The pandemic-induced travel restrictions and social-distancing measures have been hurting the Zacks Internet – Delivery Services industry. Nonetheless, recovery is anticipated for companies like GoDaddy (GDDY – Free Report) , MakeMyTrip (MMYT – Free Report) , QuinStreet (QNST – Free Report) and Asure Software (ASUR – Free Report) as most countries have reopened their economies and lifted the travel bans. Additionally, a greater Internet presence in emerging markets, a burgeoning affluent middle class and the accelerated uptake of smartphones will aid Internet – Delivery Services industry participants.
However, elevated marketing expenses due to the planned expansion into new delivery markets will be an overhang on margins in the near term. Moreover, the spike in infection rates across several parts of the world due to the COVID-19 new variant, which resulted in stringent lockdowns, might affect the recovery of the industry players. Also, lingering impacts of the pandemic-led business volatility are a concern.
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. Being growth-stage companies, industry participants are spending more on R&D and sales & marketing, thereby making it difficult to generate profits in the near term.
4 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 a 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.
Evolving COVID-19 Situation to Hurt Near-Term Growth: The industry’s near-term prospects might be hurt by a resurgence in COVID-19 cases in China, Europe and India. The countries witnessing rising coronavirus cases may impose fresh lockdown and travel bans, which would disrupt the overall business operations. The uncertainty in business visibility might dent the industry’s performance in the near term. Nonetheless, online travel and hotel bookings, as well as online food delivery companies are poised to bounce back once normalcy resumes.
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 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 Underperforms on Stock Market Performance
The Zacks Internet – Delivery industry has underperformed the broader Zacks Computer and Technology sector as well as the S&P 500 composite over the past year.
The industry has lost 29.5% during this period, while the S&P 500 and the broader sector are down 5.2% and 17.2%, 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 the Internet-Delivery stocks, the industry is currently trading at 0.78X compared with the S&P 500’s 3.90X and the sector’s 3.67X.
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
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. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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 2022 earnings has been revised downward by a couple of cents to $2.15 per share over the past 30 days.
Price and Consensus: GDDY
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, car hire and facilitating access to travel insurance.
MakeMyTrip is gaining substantially from the 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 #3 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 15 cents to 27 cents per share in 30 days’ time.
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 improve this year as vaccine rollouts are providing support to countries for reopening their economic and business activities. The company is well-positioned to bank on this opportunity and acquire new customers and high-value deals.
Apart from this, 2020’s divestments of the underperforming businesses, including the Education media, client and campaign assets, have helped the company focus on its high-growth businesses. Furthermore, the acquisition of Modernize in July 2020 expanded QuinStreet’s Home Services business.
QuinStreet carries a Zacks Rank of 3 at present. The Zacks Consensus Estimate for fiscal 2022 earnings has been revised downward to 35 cents per share from 40 cents 30 days ago.
Price and Consensus: QNST
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 carries a Zacks Rank #3.
Asure Software’s strategic initiative to become a pure software-as-a-service (SaaS) 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 2022 earnings has been revised upward by a couple of cents to 11 cents per share in the past 30 days.
Price and Consensus: ASUR