Ahead of the fourth-quarter reporting season, Goldman Sachs' Eric Sheridan sized up the e-commerce industry.

In an analyst note published on Wednesday, Sheridan issued ratings for the following companies:

• Amazon.com Inc (NASDAQ:AMZN) with a Buy rating and a price target of $240.
• eBay Inc (NASDAQ:EBAY) with a Sell rating, raising its price target from $53 to $55.
• Chewy Inc (NYSE:CHWY) with a Buy rating and a price target of $40.
• Etsy Inc (NASDAQ:ETSY) with a Sell rating, lowering its price target from $47 to $45.
• Wayfair Inc (NYSE:W) with a Neutral rating and a price target of $50.

Main Takeaways: Sheridan found the fourth quarter showed stable performance, boosted by stronger-than-expected holiday online sales. Non-discretionary and subscription-based purchases drove growth, especially among higher-income households.

The analyst is bullish on Amazon and Chewy for their customer loyalty, and in Amazon's case, its subscription. Sheridan noted that consumers "traded down" on price to close the year.

Goldman Sachs' Buy ratings on Amazon and Chewy reflects "continued preference" for e-commerce companies that are exposed to less discretionary categories with high repeat behavior through subscriptions and/or essentials purchasing, Sheridan says. Online spending "remains volatile across discretionary categories and lower-income households."

Chewy and Etsy have fewer repeat purchases and are driven by "enthusiast" buyers, he adds.

Sheridan also believes company margins will disperse in 2025, with Amazon and Chewy as beneficiaries and eBay and Etsy on the losing end.

Sheridan expects to see "a divergence in margin trajectories" between:

• Companies that can balance stronger demand with targeted growth investments and produce attractive incremental margins with revenue outpacing expenses (Amazon, Chewy) and
• A potentially more challenging margin outlook for the companies where we expect revenue to remain pressured (eBay, Etsy, Wayfair) "absent any additional cost reduction measures."

Sheridan anticipates online retail companies will maintain their commitment to share buybacks in 2025.

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