Bet on E-commerce Growth with Groupon and CarGurus

2025 is shaping up to be a good year for the ecommerce industry, as it continues to take away slices of the total retail pie. Commerce Department numbers are proof of this trend: ecommerce sales in the first quarter of 2025 grew 6.1% over 1Q24 (virtually unchanged sequentially), with total retail sales increasing 4.5% (0.4% sequentially). Ecommerce accounted for around 16.2% of total U.S. retail sales.

The first quarter follows the seasonally stronger holiday quarter, so growth rates usually moderate at around this time. As valuations enter more reasonable territory, this is often a good time to jump into some shares. Our stock picks are Groupon, Inc (GRPN) and CarGurus, Inc. (CARG).
 
The convenience of online shopping remains the top reason for ecommerce volumes and this is particularly true of Gen-Z, which is, increasingly, the more relevant component of sales. Many of these buyers have grown up on the Internet and are accustomed to a high level of digitization. They are also likely to hang out on popular social media platforms, allowing themselves to be influenced by the latest trends there.

This is driving an entirely new perspective on the ecommerce space, one that revolves around digital influencers and appears to be expanding with more advanced technology such as AR/VR, social commerce, generative AI and the Metaverse.  

Abouyt the Industry

Internet - Commerce continues to evolve as the technologies driving it advance.

On one side are increasingly powerful and capable user devices. On the other are increasingly sophisticated platforms, often combining chatbots and/or social media. While AI continues to deliver increased user satisfaction, the metaverse promises another paradigm shift.

Differentiation comes from better technology for improved showcasing, easier navigation and payment, speedier delivery and returns, brand building, comparison shopping, loyalty, etc. as well as good customer service and more shipping options, which generally tip the scales in favor of larger players. Particularly so, because there is fierce price competition necessitating deep discounting in many cases.

Current Trends Driving the Internet-Commerce Industry

• The total retail experience between physical and digital continues to blur as most consumers blend their online and offline activities. This usually takes the forms of research online and buy in-store or buy online and pick up in-store. Since convenience is the main requirement, any experience that increases the speed of delivery/pickup is preferred. This may entail increased reliance on robots, self-driven delivery vehicles and drones that could ease bottlenecks and make deliveries smoother and cheaper. Therefore, it isn’t just the online-first retailers that are building a physical presence but also those that have traditionally been physical retailers that are digitizing to various degrees, or getting themselves a digital storefront.

• Another notable trend is a subscription format for repeat-use items. This makes it easier for the consumer to order and for the retailer to plan. Retailers usually offer some kind of discount to consumers choosing this option, which makes it all the more attractive. The trend is expected to expand going forward as both tangible and intangible commodities and low-value and high-value items are increasingly sold ‘as-a-service.’

• Direct access to the consumer is something that no retailer can afford to pass up because this is the only way to acquire customer data. Since some of the larger companies are already providing services based on customer data (such as Amazon’s AI-powered assistants), buyers are growing used to these services. Because of the many details involved in satisfying customers, data mining has grown in importance over the years, with the party controlling the customer’s data being best positioned to identify and service demand while also delivering the desired experience. Most of the big ecommerce players are also into payments processing, which gives them further insight into a customer’s tastes, preferences and buying habits. As machines read and process customer data, they facilitate the creation of programs and processes to maximize customer satisfaction, drive sales and minimize returns. Artificial intelligence and increasingly, generative AI, already decides how competitive a player is. So harnessing big data has become imperative for survival.

• The macroeconomic situation continues to evolve, although we can probably say with confidence that a deep recession is unlikely. For now, the jobs market appears stable and the president is more likely than not to continue the tax breaks, meaning that disposable income may not be hit. That said, the geopolitical situation remains volatile, and tariffs remain a bone of contention with major trading partners, so there could be some negative impact. What is most likely, however, is a protracted period of softness rather than a recession. Today’s consumer is thrifty, but the government will likely pay attention to the easing of pressure on their disposable incomes. For producers, the connotations are mixed. In addition, global uncertainties continue to weigh on foreign exchange effects for companies with international operations. Overall, industry players will continue to see the benefits of operating leverage they have built up in the last few years. The importance of having a digital presence has never been greater, particularly considering the fact that the retail ecommerce market continues to expand into new product segments and geographies, and consumers continue to prefer the convenience of online shopping.

• A trend that Gen-Z is popularizing is social commerce. Social commerce means the ability to discover, research, buy and checkout products and experiences on a social media platform, often and increasingly more so, through influencers. Brands usually have store fronts on these platforms where influencers also discuss their products, thus driving traffic to them. The social element of shopping that ecommerce had taken out is thus returning through this route. Since social commerce first became popular in China, it isn’t surprising that the Chinese social media platform TikTok that’s also very popular with Gen Z is the number one place for social commerce. But Facebook, Instagram and a host of others are also very popular.

Zacks Industry Rank Indicates Strength

The Zacks Internet - Commerce industry is a rather large group within the broader Zacks Retail And Wholesale sector. It carries a Zacks Industry Rank of #51, which places it in the top 21% of nearly 250 Zacks industries.

Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1. So the group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates positive near-term prospects.

Ecommerce being in the top 50% of Zacks-ranked industries is the result of its relative performance versus others. What we’re seeing in the aggregate estimate revisions are some ups and downs in estimates over the past year. The aggregate earnings estimate for 2025 is up 1.4%, having peaked in February and then moderating thereafter.

The 2026 number dipped sharply in September last year, improving somewhat thereafter, then dipping again in May 2025, before moving up again, netting -3.6%. The uncertainty around rate cuts and a possible recession in the offing may have contributed to the volatility.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Generates Strong Shareholder Returns

Over the past year, the Zacks Electronic - Commerce Industry has traded relatively close to the broader Retail and Wholesale sector as well as the S&P 500, although usually at a premium to both.

The stocks in this industry have collectively gained 18% over the past year, compared to the 16.5% gain for the broader Zacks Retail and Wholesale Sector and the 11.9% gain for the S&P 500.

One-Year Price Performance

Image Source: Zacks Investment Research

Industry Slightly Overvalued

Historically, the industry has traded at a premium to the sector as well as the S&P 500. However, the difference has narrowed over time. Its current price-to-forward 12 months’ earnings (P/E) of 24.6X represents a premium of 8.6% to the S&P 500 and discount of 0.8% to the broader retail sector, which are currently trading at 22.6X and 24.8X, respectively. It’s worth noting, however, that the industry is currently trading at a slight premium to its own median level of 24.5X.

Forward 12 Month Price-to-Earnings (P/E) Ratio

Image Source: Zacks Investment Research

2 Stocks to Add to Your Portfolio

The relatively strong growth prospects mean that there are a large number of stocks currently worth picking, especially because of the significant variety that exists in this industry in terms of lines of business, business model, location and so forth. This is also the reason that choosing can be tricky. We have used our proprietary ranking system to pick 2 stocks that appear attractive today.

Groupon, Inc. (GRPN): Chicago-based Groupon is an online marketplace connecting buyers and sellers of goods; travel; and local dining, activities and experiences, accessed through Groupon mobile applications and localized groupon.com websites. It operates across thirteen countries although more than 76% of 2024 revenue came from the U.S.

Groupon’s outlook is not without challenges, given that the macroeconomic situation in the U.S. can very easily take a turn for the worse, which would pare recent gains in customer additions and sales, driven by a “hyper-local” strategy. Considering the very high debt levels (debt cap of 84%), operational challenges could increase if the sales momentum is not sustained. It is, however, worth noting that the company has had a relatively good history of beating expectations in the last several quarters and if this continues, there could be support for share prices. Groupon turned profitable in the last quarter, which is certainly reason to cheer.

Right now, the estimate revisions trend does look exciting. In the last 60 days, the Zacks Consensus Estimate for 2025 has gone from a loss of 18 cents to a profit of 30 cents a share. The 2026 EPS estimate has gone from 3 cents to 59 cents. Analysts currently expect about 1.5% revenue growth this year along with a 119% increase in per share profits. The 2026 EPS growth of 95% is expected to come off an 8% increase in revenue.

The shares of this Zacks Rank #1 (Strong Buy) company are up 146.9% over the past year, most of it in the last two months.

Price & Consensus: GRPN

Image Source: Zacks Investment Research

 

CarGurus, Inc. (CARG): CarGurus offers an online marketplace for both new and used cars mainly in the U.S. (93% of 2024 revenue), but also in Canada and the UK. The company targets both direct consumers (B2C) and dealers (B2B), offering them a range of data-driven services and financing options.

Marketplace services contributed 89% of 2024 revenue, roughly 7% came from dealer-to-dealer services and products, and the rest from Sell My Car - Instant Max Cash Offer. As of December 31, 2024, it had 29.3 million average monthly visitors in the U.S., which, in turn, attracted over 30,000 dealers, including 24,692 paying dealers.

CarGurus’ focus on improving dealer profitability with data-driven solutions as well as a more intuitive and seamless experience for consumers increasingly preferring to do more of the transaction online, is driving its marketplace business. Management is optimistic that this strategy is driving deeper consumer and dealer engagement, thus driving its markets share. The company has no debt and ample liquidity to drive the business further.

In the last 60 days, the Zacks Consensus Estimates for 2025 and 2026 have increased a respective 10 cents (4.9%) and 15 cents (5.7%). Analysts estimate 25% earnings growth on revenues that are expected to increase 5% in 2025. The 2026 estimates are equally encouraging: 28.1% earnings growth on 7.7% revenue growth.

This Zacks Rank #2 (Buy) stock is up 39.1% over the past year.

Price & Consensus: CARG

Image Source: Zacks Investment Research
 

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This article originally published on Zacks Investment Research (zacks.com).

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