Online shopping's continued growth could lead to more acquisitions in the logistics space, analyst says in his e-commerce predictions for 2020

Reuters

• These are the four major transitions currently taking place in the broader e-commerce sector, according to Baird Equity Research's analyst Colin Sebastian.
• The four areas include growth in digital payments, expansion of third-party logistics, adoption of e-commerce technology, and surge in online marketplaces.
• As more companies build in-house logistics services, there could be potential acquisitions between shipping companies and e-commerce platforms, he says.
• Amazon is his top pick for 2020.
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Online shopping will keep gaining traction going forward into 2020, backed by tech companies driving changes across the broader retail industry, according to Baird Equity Research analyst Colin Sebastian.

In a note published earlier this week, Sebastian wrote that e-commerce will continue to be "everywhere" in the years ahead, as companies like Amazon, Shopify, and Square expand their offerings. The note mentions "e-commerce everywhere" as one of the six major transitions currently taking place in the technology sector, alongside faster networks and change in media consumption habits, among others.

Sebastian, who has Amazon as his top stock pick for 2020, also predicted that the continued growth in e-commerce could lead to potential acquisitions in the logistics space, as more companies launch in-house services for shipping and warehousing.

"We foresee an unusual bounty of 'next gen' technologies that have the potential to alter the scoreboard across the Internet and technology sectors," Sebastian wrote.

Within e-commerce specifically, Sebastian highlighted the following four on-going shifts as most important:

• Digital Payments as easy as text messaging: Apps like Venmo and Square have made it easy to pay others with a simple tap of the phone. Others, like Amazon and PayPal, have made online payments more simple and secure over the past decade. Sebastian believes there's still room for "significant innovation" in this space, although it won't pose as a major threat to existing card networks and financial institutions in the foreseeable future. One area he's interested in: the integration of payments and text messages, like Facebook Messenger processing online payments.
• Third-party logistics shifting to owned and operated fulfillment/logistics/transportation: The rise of e-commerce has been a boon to third-party logistics companies that help sellers store inventory or ship products between warehouses. Now, a growing number of large companies are launching their own logistics services to compete with them. For example, Amazon's own shipping service now handles almost half of its last-mile deliveries, while Shopify and eBay recently started their own fulfillment services. Sebastian believes this trend could eventually lead to "potential M&A among shipping companies and e-commerce platforms."
• E-commerce technology digitizes the rest of retail: Many legacy retailers have been slow to embrace the move to online shopping. That's opened up a lot of opportunities for new tech companies that help retailers make the transition to e-commerce faster and easier. Sebastian writes that this will continue to be a lucrative market for e-commerce tech providers, pointing to the mega-success of Shopify, a company that makes digital tools for merchants and brands to sell online. Shopify's stock more than tripled in the past year and the company is now worth $46 billion.
• Every platform is an online marketplace: Amazon and eBay were the early pioneers in the online marketplace sector, building platforms that facilitate transactions between third-party sellers and customers. Sebastian now sees other tech giants, like Google and Facebook, doubling down on their own marketplace offerings, while smaller players like Instagram and Pinterest also becoming popular shopping platforms. In a separate note last month, Sebastian predicted Google to capture at least 15% of non-Amazon US e-commerce volumes by 2025.

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