E-commerce – are investors buying in?

At this time of year mankind accumulates both essential and non essential items that form part of the season of giving. E-commerce has revolutionized the annual scramble for retail supply. We took a look at the e-commerce sector and in the process we discovered that people could be switching from golden to diamond encrusted presents this year given the respective values of one of these biblical commodities. We will look at Blue Nile (NASDAQ:NILE), Tiffany’s (NYSE:TIF), Alibaba.com (HKE:1688),  Yahoo! (NASDAQ:YHOO), Google (NASDAQ: GOOG) and Amazon (NASDAQ:AMZN).

Blue Nile is the biggest online seller of diamonds and jewellery. It is also one of the biggest short positions in the Russell. These negative trades are coming off recently from 40% (that’s correct) to 36% of total shares outstanding on loan, after the share price recently spiked. Yet, funds who lend have been adding to their shares recently and are significant owners of Blue Nile flagging up split investor opinion here. They own 40% of all shares which is close to a 52 week high.

Fortunately, my colleague Suneet comes from a jewellery dynasty and has pointed out the obvious to explain the bull case for diamond sellers. Consumers are complaining about the price of gold more than ever before after its meteoric rise and spending more on diamonds as a result. Sometimes the best trends are the most obvious.

Tiffany’s has to be discussed while on this topic and there is a notable and recent collapse in the short interest. This has reduced to 9% from 15% since late October. The short interest ratio remains at around 5 days meaning it would take another week to cover the 11m shares on loan if short covering were the only trades each day. Note that the public short selling figures have not yet picked up this change in sentiment in Tiffany.

Four years ago I met a person on his way back from Hong Kong. He had been perusing goods at a trade event in China to see what to import for the Christmas buying season. Now that Alibaba.com matches buyers and sellers online he gets to stay put and spend the money on better products rather than flights! I further came across Alibaba.com when doing a piece about genetically modified salmon since you can buy smoked salmon from anywhere in the world in great quantities via this website. Short selling is close to a 3 year high but remains on the low side at 2% of total shares. However, this is 50% of supply since Yahoo! own 40% of Alibaba.

There is more to this than meets this eye.  Who would have imagined that search engines would get themselves quite so close to the retail transaction? Google recently spoke in the FT of the noticeable rise in people searching for goods via their smart phones to locate a shop that stocks what they are looking for. At what point do purchases originate from a web search and who makes the most money from this? Institutional investors who lend have been buying shares in Yahoo! more aggressively than Google of late. Yahoo! shows a recent rise in short selling to 2.5% of all shares but this remains below average. For Google, it is below 1%.

An unrelated e-commerce service is Shutterfly who allow people to print their pictures and turn them into more lasting memories. This is quite a competitive arena (Snapfish,Walgreens, Lifepics etc). SFLY have 10% of their shares on loan which is a two year high, despite the shares rising more than 300% during this time.

Finally, we could not consider E-commerce without a look at Amazon.  Short interest is close to an all time low of 1.2% of total shares, while the share price continues to record new highs.  Investors who lend have held steady since March this year and own 96 million shares or 21.4% of the company.

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