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Chewy, Shopify downgraded at Wolfe Research on slowing spending trends

Popular e-commerce players Chewy (NYSE:CHWY) and Shopify (NYSE:SHOP) were both downgraded by Wolfe Research amid macroeconomic concerns.

In a note downgrading the entire e-commerce sector to Market Weight from Overweight, equity analyst Deepak Mathivanan told clients that stockpicking will be paramount moving forward. This is especially important as consumers are less likely to splurge into 2023.

“E-Commerce growth is likely to show high sensitivity to retail sales and consumer spending trends during the macroeconomic slowdown in 2023,” he explained. “Top-line growth for many companies in the space benefited from inflationary tailwinds in 2022, which should be a less significant factor in 2023.”

He added that consensus estimates remain elevated, likewise elevating downside risk names across the space. In Mathivanan’s view, Chewy (CHWY) and Shopify (SHOP) are prominent examples of stretched valuations in the space, necessitating a move from Buy to Hold-equivalent ratings on his part.

By contrast, he sees eBay (EBAY) as undervalued at the moment, while both Amazon (AMZN) and Mercadolibre (MELI) are expected to remain resilient despite macro concerns.

“AMZN is not immune to macro sensitivity, and we expect retail revenue growth to be pressured by a slowdown in consumer spending during FY23. However, the long-term competitive moats of AMZN in eCommerce are in-tact and are likely to grow stronger during the downturn,” Mathivanan said. “Meanwhile, MELI should benefit from healthy growth in various areas of the business despite macro uncertainties.”

Chewy (CHWY) is expected to post earnings after the bell on Thursday. Dig into the earnings expectations.