Shopify and Chewy cut at Wolfe on consumer weakness

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By Senad Karaahmetovic

Shares of Shopify (NYSE:SHOP) and Chewy (NYSE:CHWY) are trading lower Wednesday after Wolfe Research analysts lowered ratings to reflect ongoing consumer weakness.

The analysts are taking a more cautious approach on the eCommerce sector, which they downgraded to Market Weight from Market Overweight. Moreover, the recent relief rally in some eCommerce stocks, including Shopify and Chewy, pushed them towards stepping to the sidelines.

“Our downgrade thesis for eCommerce is predicated on three factors: 1) given the high penetration (>20% in many western markets), eCommerce growth is likely to show high sensitivity to retail sales and consumer spending trends during the macroeconomic slowdown in 2023, 2) top-line growth for many companies in the space benefited from inflationary tailwinds in 2022, which should be a less significant factor in 2023, and 3) consensus estimates are still elevated in many cases, calling for acceleration vs. 2022,” the analysts explained in a note.

Despite taking a more cautious view on eCommerce, the analysts see opportunities in 2023 as long as investors take a selective approach. They reiterated Outperform ratings on Amazon (NASDAQ:AMZN) and MercadoLibre (NASDAQ:MELI) as these two offer “company specific themes and healthy fundamentals into 2023 with attractive valuations.”

The analysts also reiterated an Outperform rating on eBay (NASDAQ:EBAY) as shares trade at a “highly discounted valuation at these levels.”