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Internet Delivery Services Industry: Near-Term Outlook Grim
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The Zacks Internet - Delivery Services industry primarily comprises companies that offer services via Internet-based platforms. These offerings include food delivery, online travel booking, direct marketing and media services plus web hosting among others.
Being growth-stage companies, the industry participants are spending more on R&D and sales & marketing, thereby making it difficult to generate profits in the near term.
Let’s take a look at the industry’s three major themes:
Internet is ubiquitous and the increasing usage of smartphones is changing the delivery landscape. The companies in this industry are benefiting from the growing number of Internet users coupled with improvement in Internet penetration and the rapid adoption of 4G Volte technology. The emergence of 5G technology, which promises a fast progress in speed and deliverability, bodes well for this industry.
Shift in consumer preferences, driven by convenience and easy accessibility, is expected to aid the industry. Notably, the robust transition from offline to online food ordering and the rising penetration of online travel booking augurs well for the industry players. However, as higher consumer spending appetite is the main driver of the overall industry’s health, any sluggishness in the global economy will pose a concern.
Online delivery is yet to expand beyond the major metros, reflecting lower penetration and a significant room for growth. However, as expansion into new markets will take some time to generate volumes, higher upfront costs are likely to hurt profitability.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Internet – Delivery Services industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #245, which places it at the bottom 4% of more than 250 Zacks industries.
Our proprietary Heat Map shows that the industry’s rank has deteriorated over the past few weeks.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak 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 within the bottom 50% of the Zacks-ranked industries is the result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimates for the current year have been revised 36.6% downward.
Before we present a few Internet – Delivery Services stocks that one can hold on to, let’s take a look at the industry’s recent stock-market performance and the valuation picture.
Industry Lags in Terms of Stock Market Performance
The Zacks Internet - Delivery Services industry, within the broader Zacks Computer and Technology sector, has underperformed both the S&P 500 and its own sector in the past year.
The stocks in this industry have collectively lost 18.4% while the Zacks Computer and Technology sector and the Zacks S&P 500 have rallied 10.7% and 10.4%, respectively.
One Year Price Performance
Industry’s Current Valuation
On the basis of price-to-sales ratio (P/S), which is a commonly used multiple for valuing the Internet delivery stocks, the industry is currently trading at 1.37X, lower than the S&P 500’s 3.31X and the sector’s 3.75X.
Over the past five years, the industry has traded as high as 5.48X, as low as 1.03X and recorded a median of 1.60X, as the charts below show.
Price-to-Sales Ratio (TTM)
Bottom Line
Higher Internet presence in the emerging markets, a burgeoning affluent middle class and the accelerated uptake of smartphones will help the participants in the Internet – Delivery Services industry.
However, steep marketing expenses due to the planned expansion into new delivery markets will be a persistent overhang on the margins in the near term.
However, we are presenting four stocks with a Zacks Rank #3 (Hold) that investors may currently hold on to.
Gurgaon, India-based MakeMyTrip Limited (MMYT - Free Report) is an online travel service company, which offers travel products and solutions in India and the United States. The company delivered average four-quarter positive surprise of 3.89%. The Zacks Consensus Estimate for current fiscal-year earnings has been stable at 82 cents over the past 30 days.
Price and Consensus: MMYT
Headquartered in Scottsdale, AZ, GoDaddy Inc. (GDDY - Free Report) is engaged in the designing and development of cloud-based technology products for small businesses, web design professionals and individuals. The company came up with average four-quarter earnings surprise of 24.33%.The Zacks Consensus Estimate for current fiscal-year earnings has been flat at 82 cents over the past 30 days.
Price and Consensus: GDDY
Vipshop Holdings Limited (VIPS - Free Report) is an online discount retailer for various brands in the People's Republic of China. The company offers apparels for men and women, shoes for casual and formal occasions, and accessories for both women and men. The Zacks Consensus Estimate for current fiscal- year earnings has been reiterated at 72 cents over the past 30 days.
Price and Consensus: VIPS
Domiciled in Beijing, Renren Inc. operates as a social networking internet platform in China, offering information and content sharing, music, online games and online shopping plus other services including communication. The stock has plunged 91.6% in the past year.
Price and Consensus: RENN
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Internet Delivery Services Industry: Near-Term Outlook Grim
The Zacks Internet - Delivery Services industry primarily comprises companies that offer services via Internet-based platforms. These offerings include food delivery, online travel booking, direct marketing and media services plus web hosting among others.
Being growth-stage companies, the industry participants are spending more on R&D and sales & marketing, thereby making it difficult to generate profits in the near term.
Let’s take a look at the industry’s three major themes:
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Internet – Delivery Services industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #245, which places it at the bottom 4% of more than 250 Zacks industries.
Our proprietary Heat Map shows that the industry’s rank has deteriorated over the past few weeks.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak 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 within the bottom 50% of the Zacks-ranked industries is the result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimates for the current year have been revised 36.6% downward.
Before we present a few Internet – Delivery Services stocks that one can hold on to, let’s take a look at the industry’s recent stock-market performance and the valuation picture.
Industry Lags in Terms of Stock Market Performance
The Zacks Internet - Delivery Services industry, within the broader Zacks Computer and Technology sector, has underperformed both the S&P 500 and its own sector in the past year.
The stocks in this industry have collectively lost 18.4% while the Zacks Computer and Technology sector and the Zacks S&P 500 have rallied 10.7% and 10.4%, respectively.
One Year Price Performance
Industry’s Current Valuation
On the basis of price-to-sales ratio (P/S), which is a commonly used multiple for valuing the Internet delivery stocks, the industry is currently trading at 1.37X, lower than the S&P 500’s 3.31X and the sector’s 3.75X.
Over the past five years, the industry has traded as high as 5.48X, as low as 1.03X and recorded a median of 1.60X, as the charts below show.
Price-to-Sales Ratio (TTM)
Bottom Line
Higher Internet presence in the emerging markets, a burgeoning affluent middle class and the accelerated uptake of smartphones will help the participants in the Internet – Delivery Services industry.
However, steep marketing expenses due to the planned expansion into new delivery markets will be a persistent overhang on the margins in the near term.
Currently none of the stocks in the Internet – Delivery Services industry sports a Zacks Rank #1 (Strong Buy) or a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
However, we are presenting four stocks with a Zacks Rank #3 (Hold) that investors may currently hold on to.
Gurgaon, India-based MakeMyTrip Limited (MMYT - Free Report) is an online travel service company, which offers travel products and solutions in India and the United States. The company delivered average four-quarter positive surprise of 3.89%. The Zacks Consensus Estimate for current fiscal-year earnings has been stable at 82 cents over the past 30 days.
Price and Consensus: MMYT
Headquartered in Scottsdale, AZ, GoDaddy Inc. (GDDY - Free Report) is engaged in the designing and development of cloud-based technology products for small businesses, web design professionals and individuals. The company came up with average four-quarter earnings surprise of 24.33%.The Zacks Consensus Estimate for current fiscal-year earnings has been flat at 82 cents over the past 30 days.
Price and Consensus: GDDY
Vipshop Holdings Limited (VIPS - Free Report) is an online discount retailer for various brands in the People's Republic of China. The company offers apparels for men and women, shoes for casual and formal occasions, and accessories for both women and men. The Zacks Consensus Estimate for current fiscal- year earnings has been reiterated at 72 cents over the past 30 days.
Price and Consensus: VIPS
Domiciled in Beijing, Renren Inc. operates as a social networking internet platform in China, offering information and content sharing, music, online games and online shopping plus other services including communication. The stock has plunged 91.6% in the past year.
Price and Consensus: RENN
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
See their latest picks free >>