How E-Commerce Companies Will Continue To Take Share Away From Wal-Mart

In a new report, Pacific Crest analyst Edward Yruma discussed the firm’s initiation on the e-commerce space. Yruma believes these high-flying stocks have plenty of room remaining to the upside.

Plenty Of Share Remaining

While e-commerce has made huge strides in recent years, Yruma pointed out it currently only represents about 7.4 percent of overall retail sales. Pacific Crest projects that this share could nearly triple to 20 percent in the next five years.

Customer Loyalty

In terms of which e-commerce names will gain the majority of the market share, that’s up for grabs; Yruma believes that customer loyalty will play a big role in the process. Pacific Crest views Amazon’s comprehensive ecosystem, including Prime membership, as one of the stickiest in the retail world. Liberty Interactive also performs well in this regard, logging an 89 percent retention rate among customers.

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Key Yardsticks

Since profitability among e-commerce names is harder to come by than the profits of traditional retailers, Yruma mentioned four key metrics to use in assessing the long-term potential of e-commerce names. Instead of profits, Pacific Crest looks at free cash flow (FCF), stickiness, addressable market size and competitive gap of e-commerce companies.

Stock Picks

According to Yruma, brick-and-mortar retailers like Wal-Mart Stores, Inc. WMT are now having to spend massive amounts of time and money to play catch-up with leading e-commerce retailers, and they will continue to lose market share along the way.

Pacific Crest has initiated coverage of Amazon and Liberty Interactive at Overweight and Blue Nile and Wayfair at Sector-Weight.

Disclosure: The author holds no position in the stocks mentioned.