Relaxation in pandemic-induced travel restrictions and social-distancing measures has been benefiting the Zacks

Internet – Delivery Services

industry. Moreover, recovery is anticipated for companies like

GoDaddy


GDDY

,

Vipshop Holdings


VIPS


MakeMyTrip


MMYT

and

Asure Software


ASUR

, with business activities reaching pre-pandemic levels following the reopening of economies. 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 the major metros, underlining lower penetration and significant room for growth. Nevertheless, 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, plus 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. 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

Smartphone and Internet Penetration 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 preference, driven by convenience and easy accessibility, is anticipated to aid the industry. Notably, the accelerated transition from offline to online food ordering as well as the rising penetration of online travel booking augurs well for industry players. Nevertheless, as 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 the major metros, underlining lower penetration and significant room for growth. Nevertheless, as expansion into the newer markets will take some time to generate volumes, higher upfront costs 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 the incumbents in this industry. Also, 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 further 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 #16, which places it among the top 6% of more than 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 outperforms 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. Before we present a few stocks that you may want to consider for your portfolio, considering bright prospects, let us look at the industry’s recent stock-market performance and valuation picture.

Industry Outperforms Sector and S&P 500

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

The industry has risen 6.3% during this period, while the S&P 500 and the broader sector are down 21.2% and 37.6%, 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 0.88X compared with the S&P 500’s 3.30X and the sector’s 2.85X.

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

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

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

4 Stocks to Watch

Asure Software:

It 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. The stock currently sports a Zacks Rank #1 (Strong Buy).

You can see


the complete list of today’s Zacks #1 Rank stocks here


.

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

New client additions and 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 2023 earnings has been revised upward by 6 cents to 28 cents per share in the past 60 days.

Price and Consensus: ASUR

MakeMyTrip:

It is an online travel service company, which offers travel products and solutions in India and the United States. The 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 reopening of the 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 positive. Also, this Zacks Rank #2 (Buy) company is optimistic regarding its cost-control initiatives, MySafety and GoSafe programs, and its strengthening hotel business.

The Zacks Consensus Estimate for fiscal 2023 earnings has been revised upward by a penny to 25 cents per share in 30 days’ time.

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 is engaged in the designing and development of cloud-based technology products for small businesses, web design professionals and individuals.

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

Additionally, the acquisition of payments processor firm Poynt has fortified GoDaddy’s commerce offerings and provided it an edge over its competitor, Shopify. Furthermore, the acquisition of Neustar’s Registry business last year has made the company one of the largest players in the Internet infrastructure industry.

The Zacks Consensus Estimate for 2023 earnings has been revised upward by 3 cents to $2.81 per share over the past seven days.

Price and Consensus: GDDY

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 carries a Zacks Rank #3.

The company’s continued efforts toward strengthening product offerings and improving product procurement are aiding its financial performance, given the growing proliferation of online shopping amid the pandemic. Further, the solid execution of its merchandising strategy is bolstering its active customer base.

Moreover, its successful transition to discount retailing is a major positive. This is likely to continue driving momentum across repeat customers and help attract new ones.

Additionally, the company’s quarterly results will likely keep benefiting from its deepening focus on high-margin-generating apparel-related businesses, especially the discount apparel business. Furthermore, Vipshop’s deep discount channels are expected to bolster its online gross merchandise volumes in the quarters ahead.

The Zacks Consensus Estimate for current-year earnings has moved 17 cents south to $1.17 per share over the past 60 days.

Price and Consensus: VIPS

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