments, insurance and post-purchase services have been greatly rewarded by investors, achieving solid valuations.
A “return to the historical growth curve”, but penetration continues to increase
- Showing resilience after the end of the Covid-induced spike, e-commerce as a % of total retail returned to its pre-Covid growth trajectory.
- Investors have become more cautious in the present high-interest-rate environment. Public market valuations have declined, especially for high-growth, low-profitability companies. Nevertheless, e-commerce companies with omnichannel distribution, strong underlying communities driving high repeat revenue and double-digit profitability remain very attractive.
European e-commerce companies are trailing behind their American peers
- In the last two years, European companies have consistently achieved higher growth but lower levels of profitability. However, since European company valuations have fallen more steeply over the past 18 months, American companies still enjoy higher valuations.
- American companies have a broader investor base with greater access to capital. The US e-commerce market is also larger and has a higher growth potential than the European. Hence the discrepancy in valuations.