As Christmas 2021 begins to loom, Americans may find themselves more dependent upon gift delivery-via-Santa than ever before — because America’s supply chain is in a terrible snarl.
Supply chain snafus that began on the West Coast with logjams of container ships struggling to reach port in Los Angeles and Long Beach, now span the continent. On Wednesday last week, The Wall Street Journal reported that the fourth-largest U.S. gateway for seaborne imports, the Port of Savannah in Georgia, now has “a backlog of more than 20 container ships” elbowing for access to the docks.
And would you believe that all of the above could be a problem for internet companies?
It’s true — at least for a certain specific flavor of internet company. As Oppenheimer analyst Jason Helfstein explained in a note out Monday, supply chain troubles could have an outsized impact on the success of multiple internet e-tailers this Christmas season, as they struggle to bring in merchandise to put on their virtual shelves.
In the midst of this mess, he sees Amazon (AMZN), Etsy (ETSY), and Farfetch (FTCH) as relative safe havens — but not ContextLogic (WISH).
“Per Freightos,” writes Helfstein, the “average container cost from China to West Coast [is up] +393%” year over year, “while days to deliver climbed +83% to ~73 days.” In other words, not only does it now cost a lot more to ship goods from Point A (i.e. China) to Point B (i.e. here), crimping profit margins across the internet retail sector. There’s also a rising possibility that orders not placed early enough might fail to arrive in time for Christmas at all, depriving the retailers trying to sell said goods of any revenue whatsoever when shipments get too long-delayed.
In Helfstein’s opinion, a dearth of mass-produced merchandise from abroad this holiday season could actually be good news for Etsy, which has 68% of its sellers based in the U.S. and 12% in the U.K. There, 98% of Etsy sellers work from home and — crucially — 95% of Etsy sellers source the raw materials for their products locally, no imports required.
This independence from global supply chains, reasons Helfstein, means Etsy “is well-positioned to capture share from traditional retail” as it struggles to get products to put on shelves, both physical and virtual.
Luxury goods e-tailer Farfetch could be insulated from the storm as well. While admittedly a big importer, “85% of the time,” says Helfstein, Farfetch products are “available from multiple sellers and shipped from multiple countries.” With multiple avenues from which goods may be arriving, therefore, supply chain risks are more spread out for Farfetch.
And Amazon.com? Amazon is “not entirely insulated” from global supply chain challenges, says Helfstein. That’s an understatement. It often seems 99% of products sold on Amazon come from China — although Helfstein informs that the actual number is closer to 75%). Still, the analyst believes that Amazon’s heavy investment in warehouses and Prime Air airport locations will help it find ways to get products to the shoppers who want them.
On balance therefore, Helfstein feels confident maintaining his Outperform (i.e. Buy) rating on Amazon, and his $4,200 price target. Similarly, he assigns Outperform ratings to both Etsy and Farfetch, with price targets of $225 a share and $45, respectively. (To watch Helfstein’s track record, click here)
In contrast, the analyst is downgrading mobile e-commerce company ContextLogic to underperform, with a $4 price target. ContextLogic “remains the most vulnerable” e-tailer, reasons Helfstein, because “China accounted for substantially all [of its] marketplace/logistics in FY20, exposing WISH to [the full brunt of the] 393% increase in shipping costs” noted by Freightos above. With the company’s advertising costs also on the rise, Oppenheimer forecasts a blue Christmas for ContextLogic. (See ContextLogic stock analysis)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
