For Immediate Release
Chicago, IL – November 11, 2016 – Today, Zacks Equity Research discusses the eCommerce, Part 1, including Alphabet (NASDAQ:(GOOGL - Free Report) –Free Report),Mercadolibre (NASDAQ:(MELI - Free Report) –Free Report),Stamps.com (NASDAQ:(STMP - Free Report) –Free Report),Evine Live (NASDAQ:(EVLV - Free Report) –Free Report) and Groupon (NASDAQ:(GRPN - Free Report) – Free Report).
Industry: eCommerce, Part 1
Seller Trends And Strategies
1. Focus Shifts from Device to Consumer: This is a direct offshoot to the phenomenon that many people currently use multiple devices so that the device on which a product is researched is not necessarily the one where the purchase is completed. Also, the purchase may finally even be completed in the physical store, leading to what is being called the online to offline (O2O) trend.
Therefore, it has become important to follow the customer on the various devices rather than follow the device. The market is still relatively nascent, but Facebook did recently announce an enhancement that makes it possible.
2. App Versus Mobile Web: As the ecommerce market matures, it’s becoming very clear that smaller players can’t compete with what companies like Amazon offer. Also, their customers don’t already know them, which means that they aren’t eager to download their apps. These players need a platform to be able to display their wares and promote their brands. This is where Google plays an extremely useful role as the search engine can now pick out and display relevant information not just from across the web but also from individual apps that have been indexed. As smaller players are more dependent on the mobile web, its importance versus apps is increasing by the day.
3. Omnichannel Approach: Logistics is one of the most important considerations for ecommerce retailers. Whether building their own warehouses like Amazon does or relying on specialists like Alibaba does, ecommerce companies are required to act nimbly because customers want quick delivery and quick return options. For smaller etailers, it doesn’t make sense to go it alone as customers are hard to serve and the business is hard to scale. So they usually prefer to join an online marketplace to leverage its capabilities.
The challenge is more complex for the big players because the number of buyers and sellers is growing as is the volume of transactions. Amazon deals with this through its warehouses and encourages sellers to store with it through the Fulfillment by Amazon (FBA) initiative. FBA requires sellers to store inventory in Amazon warehouses with Amazon taking care of sales and support. This helps to cover cost of the warehouses that Amazon needs to invest in anyway. In some cases, Amazon ties with retailers to use their brick-and-mortar locations as pickup points for customers with those requirements. Recently, Amazon also leased 21 aircraft to support its logistics operations.
For big traditional retailers, omnichannel is a stepping stone to the online world. They already have the logistics and physical stores in place though of course they are adjusting locations in line with expansion plans. So while they continue to invest in the physical store experience they are supplementing this with online channels to expand their reach. Book online and pick up at store is a popular model for them.
4. Technology Investment: Traditional retailers want to build their online apps/websites/storefronts in a way that they can preserve their brand value while expanding their reach. Therefore, they are in competition with the big online players rather than in partnership with them. Online players are faster to adopt new technologies that help them improve navigation and customer experience, which in turn improve reviews and thus draw more traffic to them.
But traditional players are pulling up their socks too. For instance, beacon technology that enables retailers to track customers in the store and push promos and offers to them is expected to increase in importance. New payment technologies such as near field communication (NFC), quick response (QR) code, Soundwave and Bluetooth low energy (BLE) are facilitating the process. Innovative new technology is influencing every aspect of the buying experience spanning gadgets like TVs and game consoles that are increasingly getting connected to digital versions of books, music, video and games that are becoming available for online purchase and consumption.
5. App-based Services an Emerging Category: While apps have been around for a while, they are now targeting a growing a number of devices across the world. Uber’s taxi-hailing service is one of the most successful, but there are many others offering unique experiences.
Take, for example, apps like Feastly, EatWith and Cookapp that connect tourists with locals who will share their meal at a cost. Or regular valet service apps like ZIRX and Luxe, or even healthcare or payments apps. Reportedly, service providers are focusing on a single service per app to reduce complications in opening or using apps or paying for services. Difficulties of using apps are likely the reason that a greater percentage of sales are closed on desktops and tablets than smartphones. But the volume of transactions is likely higher on smartphones, making it worthwhile for app developers.
Emerging New Format
Alphabet’s (NASDAQ:(GOOGL - Free Report) – Free Report) Google has launched “Purchases on Google,” which is a variation of its usual product listing ads (PLAs) for Android and iOS devices. The objective is to speed up the purchasing process for customers. There are no additional charges/CPCs for these ads.
The Google carousel displays the products in the usual way, but if they qualify, a “Buy On Google” message appears that leads the user to a seller-branded page. Either fresh payment information or the details stored on Google allows immediate checkout from this page. Google only processes the sale but order fulfillment, customer interaction and customer data remains available to the retailer.
Zacks Industry Rank - Positive
We rank the 264 industries across the 16 Zacks sectors based on the earnings outlook and fundamental strength of the companies in each industry. Two (Retail/Wholesale and Computer & Technology) of the 16 broad Zacks sectors are related to the ecommerce industry.
The outlook for industries positioned at #88 or lower is 'Positive,' between #89 and #176 is 'Neutral' and #177 and higher is 'Negative.' Therefore, Internet Commerce being in the 98th position is Neutral, while Internet Services being in the 147th position and Internet Services – Delivery being in the 229th position, are in negative territory. To learn more visit: About Zacks Industry Rank.
The following diagrams seek to explain the position of companies primarily dependent on the Internet for the distribution of their goods and services in the context of the Zacks Industry Rank.
The broader Retail sector, of which Internet Commerce is a part, is outperforming the S&P 500 this quarter. While only 41.9% of retail companies have reported results compared to 84.6% of the S&P 500, this is enough evidence of the positive trend. Specifically, revenue growth of 7.5% outdid the S&P 500 average of 2.4% with earnings growth of 9.5% also much better than the S&P 500 average of 3.6%.
The beat ratios weren’t as good however, which is understandable since the retail sector comprises more mature companies, so estimates are more accurate than other sectors (like technology for example). This quarter, the sector is expected to report revenue and earnings growth of 5.2% and 4.7%, respectively. For comparison purposes, the S&P 500 will grow 1.5% on revenue and 3.0% on earnings.
The other companies we are discussing in the ecommerce outlook (Part 2) fall under the broader Technology sector. The sector didn’t do as well as retail in the first quarter posting revenue and earnings growth of 2.5% and 5.0%, respectively. This quarter, its expected revenue and earnings growth will average at -1.0% and 3.9%, respectively.
Mercadolibre (NASDAQ:(MELI - Free Report) –Free Report), Stamps.com (NASDAQ:(STMP - Free Report) –Free Report), Evine Live (NASDAQ:(EVLV - Free Report) –Free Report) and Groupon (NASDAQ:(GRPN - Free Report) – Free Report) are worth investing in right now.
MELI is the largest online trading platform in Latin America. Based on unique visitors and page views, the company has market leadership in a number of countries including Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Peru, Uruguay and Venezuela. It has a Zacks Rank #1 (Strong Buy). The company topped estimates in each of the last four quarters at an average rate of 23.58%.
STMP provides easy, convenient and cost-effective Internet-based services for mailing or shipping letters, packages or parcels anywhere in the United States and at anytime. It has a Zacks Rank #1 (Strong Buy). The company topped estimates in each of the last four quarters at an average rate of 66.72%.
EVLV facilitates digital commerce by marketing, selling and distributing products to consumers through ShopHQ, a 24-hour television shopping network; and ShopHQ.com, an e-commerce platform, as well as through the company's mobile application. It has a Zacks Rank #2 (Buy). The company matched estimates in the January quarter of 2016 and has exceeded estimates by 50.0% in the following two quarters.
GRPN operates a shopping website which offers goods and services at a discount in North America and internationally. It has a Zacks Rank #2 (Buy). The company topped estimates in each of the last four quarters at an average rate of 31.07%.
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