4 Stocks to Watch from the Booming Internet Delivery Industry

Ease in pandemic-induced travel restrictions and social distancing measures have benefited the Zacks Internet – Delivery Services industry. Moreover, recovery is expected for some companies GoDaddy GDDY, Vipshop Holdings VIPS MakeMyTrip MMYT and Asure software ASUR, with business activity reaching pre-pandemic levels after reopening economies. Additionally, greater Internet presence in emerging markets, a growing affluent middle class, and rapid adoption of smartphones are set to help Internet – Delivery Services industry participants.

Online delivery is yet to expand beyond major metros, highlighting less penetration and significant room for growth. However, since expansion into newer markets will take some time to build volumes, higher upfront costs may erode profitability. These, along with increased operating costs associated with hiring new employees and sales and marketing strategies to gain more market share, could strain margins in the near term.

Industry description

The Zacks Internet – Delivery Services industry consists primarily of companies that offer services through Internet-based platforms. These include food delivery, online travel booking, direct marketing and media services and web hosting among others. Some companies in this space offer Internet domain registration and web hosting registration, as well as sell e-business related software and services. Several industry players provide air and train ticket booking, special holiday packages, hotel booking, bus tickets and car rental services. Some players offer online direct marketing and media services, including online messaging, email broadcasting, search engine marketing and brand management capabilities. As growth companies, industry players are spending more on R&D, sales and marketing, making it difficult to turn a profit in the near term.

3 Trends Shaping the Future of the Internet Delivery Services Industry

Smartphone and Internet Hacking Catalysts: The Internet is everywhere and the rise of smartphone use is changing the delivery landscape. Companies in the Zacks Internet – Delivery Services industry are benefiting from the growing number of Internet users, improving Internet penetration and the rapid adoption of 4G Volte technology. The advent of 5G technology, which promises faster speeds and delivery, also bodes well for this industry.

Changing consumer preferences: A shift in consumer choice driven by convenience and easy accessibility is expected to help the industry. In particular, the accelerated shift from offline to online food ordering as well as the growing penetration of online travel booking bodes well for industry players. Nevertheless, any slowdown in the global economy will pose a risk, as appetite for higher consumer spending is a key driver of the overall industry’s health.

Higher upfront costs that hurt profitability: Online delivery is yet to expand beyond major metros, highlighting less penetration and significant room for growth. However, since expansion into new markets will take some time to build volumes, higher upfront costs may erode profitability. Moreover, Amazon’s focus on strengthening its delivery system is a major challenge for industry players. We believe that the company’s strong distribution channels are a major force that can highly threaten incumbents in this industry. Also, search giant Alphabet has entered the food delivery market with its delivery arm, Wing, and a number of food delivery apps that will further intensify the competition.

The Zacks Industry Rank shows bright prospects

The Internet – Delivery Services industry is located within the broader Computers & Technology sector. It carries a Zacks Industry Rank of #55, ranking in the top 22% of over 250 Zacks industries.

The Zacks Industry Rank, which is the average of the Zacks Rank of all member stocks in the group, indicates a strong near-term outlook. Our research shows that the top 50% of Zacks Rank industries outperform the bottom 50% by 2-to-1.

The industry’s ranking in the top 50% of Zacks ranks industries is a result of a generally positive earnings outlook for constituent companies. Given the bright outlook, let’s take a look at the industry’s recent stock performance and valuation picture before presenting a few stocks you may want to consider for your portfolio.

Industry Outperforms Stock Market Performance

The Zacks Internet – Delivery industry outperformed the broader Zacks Computer & Technology sector last year, as well as the S&P 500 composite.

During that period, the industry fell 6.5%, while the S&P 500 and the broader sector fell 17.2% and 32%, respectively.

One Year Price Performance

Current Assessment of the Industry

Based on the trailing 12-month price-to-sales (P/S), commonly used to value Internet Delivery stocks, the industry currently trades at 0.71X, compared to the S&P 500’s 3.16X and the sector’s 2.89. X.

Over the past five years, the industry has traded as low as 1.29X, 0.57X, and recorded a median of 0.90X, as the charts below show.

Price-to-Sales Ratio (Compared to Industry S&P 500)

Price to Sales Ratio (Industry by Sector)

4 Stocks to watch

Vipshop Holdings: It is an online discount retailer for brands. The company offers branded products to consumers in China through flash sales on its vipshop.com website. Vipshop currently has a Zacks Rank #1 (Strong Buy). You can see Here’s a full list of today’s Zacks #1 Rank stocks.

The company’s continued efforts to strengthen its product offerings and improve product procurement are helping its financial performance, given the growing prevalence of online shopping during the pandemic. In addition, solid execution of trading strategy strengthens its active customer base.

Plus, its successful transition into discount retail is a huge plus. This will likely help build momentum among repeat customers and attract new ones.

Additionally, the company’s quarterly results are likely to continue to benefit from its deepening focus on high-margin apparel-related businesses, particularly its discount apparel business. In addition, Vipshop’s deep discount channels are expected to increase online general merchandise volume in the coming quarters.

The Zacks Consensus Estimate for current-year earnings has climbed north of 16 cents over the past 60 days to $1.34 a share.

Price and Consensus: VIPS

MakeMyTrip: is an online travel service company offering travel products and solutions in India and the US. The company’s services and products include airline tickets, customized vacation packages, hotel reservations, rail tickets, bus tickets and car rentals. It also facilitates access to travel insurance.

MakeMyTrip benefits significantly from improved travel conditions and reopening of economies. In addition, the recovery in hotel demand is a big positive, driven by an increase in short-term getaway vacations, major travel deals and hygienically safe properties. Also, this Zacks Rank #2 (Buy) company is bullish on cost control initiatives, MySafety and GoSafe programs, and strengthening its hotel business.

The Zacks Consensus Estimate for fiscal 2023 earnings has been revised downward to a loss of 3 cents per share over the 30 days, from earnings of 29 cents per share.

Price and Consensus: MMYT

GoDaddy: It is an Internet domain registrar and web hosting company that also sells e-business related software and services. This Zacks Rank #3 (Hold) company designs and develops cloud-based technology products for small businesses, web design professionals, and individuals.

GoDaddy thrives on the growing adoption of domain products. Higher subscriptions to Websites + Marketing and managed WordPress offerings, international expansion, strong feature brands and strength in GoCentral are tailwinds for the company’s Hosting and Presence business.

In addition, the acquisition of payment processor firm Poynt strengthened GoDaddy’s commerce offerings, giving it an edge over rival Shopify. Additionally, last year’s acquisition of Neustar’s Registry business made the company one of the largest players in the internet infrastructure industry.

The Zacks Consensus Estimate for 2022 earnings has been revised up 13 cents to $2.20 per share over the past 60 days.

Price and Consensus: GDDY

Asure Software: It is a cloud computing firm that offers business clients the chance to modernize everything from human capital management (HCM) and time and attendance solutions to payroll and taxes. The stock currently has a Zacks Rank #3.

Asure Software’s strategic initiative to become a pure software-as-a-service HCM company is driving its top-line growth. The company’s focus on innovation for HCM solutions is helping it expand its footprint in the HCM market.

New customer additions and a continued focus on cross-selling to existing customers drive Asure Software’s revenues. The company’s distinctive staffing strategy, measurement capabilities, and comprehensive product offerings help it win new customers.

The Zacks Consensus Estimate for Asure Software’s 2022 earnings has been revised down 7 cents to 4 cents per share over the past 60 days.

Price and Consensus: ASUR

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GoDaddy Inc. (GDDY): Free Stock Analysis Report

MakeMyTrip Limited (MMYT): Free Stock Analysis Report

Asure Software Inc (ASUR): Free Stock Analysis Report

Vipshop Holdings Limited (VIPS): Free Stock Analysis Report

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The views and opinions expressed herein are those of the author and are those of Nasdaq, Inc.

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