Sam Boughedda

Morgan Stanley analyst Lauren Schenk suggested that Farfetch and Chewy may have reached bottom in a note on e-commerce.

Schenk stated that although some e-commerce names may appear to be de-risked in terms of valuation and estimates, it is still too soon for most. However, Schenk identified some “eComm stocks that may have bottomed/looked more appealing (FTCH, CHWY).

Analyst said that there have been increasing signs of micro and 2H macro slowdowns over the past months. We have lowered our macro eCommerce growth forecast for the 22/23 fiscal year to 8%/10%. However, consumer spending weakness has been concentrated in discretionary low-to-middle income purchases thus far – apparel, home goods, home furnishings, electronics, etc. Where retailers have ordered too much inventory, demand is slower.”

The market penalizes many of these companies, which were all COVID beneficiaries, for similar attributes: slower growth, difficult comps, share give back/reversion, and tough comps. These factors, combined with rising inflation and higher interest rates, make forecasting ‘22/’23 a difficult exercise,” added Schenk.

Morgan Stanley calculates that SMID eCommerce player’s 4-year CAGRs will decrease by an average of 600bps over 2H22 vs 1H22. However, this assumes second-half acceleration in some names like Chewy, Wayfair, and Peloton.

“In eCommerce we love FTCH because of its lower inventory risk and reset numbers. It also has accelerated ’23 GMS Growth which tends be more resilient in a recession. We like CHWY for long-term horizon investors who have longer-term horizons due to recent performance vs. the fundamentals, consumeables exposure and strong cohort economics.