MARKET COMMENTARY
The second quarter of 2023 was filled with murky headlines following the U.S. banking crisis, debt ceiling drama, and the Fed signaling its continued rate hikes amid warnings of an imminent recession – a recession that, once again, did not materialize. At quarter end, however, there was still no economic downturn in sight and most major market indices remained in positive territory. The Dow Jones Industrial Index (TR) returned 3.97%, the tech-heavy Nasdaq climbed 13.05% and the S&P 500 delivered 8.74%. Internationally, markets eked out positive returns as well. The MSCI EAFE International Index* returned 2.95% while the MSCI Emerging Markets Index* returned 0.90%.
There was much good news for online retail companies. The U.S. unemployment rate remained
between 3.4% and 3.7%, and the labor participation rate among workers aged 25-54 stood at a
strong 83.4%, the highest level since 2007. Consumer spending remained strong, with the Federal Reserve Bank of San Francisco estimating that households still have sufficient savings to support current spending levels through the end of 2023.
E-commerce sales in the first quarter of 2023 accounted for 15.1% of total sales, as announced by the Census Bureau of the Department of Commerce on May 18th. The estimate of U.S. retail ecommerce sales for the first quarter of 2023 (adjusted for seasonal variation, but not for price changes) was $272.6 billion, an increase of 3.0 percent (±0.7%) from the fourth quarter of 2022. Total retail sales for the first quarter of 2023 were estimated at $1,799.5 billion, an increase of 0.9 percent (±0.4%) from the fourth quarter of 2022.
IBUY fared well in this environment with top performers contributing to returns including Carvana (164.76%), Wayfair (89.31%) and Overstock.com (60.68%). Click HERE for IBUY’s top 10 holdings.
Shares of online used car dealer, Carvana, saw quite a turnaround in 2023. Last quarter, Carvana’s stock fell in part because used car prices tumbled and interest rates rose, leaving the company with depreciating inventory that became more expensive for customers to buy. Yet in Q2, used car prices rebounded, according to the Consumer Price Index, which helped Carvana make a profit on its inventory. Shares rose by 100.6% in June as Carvana received an upgraded credit rating on its repackaged auto loans.
Shares of online furniture retailer Wayfair benefited from a favorable sales update amid the
bankruptcy of Bed Bath & Beyond, one its biggest competitors. Sales trends for the company
improved throughout the quarter.
Shares of online retailer Overstock.com also benefited from the bankruptcy of Bed Bath & Beyond as Overstock acquired the defunct retailer’s name, along with its website and domain names, vast customer database and loyalty-program data. Overstock’s plan is to eventually operate solely as Bed Bath and Beyond online.
Detractors on performance for the period included Shutterstock (-32.60%), 1-800-FLOWERS.com (- 32.17%) and Revolve Group (-37.64%).
While Shutterstock, online provider of stock photography, was one of IBUY’s top performers in Q1 based on its initiatives to expand generative AI in its product offerings, shares fell in Q2 as investors took the opportunity to take their gains and sell. Despite the drop, shares ended the quarter reasonably priced at 11.5 times forward earnings.
Floral and gift online retailer 1-800-FLOWERS saw its total revenue drop while its gross profit
margins rose. The company recently acquired Things Remembered and Smart Gift to extend its offerings in the non-perishable gift categories. The company has yet to gain its momentum in this space, which accounts for only 20% of its total revenue.
Online apparel company Revolve Group shares fell following earnings declines over the last year due to trends affecting other online apparel businesses, yet its business model has helped it maintain profits and attractive gross margins.
In our view, while we can’t predict the future, we remain positive about the outlook for U.S. online retail companies as indicators point to a resilient economy. While economic indicators may be mixed, those investors who have not listened to the pundits predicting disaster over the last three consecutive quarters have been rewarded.
Carefully consider the Fund’s investment objectives, risk factors, charges and expenses before
investing. This and additional information can be found in the Funds’ statutory and summary
prospectus, which may be obtained by calling 855-267-3837 or by visiting AmplifyETFs.com.
Read the prospectus carefully before investing.
Investing involves risk, including the possible loss of principal. The fund is new with limited
operating history. Narrowly focused investments typically exhibit higher volatility. A portfolio
concentrated in a single industry, such as the online retail industry, makes it vulnerable to factors
affecting the industry. The Fund may face more risks than if it were diversified broadly over
numerous industries or sectors. Investments in consumer discretionary companies are tied closely
to the performance of the overall domestic and international economy, interest rates, competition,
and consumer confidence.
Online retail companies are subject to risks of consumer demand and sensitivity to profit margins.
Additionally, technology and internet companies are subject to rapidly changing technologies; short
product life cycles; fierce competition; aggressive pricing and reduced profit margins; the loss of
patent, copyright, and trademark protections; cyclical market patterns; evolving industry standards;
and frequent new product introductions. Information technology companies may be smaller and
less experienced companies, with limited product lines, markets or financial resources and fewer
experienced management or marketing personnel. Stocks of many internet companies have
exceptionally high price-to-earnings ratios with little or no earnings histories. Information
technology company stocks, especially those which are internet related, have experienced extreme
price and volume fluctuations that are often unrelated to their operating performance.
The Fund is non-diversified, meaning it may concentrate its assets in fewer individual holdings than
a diversified fund. Investments in smaller companies tend to have limited liquidity and greater price
volatility than large-capitalization companies. Investments in foreign securities involve greater
volatility and political, economic, and currency risks and differences in accounting methods. The
Fund’s return may not match or achieve a high degree of correlation with the return of the
underlying Index. To the extent the Fund utilizes a sampling approach, it may experience tracking
error to a greater extent than if the Fund had sought to replicate the Index.
EQM Indexes is the Index Provider for the Fund. EQM Indexes is not affiliated with the Trust, the
Investment Adviser or the distributor. The Investment Adviser has entered into a license agreement with EQM Indexes to use the Online Retail Index. The Fund is entitled to use its Index pursuant to a
sublicensing arrangement with the Investment Adviser.
Amplify Investments LLC serves as the investment advisor and Penserra Capital Management LLC
serves as sub advisor to the fund.
Amplify ETFs are distributed by Foreside Fund Services, LLC