The Amplify Online Retail ETF has fallen from its Covid-19 highs as inflationary pressures and falling consumer spending hurts the sector. Despite a challenging 2022, the fund has seen some signs of growth led by top holdings Wayfair and Shutterstock. Morgan Stanley believes that there are still growth opportunities within the sector.
- Falling consumer spending and the post-lockdown environment have forced the online retail sector down in the last year.
- The fund’s largest holdings performed well in the first few weeks of 2023.
- Morgan Stanley forecasts further growth in the online retail sector in the next few years.
The Amplify Online Retail ETF [IBUY] performed poorly last year, another victim of the post-pandemic tech drop-off. Despite a few strong weeks recently in which it gained 25.2%, the fund has declined 30.4% in the last 12 months.
According to research from Morgan Stanley, global ecommerce accounted for 21% of total retail sales in 2021, up from 15% in 2019. However, rising interest rates, inflationary pressure and falling consumer spending have all weighed down the sector in the last year.
As a result of these factors, Amplify Online Retail ETF underperformed in 2022, but there have been some signs of hope in the last month.
Since the beginning of 2023, the fund has risen over 25% on the back of a brightening macroeconomic environment and strong individual performances from Wayfair [W] and Shutterstock [SSTK], which are currently the fund’s two largest holdings.
Biggest holdings lift fund in 2023
The Amplify Online Retail ETF currently holds the stock of 58 different companies operating in the online retail market. As of 30 January, the fund’s largest holding, Wayfair, makes up 3.34% of the total fund value, while Shutterstock comes in second with 2.98%.
Both shares have performed well in the last month, with Wayfair up a substantial 74% since the beginning of the year, despite a 56.6% fall over the past 12 months. Shutterstock has risen 32% in 2023 but is down 21.5% in the past year.
Wayfair shares have been performing well in recent weeks after the company announced new cost-efficiency measures, including employee lay-offs amounting to 10% of its global workforce. On the back of this, JPMorgan upgraded the stock from ‘underweight’ to ‘overweight’, noting the company’s commitment to controlling costs could help the future performance of its shares.
Shutterstock, the stock photography giant, has rallied in markets in recent weeks. The group recently announced a partnership with OpenAI, an artificial intelligence lab that is currently taking the tech world by storm. The partnership will let Shutterstock customers create computer-generated images based on simple prompts.
Room for growth in online retail?
Despite ongoing challenges, analysts at Morgan Stanley still see the potential for growth within the sector.
The bank believes that the ecommerce market could increase from the $3.3trn the sector was valued at in mid-2022 to approximately $5.4trn in 2026, which would constitute a 64% increase. This growth would be driven by factors such as developments in logistics, rising mobile device ownership and marketplace expansion.
Improvements in fulfilment and payment technology stand to make the online retail experience better and to facilitate a further shift away from typical retail settings. Alongside this, growing internet use in emerging countries is creating new markets for the sector. With increasing internet connectivity, retailers can expect a rise in online shopping, particularly among younger generations.
Outlook for fund holdings
A brightening outlook for the online retail industry is positive news for the future performance of the Amplify Online Retail ETF. With the fund holding a diversified group of companies within its 58 holdings, it is well-positioned to capture growth in every corner of the online retail sector over the next few years. Nevertheless, the outlook isn’t entirely positive for the top holdings of the fund, according to analyst consensus.
Among 38 analysts providing ratings to Refinitiv regarding Wayfair, 20 rated the shares ‘hold’, seven ‘buy’, five ‘outperform’, five ‘underperform’ and one ‘sell’. Of 29 analysts providing 12-month price targets, the median came to $45.00, reflecting expectations that the share price could fall 29.4% from its most recent closing price of $63.74.
Only five analysts provided ratings for Shutterstock shares; three rated it ‘outperform’, while two rated it ‘hold’ and one rated it ‘buy’. Four analysts came to a median price target of $65.00, which would entail a 6.6% drop from its recent closing price of $69.60 over the next 12 months.