Ecommerce demand is surging, the challenge now is to be ‘more sophisticated around supply’

The post-COVID boom in e-commerce has already thrown up its fair share of ASX winners.

But looking ahead, tech expert Tim Knapton reckons there is still plenty of underdeveloped growth areas that will move to the forefront as the sector matures.

For example, as CEO of TechVoyage (an advisory firm connecting tech businesses with sophisticated investors), Knapton is working with two companies developing solutions to improve ecommerce fulfilment.

“If you look at ecommerce prior to COVID-19, it was probably growing at rates in the low 20s (per cent). But the pandemic has accelerated that — depending on segment or geography — as high as 400pc right now,” Knapton told Stockhead.

“So there’s a huge demand surge on one side. But I still think the industry can be much more sophisticated around supply.”

He highlighted that in terms of distribution channels, the market had recently crossed the tipping point where mobile commerce (m-commerce — transactions via phone) now took up the biggest slice of the ecommerce pie.

“Over half of all online sales are now transacted via phone. So that market for convenience, — whether it’s sophisticated apps, chat bots, VR and AR or more seamless payments — those are the layers of commerce and tech that are driving the whole thing forward,” Knapton said.

 

Easy payments

In that context, Stockhead also caught up with Domm Holland, the US-based CEO of one-click payments platform Fast.

Holland’s team launched the platform earlier this month, adopting a partnership approach after developing the product on the back of a $20m investment from payments giant Stripe.

In figuring out a go-to-market fit in the current paradigm, Holland said the Stripe partnership would be central in achieving scale as the company targeted the ‘market for convenience’ that Knapton referred to.

Holland drew some similarities between Fast and Australia’s much-hyped BNPL sector, in that both technologies were based around a simple user experience (on the consumer side) and generating increased transactional volume (on the vendor side).

But he added that BNPL competitors needed to take a step-by-step approach to new markets, to ensure they met regulatory frameworks in new jurisdictions.

“If you look at the global e-commerce industry it’s worth around $5-6 trillion annually,” Holland said. And building off Stripe’s platform effectively gives Fast access to “around 75-80 per cent of that, right now”.

“They’ve (Stripe) already built the framework and foundation that allows us to trade globally. While there’s a lot of regulation across different jurisdictions, they act as our partner to absorb that regulatory overhead,” he said.

Post-launch though, Fast will devote its resources towards gaining traction in the US market where Holland said it wasn’t just millenials who were embracing new tech solutions.

Anecdotally, Holland said one industry where the platform had surprisingly found traction was in farming supplies — “customers in regional farms who need a new pump, and the last thing they want to do is fill out a convoluted checkout process”.

“So that’s been interesting — the way we’ve seen rapid adoption of this product through middle America. It’s not necessarily younger consumers, but people who are using this to buy key materials for their business,” Holland said.

 

Valuation game

And as the ecommerce shift plays out, investors will be on the lookout for new tech solutions that address adjacent pain points to the online shopping process.

“I think that’s the difference between this tech cycle (and the dot-com boom),” Knapton said.

“Sure some valuations are getting stretched, but in the last tech boom 20 years ago there wasn’t a massive underlying shift in the economy that’s driving all segments of technology.”

“So I like ecommerce a lot because currently around 20 per cent of shopping globally is done online.

“But if you look feasibly at what could be done, it could be more like 80 per cent. So there’s still a long way to go.”

Knapton said that while ASX stocks such as Kogan (ASX:KGN), Temple & Webster (ASX:TPW) and Harris Technology (ASX:HT8) had enjoyed a strong run post-COVID, they were still comparatively low when valued on a multiple of revenues.

“If you look at the standard valuation for SaaS companies, the revenue multiples get much higher,” he said.

“Obviously BNPL is hot, stocks like Afterpay (ASX:APT) are on around 40 times revenue. But for ecommerce stocks, that multiple is still in the low single-digits.

“It’s not regarded as so sexy, and ecommerce is almost inferior in terms of how it’s valued. So in a sense all those stocks have all run hard, but not as hard as what their underlying growth prospects are.”

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