As the eCommerce earnings season approaches, Bernstein has identified Amazon (NASDAQ:AMZN) as its top pick, citing the company's operational income (OI) inflection. Analysts emphasize the need for growth in the eCommerce sector, noting that while Amazon shows promise, other companies struggle to gain momentum.
"We've been here before," says Bernstein, reflecting on the familiar mixed data landscape for eCommerce. They note that US eCommerce grew approximately 7% year-over-year in Q2, with non-store sales slowing down from 12% in April to 5% in June.
Bernstein highlights Amazon's potential for incremental margin expansion, driven by cost cuts and typical operating leverage. However, they caution about recent concerns over freight costs and lower-margin sales during Prime Day potentially impacting margins.
Despite these worries, Bernstein remains optimistic about Amazon's performance, mentioning that "we should see advertising accelerate into 2H as Prime Video ads scale." They see Amazon's retail segment as the most defensive, with a focus on retail margins.
Bernstein also comments on other eCommerce players, noting eBay appears better positioned among SMID-Caps due to its starting point and buyback lever, although it faces a higher bar. "While EBAY won't be immune to macro dynamics, the focus category effort and value/trade-down dynamic should leave it relatively better off," they explain.
Conversely, Etsy faces challenges with weak web and app traffic, leading Bernstein to lower their growth forecast for the quarter. "Recent product changes are good but likely won't impact GMS overnight, and we
want to see more initiatives geared towards order frequency and cross-sell," Bernstein writes.
Meanwhile, Bernstein says Wayfair comfortably outperformed web traffic last time, but the continued reliance on promos suggests "demand is still weak and/or the market is increasingly competitive."
Overall, Bernstein's analysis suggests cautious optimism for Amazon, with a belief in the company's potential to drive growth in the latter half of the year despite the broader sector's challenges.