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Near-Term Internet Delivery Services Industry View Seems Drab
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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 the new markets will take some time to generate volumes, higher upfront costs are likely to hurt profitability. Moreover, Amazon’s (AMZN - Free Report) focus on strengthening its delivery system poses a key challenge to the industry players. We believe, the company’s powerful distribution channels are a major forte that might massively threaten the incumbents in this industry. Also, the search giant Alphabet (GOOGL - Free Report) forayed into the food delivery market with its delivery arm Wing and an array of food delivery apps, which are likely to stiffen competition further.
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 #199, which places it at the bottom 21% 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 gloomy 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 bearish 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 18.6% 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 has underperformed both the Zacks S&P 500 composite and the broader sector in the past year.
The industry has returned 23.9% compared with the S&P 500’s increase of 35.7% and the broader sector’s rally of 39.4%.
One Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month price-to-sales ratio (P/S), a commonly used multiple for valuing the Internet delivery stocks, the industry is currently trading at 1.03X compared with the S&P 500’s 3.37X and the sector’s 3.37X.
Over the past five years, the industry has traded as high as 2.75X, as low as 0.72X and recorded a median of 0.97X as the charts below show.
Price-to-Sales Ratio (Past 5 Years)
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.
Guangzhou-based Vipshop Holdings Limited (VIPS - Free Report) is an online discount retailer of 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-year earnings has moved a couple of cents south over the past 30 days.
Price and Consensus: VIPS
However, we are presenting three stocks with a Zacks Rank #3 (Hold) that investors may currently hold on to.
Austin, TX-based Asure Software Inc. (ASUR - Free Report) is a provider of cloud-based human capital management and workspace management solutions. The Zacks Consensus Estimate for current-year earnings has been lowered 17.8% to 37 cents over the past 30 days.
Price and Consensus: ASUR
Chicago-based GrubHub Inc. is a leading online and mobile food ordering company. Its platform assists diners in their search for local restaurants, helps them track orders and re-order for convenience. The Zacks Consensus Estimate for the current fiscal-year earnings has been constant at 81 cents over the past 30 days.
Price and Consensus: GRUB
Headquartered in Scottsdale, AZ, GoDaddy Inc. (GDDY - Free Report) is engaged in designing and developing cloud-based technology products for small businesses, web design professionals and individuals. The Zacks Consensus Estimate for current-year earnings of 79 cents has been unchanged over the past 30 days.
Price and Consensus: GDDY
The Hottest Tech Mega-Trend ofAll
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Near-Term Internet Delivery Services Industry View Seems Drab
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 #199, which places it at the bottom 21% 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 gloomy 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 bearish 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 18.6% 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 has underperformed both the Zacks S&P 500 composite and the broader sector in the past year.
The industry has returned 23.9% compared with the S&P 500’s increase of 35.7% and the broader sector’s rally of 39.4%.
One Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month price-to-sales ratio (P/S), a commonly used multiple for valuing the Internet delivery stocks, the industry is currently trading at 1.03X compared with the S&P 500’s 3.37X and the sector’s 3.37X.
Over the past five years, the industry has traded as high as 2.75X, as low as 0.72X and recorded a median of 0.97X as the charts below show.
Price-to-Sales Ratio (Past 5 Years)
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, there is only one buy-rated stock in the Zacks Internet — Delivery industry with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Guangzhou-based Vipshop Holdings Limited (VIPS - Free Report) is an online discount retailer of 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-year earnings has moved a couple of cents south over the past 30 days.
Price and Consensus: VIPS
However, we are presenting three stocks with a Zacks Rank #3 (Hold) that investors may currently hold on to.
Austin, TX-based Asure Software Inc. (ASUR - Free Report) is a provider of cloud-based human capital management and workspace management solutions. The Zacks Consensus Estimate for current-year earnings has been lowered 17.8% to 37 cents over the past 30 days.
Price and Consensus: ASUR
Chicago-based GrubHub Inc. is a leading online and mobile food ordering company. Its platform assists diners in their search for local restaurants, helps them track orders and re-order for convenience. The Zacks Consensus Estimate for the current fiscal-year earnings has been constant at 81 cents over the past 30 days.
Price and Consensus: GRUB
Headquartered in Scottsdale, AZ, GoDaddy Inc. (GDDY - Free Report) is engaged in designing and developing cloud-based technology products for small businesses, web design professionals and individuals. The Zacks Consensus Estimate for current-year earnings of 79 cents has been unchanged over the past 30 days.
Price and Consensus: GDDY
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>