It isn't by coincidence that Alibaba was one of the biggest public offerings of all time. Not only does the Chinese e-commerce company operate in the world's largest online retail market (China), but also on a sales basis it is bigger than both Amazon and eBay combined today. This is in no small way related to the astounding growth in e-commerce in recent years.
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Even the U.S. is experiencing a boom in online retail sales. In fact, online sales in the U.S. will top $414 billion by 2018 for a compound annual growth rate of 9.5%, according to research firm Forrester. This creates a significant opportunity for well-positioned e-commerce companies. Below, I explain why investors should keep an eye on some of the smaller Internet retailers including Zulily , MercadoLibre and Blue Nile .
Inside Zulily's budding growth story
Zulily probably isn't at the top of your list for stocks to buy, particularly considering shares of the fast-growing e-commerce company have plummeted more than 45% so far this year. However, the company's unique business model of catering to moms through daily flash sales could pay off for patient investors down the road. Zulily grew its net sales as much as 72% to $1.2 billion in fiscal 2014. The company is also growing its customer base and orders these days.
By the end of the fourth-quarter, for example, Zulily counted 4.9 million active customers, an increase of 54% year-over-year. While this is a drop in the bucket compared to the tens of millions of Amazon Prime subscribers today, it is progress nonetheless. Additionally, Zulily's total orders increased 42% year-over-year to 6.8 million during the fourth-quarter, while average order value climbed 3% in the period. This tells investors that more people are shopping Zulily's flash sales today and they are spending more on average than ever before -- both good signs for the company going forward.
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"Our goal is to build Zulily into one of the most innovative and profitable consumer retail Internet businesses of our time," said Darrell Cavens the company's CEO. Ultimately, investors will want to keep an eye on Zulily as it is still in the early stages of its growth story and could offer significant upside from here for long-term investors.
Zulily market cap: $1.5 billion.
Latin America's Internet retail giant has staying power
MercadoLibre is a longtime favorite of the Motley Fool. In fact, it has returned a whopping 800% since Fool founder David Gardner first recommended it in 2009. The stock finished the year up more than 30% and is currently trading around 33 times next year's earnings at $125 per share today. However, if you're worried that you missed the rally ... don't be. The Argentina-based e-commerce company still has a long runway of growth ahead of it. Often regarded as the "eBay of Latin America," MercadoLibre connects buyers and sellers through its online platform. Yet, the company has evolved from merely an auction site into a fully integrated online business including payment, shipment, and fulfillment services.
MercadoLibre's registered users increased more than 21% year-over-year topping 120 million at the end of the fourth-quarter of fiscal 2014. The company sold over 101 million items last year, up 22% over fiscal 2013. This translated into gross merchandise volume of $7.1 billion. Looking ahead, investors should watch MercadoLibre's payments business, MercadoPago, as it promises to be a major cash generator for the company in the years ahead. Moreover, transactions processed through MercadoPago recently accelerated for the fifth straight quarter, climbing more than 58% to $14.2 million in the fourth-quarter.
All told, MercadoLibre is firing on all cylinders these days and investors should expect this to continue as more consumers gain access to the Internet throughout Latin America in the future.
MercadoLibre market cap: $5.6 billion.
All that glitters online
Source: Blue Nile
Blue Nile is another Internet retail stock to watch today. The online jeweler has struggled lately with weak earnings, though management is optimistic that it can reinvigorate the business going forward. Shares are down nearly 17% year-to-date, with the stock now trading around $29 a pop or in the middle of its 52-week range. Looking ahead, investors will want to keep an eye on Blue Nile's mobile initiatives as the company is expanding beyond online retail and into the burgeoning mobile commerce space.
Blue Nile generates about 20% of its sales through smartphones today, but hopes to grow this figure in the quarters ahead. The e-tailer recently updated its iPhone app to include augmented reality, which will make it easier for customers to visualize the jewelry they are considering buying, according to Internet Retailer.
The company reported shaky results for its fiscal fourth-quarter, though it did grow at a faster clip than other jewelry retailers during the period. Blue Nile generated sales of $473.5 million in fiscal 2014, up 5.2% from a year earlier. Meanwhile Blue Nile's engagement ring business continues to see gains, increasing 8% year-over-year to roughly $85 million during the fourth-quarter. International sales also ticked up, climbing more than 10% to $23.6 million in Q4.
Convincing consumers to buy big-ticket items such as a diamond ring online is no easy task. However, these results, while modest, demonstrate that Blue Nile's business plan works. Therefore, Blue Nile could be an interesting Internet retailer to watch in the quarters ahead as it grows its international business and generates more sales through its mobile platform.
Blue Nile market cap: $355 million.
The article Internet Retail's 3 Up and Coming Stocks to Watch originally appeared on Fool.com.
Tamara Rutter owns shares of Amazon.com. The Motley Fool recommends Amazon.com, Blue Nile, and MercadoLibre. The Motley Fool owns shares of Amazon.com and MercadoLibre. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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