Some of the hottest ASX shares right now are e-commerce businesses.
COVID-19 has been a really difficult period for many parts of the economy. However, businesses that service customers through e-commerce in some way have adapted and seen a rapid increase in demand.
Some businesses have simply cannibalised their own sales from bricks and mortar stores and replaced them with online sales. But online-only businesses have done very well and could keep growing if their recent updates are anything to go by.
Kogan.com Ltd (ASX: KGN)
Kogan.com aims to offer customer low-costing products across a wide range of areas.
Its platform sells a wide array of electronics like phones, computers, cameras and drones. It also sells various home items like appliances, furniture, games, shoes and clothing, sports equipment and so on.
I think one of the most compelling parts of the e-commerce ASX share is that it sells a variety of other services including Kogan Mobile, internet, energy, credit cards, insurance, cars, superannuation and home loans. The more customers it can attract, the more add-on services the business can provide, and the more valuable that customer is for Kogan.com.
Kogan.com has been doing very well. Gross sales in FY20 climbed 39.3% to $768.9 million and gross profit rose 39.6% to $126.5 million. Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) jumped 57.6% to $49.7 million and net profit after tax (NPAT) rose by 55.9% to $26.8 million.
July 2020 saw gross sales rise by 110%, gross profit went up 160% and Kogan.com made over $10 million of adjusted EBITDA in just one month. In August 2020, gross sales grew 117%, gross profit went up by 165% and adjusted EBITDA soared 466%.
Based on the rising number of customers, I think the e-commerce ASX share has very promising growth prospects. Over August, Kogan.com grew its active customers by 152,000 to 2.46 million.
At the current Kogan.com share price, it's trading at 37x FY23's estimated earnings. I also like that the company is growing its dividend for shareholders.
Temple & Webster Group Ltd (ASX: TPW)
Temple & Webster is an online-only retailer of furniture and homewares. It has grown at a very strong rate since COVID-19 started impacting Australia.
The e-commerce ASX share generated positive cashflow in FY20, with annual revenue jumping by 74% to $176.3 million and EBITDA rocketing 467% higher to $8.5 million.
It was the last FY20 quarter that particularly caught my attention – FY20 fourth quarter revenue went up by 130%. I believe that FY21 will be another strong year with financial year to date (to 27 August 2020) revenue growing by 161% and EBITDA of $6 million. Remember FY20's entire EBITDA was $8.5 million.
I believe there has been a permanent shift to online shopping for some consumers. It has brought forward the adoption of e-commerce and this can help businesses like Temple & Webster expand and invest faster than it would have.
The business is expanding very well and it could make bolt-on acquisitions as time goes on with some competitors struggling in the current environment.
At the current Temple & Webster share price it's trading at 58x FY23's estimated earnings. However, it was announced today that a director recently sold around $1.4 million of shares, so that's not exactly a positive sign.
Foolish takeaway
When looking out three to five years, I think these two could be two of the best performing ASX shares because of their e-commerce models. They're doing a great job at attracting new customers and winning market share.
At the current share prices I'd probably go for Kogan.com because of the nature of its network effects. It could convert some of its one-time customers into repeat customers who sign up for membership and use various other services. This would mean much more profit, at a higher margin, for Kogan.com.
I'm looking at other share opportunities as well as e-commerce businesses right now.
