Internet stocks are enjoying a good run this year — they’ve “way outperformed” the S & P 500 over the last three months, according to Rosenblatt Securities senior analyst Barton Crockett. Morgan Stanley’s analysts, too, are bullish on the sector — but a more specific corner of internet stocks. “E-commerce growth is reaccelerating and back to gaining share of overall retail sales,” the bank’s analysts, led by Simeon Gutman, wrote in a note on March 19. The e-commerce market grew in 2020 as consumers shied away from brick-and-mortar stores and opted for contactless deliveries during pandemic lockdowns. A period of normalization then followed, according to Morgan Stanley , with the sector notching a streak of four consecutive quarters of declining penetration. Now, the bank said, e-commerce is growing again, taking a bigger share of overall retail sales in each of the past three quarters. “With e-commerce growth and penetration appearing to reaccelerate in 2H2022, this suggests a new baseline has been established off which e-commerce penetration increase will continue at a more normalized (and closer to pre-Covid) pace at around 100 basis point per year,” the bank said. It estimates e-commerce penetration will increase by about 400 basis points by 2026. Stock picks The recovery in e-commerce growth is an opportunity for incremental sales growth and gains in market share, according to Morgan Stanley. “As consumers continue to shift their wallets to e-commerce (over brick & mortar), retailers will need to tailor their offerings to hold and expand their overall market share,” the bank said. “In our view, large, scaled retailers with higher mixes of e-commerce, a proven ability to gain share, leading omni-channel platforms, and best-in-class distribution/fulfillment infrastructure are best equipped to take share as e-commerce penetration reaccelerates,” it added. A less obvious play is online luxury fashion retail platform Farfetch . Morgan Stanley said the company is a “share taker” in a key underpenetrated e-commerce category: global luxury. The bank expects e-commerce’s share of the global luxury market will grow to 32% in 2026 from 22% in 2021, which it said implies a $55 billion opportunity. On top of that, of all third-party e-commerce platforms in China — a key luxury market — Farfetch has the “strongest” partnership with brands, according to Morgan Stanley. “Farfetch’s unique marketplace model is well positioned to take share from wholesale competitors (both brick and mortar and pureplay e-commerce players) as it allows brands greater control over pricing and better access to customer data,” the bank said. “Together with its industry leading partnerships ( Alibaba , Richemont , Tencent , etc.), we see Farfetch as best positioned to capture the offline to online migration overtime, as China represents nearly all of the growth in the industry over the next 5 years,” it added. The bank has given the stock a price target of $20 — a whopping 300% upside to its last closing price of around $5 on Tuesday. Walmart also makes Morgan Stanley’s list. The bank said Walmart is “best positioned” to cash in on the e-commerce growth, citing the retailer’s “leading” scale, “best” omni-channel infrastructure, “best-in-class online grocery offering ” and improving profitability in e-commerce. Rounding off the picks is Nike . The analysts said Nike has been transforming its traditional wholesale business into a digitally native, direct-to-consumer brand since 2017. The transformation has paid dividends, with 20% of the company’s total sales in fiscal 2022 coming from its own digital channel. Nike expects the figure to rise to 40% over the longer term, according to Morgan Stanley, which implies e-commerce sales of $30 billion by 2027. “Higher e-commerce penetration would enable higher [earnings per share] growth than Nike has historically delivered and potentially means Nike merits a valuation premium to what it has historically garnered,” the bank said. — CNBC’s Michael Bloom contributed to this report.
