Some direct-to-consumer (DTC) brands have been under pressure from rising costs, supply chain disruptions, and increased competition. In the United States and globally, for that matter, interest rates are currently elevated. The effective federal funds rate is around 5.33%, and with inflation accelerating more than analysts predicted in January, the U.S. Federal Reserve does not seem to be in a rush to bring them back down. Inflation, while largely down from its high of 9.1% in the summer of 2022, is still hurting people’s pocketbooks. DTC brands depend on strong consumer confidence and spending.
Moreover, this current set of macroeconomic machinations, including worrisome developments at both the Panama and Suez canals, which could create even more supply chain disruptions, ultimately create an uncertain environment for DTC stocks. Competition in the sector, which has always been fierce, is also a risk for my DTC businesses. In this article, I will look at three such stocks that may not survive as the macroeconomic environment remains gloomy.
Direct-to-Consumer Brands: Etsy (ETSY)
Etsy (NASDAQ:ETSY) operates two-sided online marketplaces that connect buyers and sellers in the United States, the United Kingdom, Germany, Canada, Australia, France, and India. Its primary marketplace is Etsy.com that connects artisans and other entrepreneurs with consumers. Like many online businesses, Etsy received a significant “Covid bump” in 2020, when it saw top-line growth reach 111%. Moreover, in 2021, Etsy’s revenue increased by 35%, but since inflation has taken a toll, the company’s growth has dropped into the high single-digits.
In their fourth quarter earnings report, results were mixed. While Etsy eked out a revenue beat, its earnings came in under Wall Street’s estimates. Gross merchandise value (GMV), the measure of the value of goods moving through the platform in Q4, also decreased on a year-over-year (YOY) basis.
Etsy shares are down more than 40% over the past twelve months and could continue to go downward as environment for consumer demand remains at risk.
Carvana (CVNA)
Carvana (NYSE:CVNA) is an e-commerce platform for buying and selling used cars in the United States. The platform grew rapidly in the past decade, mainly benefitting from the secular shift to online car buying. Similarly, post-pandemic demand for used cars amid the semiconductor shortage affected new car production. As a result, Carvana’s revenue increased by 129% YOY to $12.8 billion, while its net loss narrowed by 21% to $135 million.
However, that spectacular era of growth seems to have been short-lived. The e-commerce platform not only operates in a highly competitive market in which traditional dealerships, online platforms, and peer-to-peer marketplaces compete, but Carvana also relies on supply chain and inventory financing to make its platform work. Carvana’s debt burden remains significant above $5.6 billion as of Sept. 30, 2023.
Carvana’s revenue had been declining throughout 2023, yet its stock price trounced the performance of most other stocks that year. The company is insanely overvalued now, and shares have declined since the start of 2024. With an inflated valuation coupled with slow growth in revenue and earnings, Carvana is perhaps on the cusp of a major devaluation.
Fisker (FSR)
Fisker (NYSE:FSR) is an electric vehicle (EV) startup that delivered its first model, the Fisker Ocean SUV, to the United States in June. The company has partnered with Magna International (NYSE:MGA), a leading automotive supplier, to manufacture the Ocean at Magna’s plant in Europe. Fisker also announced in 2021 that Foxconn would help it manufacture crossover vehicles.
Fisker has generated a lot of hype among investors as it aims to challenge Tesla (NASDAQ:TSLA) and other established automakers in the fast-growing EV market. The company claims that the Ocean will be the world’s most sustainable vehicle, with features such as a solar roof, recycled materials, and vegan leather. The company also boasts a low-cost and asset-light business model, as it leverages its partners’ expertise and capacity to produce its vehicles.
Fisker delivered 4200 vehicles in 2023, but that did not help its share price performance. Last year, the EV maker’s share price dove 75%. 2024 isn’t off to a good start either. Due to the EV market slowdown, it’s hard to see how a start-up like Fisker will be able to succeed in this already competitive market.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
