Daniel Broeren
Daniel BroerenPortfolio Manager
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The Ecommerce Bear Case

2020 was a once-in-a-generation opportunity for pure-play ecommerce businesses, and there was a lot of money to be made by investors. However, as we move into 2021 is the ecommerce sector still an attractive investment on a risk/reward basis? While the bull-case for the sector is well understood by most, below we put forward the bear-case so investors can make up their minds.

 

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Valuations are high

The valuations of ecommerce businesses have taken a material step-up over the last 12-months as we all know. However, not only have share prices increased to factor in the higher revenues printed during lock-down periods (which are arguably unsustainable), they are also factoring in a continuation of above-trend revenue growth in coming years, as evidenced by the sales multiple in Figure 1 below. A new investor at today’s share price has to believe that this extraordinary growth is going to continue at a level well above that in the past.

The high number of IPOs and capital raisings in recent months potentially give an indication of what vendors of these assets think about current market valuations.

The valuations of ecommerce businesses have taken a material step-up over the last 12-months as we all know. However, not only have share prices increased to factor in the higher revenues printed during lock-down periods (which are arguably unsustainable), they are also factoring in a continuation of above-trend revenue growth in coming years, as evidenced by the sales multiple in Figure 1 below. A new investor at today’s share price has to believe that this extraordinary growth is going to continue at a level well above that in the past.

The high number of IPOs and capital raisings in recent months potentially give an indication of what vendors of these assets think about current market valuations.

The valuations of ecommerce businesses have taken a material step-up over the last 12-months as we all know. However, not only have share prices increased to factor in the higher revenues printed during lock-down periods (which are arguably unsustainable), they are also factoring in a continuation of above-trend revenue growth in coming years, as evidenced by the sales multiple in Figure 1 below. A new investor at today’s share price has to believe that this extraordinary growth is going to continue at a level well above that in the past.

The high number of IPOs and capital raisings in recent months potentially give an indication of what vendors of these assets think about current market valuations.

Valuations are high

The valuations of ecommerce businesses have taken a material step-up over the last 12-months as we all know. However, not only have share prices increased to factor in the higher revenues printed during lock-down periods (which are arguably unsustainable), they are also factoring in a continuation of above-trend revenue growth in coming years, as evidenced by the sales multiple in Figure 1 below. A new investor at today’s share price has to believe that this extraordinary growth is going to continue at a level well above that in the past.

The high number of IPOs and capital raisings in recent months potentially give an indication of what vendors of these assets think about current market valuations.

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