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The Better-Than-Amazon E-Commerce Play

The Better-Than-Amazon E-Commerce Play

Read the headlines, and you probably think that Amazon.com Inc. (Nasdaq: AMZN) is about to take over the world.

After all, Amazon dominates the growing online retail market in the U.S. … it takes about 50% of all e-commerce retail sales here.

In the second quarter of this year, Amazon revealed that total sales jumped 40% to $89 billion.

The company’s quarterly profit of $5.2 billion doubled from the same quarter a year ago … and was the largest in the company’s 26-year history. Some categories, such as online grocery sales, leaped by triple digits!

And further gains are expected in the months ahead.

The result? Amazon’s stock is up 77% this year, which has put a $2 trillion valuation within striking distance.

But there’s something most people don’t know about the world of e-commerce … and it’s the reason why Amazon isn’t even close to the best opportunity to profit from the pandemic-accelerated boom.

An Extra $448 Billion

Amazon’s good fortunes have been driven in part by the pandemic. I mean, who hasn’t turned to delivery services while we stay at home?

And, as we continue to face disruptions due to COVID-19, this boost still has room to run. It’s now estimated that the pandemic will create $448 billion in additional global e-commerce revenue over the next two years.

That’s in addition to more than $2 trillion in annual sales already being generated as shown below:

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The boost to e-commerce is a catalyst I identified long before Amazon’s most recent earnings report. A few months ago I recommended an exchange-traded fund (ETF) to profit from it, ProShares Online Retail ETF (NYSE: ONLN), that’s now up 58% … more than three times the return of the S&P 500 Index.

But this story isn’t just about Jeff Bezos’ empire.

While the company is a clear beneficiary, it’s hardly the best positioned to capitalize on booming e-commerce sales.

Despite the press, Amazon is not the world’s largest online market place.

It doesn’t even rank second.

Amazon actually takes third place when ranked by retail value of its online market.

Profit From the Fastest-Growing Markets

Remember, the pandemic is a global disruptor.

The two largest online market places reside in emerging markets. And each one of them is more than 35% larger than Amazon.

That’s why if you’re focusing just on the U.S. e-commerce sector, you’re missing out on even bigger opportunities.

Plus, there are two key catalysts beyond the pandemic that will drive emerging market e-commerce higher:

No. 1: Total consumption in emerging market economies is set to explode higher.

Just 10 years ago, worldwide consumption totaled $38 trillion. And back then, emerging markets accounted for about 32% of the total according to a report by McKinsey & Company.

In the next five years, total global consumption will rise to $64 trillion, but emerging markets will account for nearly 47% of the total … or about $30 trillion!

No. 2: There are tech trends in place that will drive retail activity to online channels.

E-commerce in emerging markets will also benefit from several converging technology trends, including:

  • Smartphone penetration: Smartphones have emerged as a key platform for making online purchases. And in emerging markets, smartphone ownership is only at 45% compared to 76% for advanced economies.
  • Mobile payments: Greater use of digital payments helps drive e-commerce growth. And consumers in emerging markets are over 80% more likely to use digital payments than consumers in mature markets would.

For these reasons, tapping into emerging markets offers the best opportunities to profit from growth in e-commerce.

And you can grab direct exposure to emerging market e-commerce companies with the Emerging Markets Internet & E-Commerce ETF (NYSE: EMQQ).

Best regards,

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Clint Lee

Research Analyst, The Bauman Letter

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