Venture Bytes #19 - E Vs R Tailing

E vs R TailingAs the 3Q2015 earnings season slips into the history books we are seeing a distinct divergence of performance between e-tailers and brick and mortar retailers. There has been a clear and fairly dramatic pattern of earnings and revenue misses in brick. Clicks have shown real and sustained growth. This is shaping up to be pivotal and public equity performance tells this story in a dramatic fashion.Major misses and guidance reductions in the principally brick and mortar sphere include Wal- Mart, the world’s largest retailer, Macy’s, as well as luxury names like Nordstrom. Nordstrom (JWN) saw an increase in revenues but earnings missed consensus by over 20% and the shares slid by 15% on the news. Dillard’s (DDS) missed consensus on revenues and earnings, the stock settled down 12%. Dick’s Sporting Goods (DKS) missed on revenue and EPS sending the shares down sharply to multiyear lows. Wal-Mart beat Q3 EPS but had already guided lower for the quarter and the year and saw its shares pummelled in 3Q 2015. Investments in new stores, ecommerce and a facelift are cutting into previous forecasts. Macy’s had a difficult revenue quarter, missing consensus while beating on EPS.The difficulties and equity slides in brick and mortar were not experienced by ecommerce names, which turned in a fabulous quarter. Amazon (AMZN) beat on revenue and earnings. Revenue was up almost 25% over 2014 and $0.17 EPS was reported against consensus of $0.12 EPS loss. Amazon shares soared 10% on the announcement. EBay 3Q EPS beat by a wide margin and met earnings expectations. The report sent the shares up by over 8%. Etsy was a weak spot in the space, the EPS loss was in line with consensus but the revenue was a bit light and the shares sold off dramatically, off 7%.It appears that the rising demographic cohort of millennial and the convenience and comfort of on-line shopping are having real effects. In the US, and around the world, huge multi-line ecommerce players and smaller category killers are finding their targets among the swelling ranks of webizens. In many geographies folks are getting more, better and exceedingly enhanced access to goods and services for the first time. In other locations, it is cheaper, more convenient, or newer subscription and delivery options that are enticing consumer dollars.This larval stage pattern has caught our interest for a host of reasons. We see the prolonged period of low rates and extremely low commodity prices as extending the duration of strength for US consumers. We expect the interest rates to begin a slow and gradual upward reset. We also expect the physic value and sustainability of recent low commodity prices to end. Thusly, we expect a more pressured consumer, facing high debt carry costs and less spending flexibility.As we anticipate and try to factor future conditions, a rising predilection for ecommerce is starting to take shape as likely trend. Ad blockers are on the rise. Privacy concerns are likely to consistently re-emerge and create difficulties for some ad driven and freemium models. The potency and sustainability of ecommerce is crucial to supporting the Web 2.0 infrastructure. Additionally, our confidence is growing that as macro conditions cool, ecommerce will continue to perform well.

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