Market Monitor: Christian Magoon

Date: 5/25/2018

Topic: Market Monitor – Christian Magoon

Theme: Investing in Online Retail Stocks

– Online retail stocks continue to outperform brick & mortar stocks and broad based markets like S&P 500 & NASDAQ 100. A variety of data points suggest this market segment could see continued outperformance.

YTD Performance:  Online Retail ETF (IBUY) (UP 14%), SPDR Retail ETF (XRT) (UP 3%), S&P 500 ETF (SPY) (UP 2%), NASDAQ 100 (QQQ) (UP 9%)

One Year: Same ETF Peer Group Performance

– At 9.5% marketshare of all US retail sales, the trend of online retail marketshare growth is still in the early innings as we believe 20% is a 5 year target marketshare
Source: US Commerce Dept Quarterly Retail Sales Report 1st Qtr (May 17, 2018)

– Tailwinds for online retail stocks include significant store closures for brick & mortars, introduction on 5G which will increase AI, VR and AR online retail shopping applications which should increase convenience, increased smart device usage, more convenient delivery options including in house and in trunk delivery

– Mergers, acquisitions and deals are likely to continue to propel online retail stocks higher: see Shutterfly, Ocado, Grubhub as recent examples

– We believe the best approach to investing in the space is to own a basket of online retail stocks that is diversified across business line, country exposure and management teams.

– More than just Amazon, last year Amazon was only the 15th best performing online retail stock in the Amplify Online Retail ETF (IBUY)

– While Amazon and Alibaba are best in class broad based online retailers, there are many specialized online retailers to consider.

Three online retail stocks to consider that have a unique business focus:

ETSY (ETSY) 
– Unique footprint as a platform for hand crafted and vintage items plays to the growing “experience” trend in retail
– Revenue at ETSY grew 24.8% year over year in Q1 2018
– Operating expenses though only grew 2.3% given ETSY increased profitability
– Potential as an acquisition target by brick & mortar or large online retailer

GRUBHUB (GRUB) 
– Online and mobile food ordering and delivery platform capitalizing on more convenient food
– Revenue climbed 49% year over year in Q1 2018
– Exclusive deal with Yum Brands: KFC, Taco Bell and Pizza Hut
– Company expanding in new markets: 100 in 2018 planned
– Becoming the Amazon of this space and a prime merger, acquisition or deal target

Carvana (CVNA) 
– Online platform to buy, inspect and finance pre owned vehicles
– Revenue at Carvana up 127% year over year
– Strong sales growth year over year: 18,484 vehicles sold in Q1, up 122% year over year
– Expanded to 57 markets and building a national platform for pre owned vehicles
– Potential acquisition target by a large brick or online retailer

Disclosure: Amazon, Alibaba, ETSY, Grubhub and Carvana are all owned by Amplify in the Online Retail ETF (IBUY). No personal / family ownership or investment banking relationships in the individual stocks.

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