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About the Author:
David Gearhart, CFA
Vice President
David Gearhart is a vice president specializing in research and investment in software-as-a-service (SaaS) and the Internet of Things sector and has played a key role in establishing First Analysis’s Internet of Things franchise. He is a thought leader in his sectors, having authored several widely read white papers. He uses his industry knowledge and expansive network to uncover promising investment opportunities and help companies navigate their strategic paths and accelerate growth. Prior to joining First Analysis in 2011, he was an accountant with The Northern Trust Co. and an options broker with American Option Services. He earned a bachelor’s degree from Purdue University with a concentration in economics and finance and his MBA at DePaul University with a focus on finance and entrepreneurship. He is a CFA charterholder.
First Analysis E-commerce Optimization Team
Matthew Nicklin
Managing Director
David Gearhart
Vice President
Richard Conklin
Managing Director
First Analysis Quarterly Insights
E-commerce Optimization
E-commerce enablers and the pandemic tailwind
June 24, 2020
  • We examine how the COVID-19 pandemic is affecting the pace and magnitude of the shift toward online shopping and the resulting acceleration of investment in software-based services and tools that enable the online shopping ecosystem.
  • It has been well publicized that online shopping has been one of the greatest beneficiaries of the crisis, and while some of online’s spurt forward may reverse as the pandemic abates, we expect online to retain much of its gains.
  • With the imperative to sell online and the competitive bar for online selling rising, companies that enable these capabilities are seeing increased demand. We highlight a number of companies we believe are well positioned to benefit.

TABLE OF CONTENTS

Includes discussion of ECOM, AMZN, TGT, SHOP, WMT and 12 private companies

Online penetration, growth up

Volumes should remain elevated, although off peak levels

Pandemic underscores e-commerce's strategic importance and pulls forward investment

Multi-year tailwind for companies enabling e-commerce

Speeding the inevitable

E-commerce public markets thrive despite uncertainty

First-half large M&A deals include both strategic- and financial-buyer transactions

E-commerce technology enablers attract significant capital

Online penetration, growth up

The ongoing shift of retail product sales to online channels from physical locations is a well-known trend. Over the past decade, e-commerce has risen to 12% of total U.S. retail sales from around 4%, growing by more than 15% per year on average. The trend is fueled by online shopping's convenience, broader product selection, greater information and more competitive pricing as well as technological advances and improved service capabilities. Many traditional retailers have been driven into bankruptcy by the combination of this trend, poor operational and strategic execution and excess capacity of unproductive retail space, further boosting online penetration and growth. We expect e-commerce to continue to take share of total retail sales.

In its e-commerce update, the U.S. Census Bureau reported 14.8% first-quarter year-over-year online sales growth, an acceleration from the 14.0% growth seen in the 2019 first quarter, with e-commerce reaching 11.8% of total retail sales. Notable players, among them retailers and technology enablers, also reported strong results for the first quarter, typically a seasonally weak quarter, with e-commerce a catalyst for each.

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