4 Stocks to Watch in a Promising Internet Delivery Services Industry

0

The Zacks Internet – Delivery Services industry participants like GoDaddy GDDY, MakeMyTrip MMYT, QuinStreet QNST and Asure Software ASUR have been benefiting from the reopening of economies, with their business activities reaching pre-pandemic levels. Additionally, a greater Internet presence in emerging markets, a burgeoning affluent middle class and the accelerated uptake of smartphones are set to aid Internet – Delivery Services industry participants. Online delivery is yet to expand beyond major metros, underlining lower penetration and significant room for growth. However, as expansion into newer markets will take some time to generate volumes, higher upfront costs might erode profitability. These, along with elevated operating expenses related to hiring new employees and sales and marketing strategies to capture more market share, are likely to strain margins in the near term.

Industry Description

The Zacks Internet – Delivery Services industry primarily comprises companies that offer services via 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 and sell e-business-related software and services. A few industry participants provide air and train ticket bookings, customized holiday packages, hotel booking, bus tickets and car hire services. Some players offer online direct marketing and media services, including online messaging, email broadcasting, search engine marketing and brand management facilities. Growth-stage companies in the industry are spending more on R&D and sales & marketing, making it difficult for them to generate profits in the near term.

3 Trends Shaping the Future of the Internet – Delivery Services Industry

Smartphones & Internet Penetration Act as Key Catalysts: The Internet is ubiquitous, and the heightening usage of smartphones is changing the delivery landscape. The companies in the Zacks Internet – Delivery Services industry are benefiting from the growing number of Internet users, coupled with an improvement in Internet penetration and the rapid adoption of the 4G Volte technology. The emergence of 5G technology, which promises faster speed and deliverability, also bodes well for this industry.

Shifting Consumer Preferences: The shift in consumer preferences, driven by convenience and easy accessibility, is anticipated to aid the industry. The accelerated transition from offline to online food ordering, as well as the rising penetration of online travel booking, augurs well for industry players. However, as the higher consumer spending appetite is the main driver of the overall industry’s health, any sluggishness in the global economy will pose a risk.

Higher Upfront Costs to Hurt Profitability: Online delivery is yet to expand beyond major metros, underlining lower penetration and significant room for growth. However, higher upfront costs related to expansion strategies might erode profitability. Moreover, Amazon’s focus on strengthening its delivery system is a key challenge for the industry players. We believe the company’s powerful distribution channels are a major force that might highly threaten incumbents in this industry. Also, the search giant, Alphabet, has forayed into the food delivery market with its delivery arm, Wing, and an array of food delivery apps, which are likely to intensify competition.

Zacks Industry Rank Indicates Bright Prospects

The Internet – Delivery Services industry is housed within the broader Computer and Technology sector. It carries a Zacks Industry Rank #106, which places it among the top 42% of about 250 Zacks industries.

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

The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. The industry’s earnings estimate for 2024 has moved up 25.5% over the past 12 months.

Estimate Revision for 2024

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

Industry Outperforms the S&P 500 but Lags Sector

The Zacks Internet – Delivery industry has outperformed the S&P 500 composite but has underperformed the broader Zacks Computer and Technology sector over the past year.

The industry has risen 37.5% during this period, while the S&P 500 and the broader sector have increased 23% and 45.9%, respectively.

One-Year Price Performance

Industry’s Current Valuation

On the basis of forward 12-month price-to-sales (P/S), a commonly used multiple for valuing Internet-Delivery stocks, the industry is currently trading at 1.07X compared with the S&P 500’s 4.05X and the sector’s 4.67X.

Over the past five years, the industry has traded as high as 1.34X and as low as 0.57X and recorded a median of 0.89X, as the charts below show.

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

 

Price-to-Sales Ratio (Industry vs. Sector)

4 Stocks in Focus

GoDaddy: It is an Internet domain registrar and web hosting company that also sells e-business-related software and services. The company is engaged in designing and developing cloud-based technology products for small businesses, web design professionals and individuals. The stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

GoDaddy is benefiting from strong momentum across the Applications & Commerce business and its expanding global footprint. Strength in Create & Grow solutions is aiding the Application & Commerce segment’s top-line growth. Website plus marketing, driven by greater engagement with customers based on new product launches, is contributing well. Strong renewals & registrations and the expansion of the GoDaddy Registry are major catalysts. Growth in bookings, primarily driven by strong customer additions and price increases in various domains, has been a key catalyst.

The Zacks Consensus Estimate for 2024 earnings has been revised upward by 25 to $4.64 per share over the past seven days.

Price and Consensus: GDDY

 

MakeMyTrip: It is an online travel service company that offers travel products and solutions in India and the United States. This Zacks Rank #3 (Hold) company’s services and products include air tickets, customized holiday packages, hotel booking, railway tickets, bus tickets and car hire. It also facilitates access to travel insurance.

MakeMyTrip is gaining substantially from improving travel conditions and the reopening of economies. In addition, recovering hotel demand as a result of the rise in short-stay getaway vacations, great travel deals and hygienically safe properties is a major upside. Also, the company is optimistic about its cost-control initiatives, MySafety and GoSafe programs, and strengthening hotel business.

The Zacks Consensus Estimate for fiscal 2024 earnings has been revised upward to $1.17 per share from $1.13 30 days ago.

Price and Consensus: MMYT

 

QuinStreet: It is a provider of online direct marketing and media services. QuinStreet offers online messaging, e-mail broadcasting, search engine marketing and brand management services.

QuinStreet is benefiting from the accelerated shift from an offline to an online business model across industries. Ad spending is likely to continue increasing, driven by an improving macroeconomic environment and business activities. The company is well-positioned to bank on this opportunity and acquire new customers and high-value deals.

QuinStreet carries a Zacks Rank #3 at present. The Zacks Consensus Estimate for fiscal 2024 earnings has been revised downward to 16 cents from 32 cents in the past 30 days.

Price and Consensus: QNST

 

Asure Software: This is a cloud computing firm that offers business clients the chance to modernize everything from human capital management (HCM) and time & attendance solutions to payroll and taxes. Asure Software’s strategic initiative to become a pure software-as-a-service HCM company is aiding its top-line growth.  This Zacks Rank #3 company’s focus on driving innovation for its HCM solutions is helping it expand its footprint in the HCM market.

New client additions and a continued focus on cross-selling to existing clients are driving Asure Software’s revenues. The company’s differentiated employee strategy, measurement capabilities and comprehensive product offerings are helping it win new customers.

The Zacks Consensus Estimate for Asure Software’s 2024 earnings has remained unchanged at 66 cents per share in the past 60 days.

Price and Consensus: ASUR

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

GoDaddy Inc. (GDDY) : Free Stock Analysis Report

MakeMyTrip Limited (MMYT) : Free Stock Analysis Report

QuinStreet, Inc. (QNST) : Free Stock Analysis Report

Asure Software Inc (ASUR) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

link

Leave a Reply

Your email address will not be published. Required fields are marked *