3 Internet delivery stocks for monitoring in a battered industry – September 27, 2021

The COVID-19 pandemic-induced travel restrictions and social distancing measures imposed by governments around the world have hurt Zacks Internet delivery services industry. Nevertheless, a recovery is expected for companies like Come on, Dad (GDDY Free report), MakeMyTrip (MMYT Free report) and QuinStreet (QNST Free Report) as countries slowly reopen their economies and lift travel bans. In addition, a larger Internet presence in the new markets, a burgeoning affluent middle class and the faster adoption of smartphones will help the participants in the Internet – Delivery Services industry. However, increased marketing costs due to the planned expansion into new delivery markets will be an overhang to margins in the short term. In addition, the emergence of the Delta variant strain and the increase in infection rates in several parts of the world, resulting in severe shutdowns, may affect the recovery of industry players. Sustained effects of the pandemic-led business volatility are also a concern.

Industry Description

Zacks Internet – Delivery Services industry primarily includes companies that offer services through 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. Few industry participants provide tickets for airline and train tickets, customized vacation packages, hotel booking, bus tickets and car rental services. Some players offer online direct marketing and media services, including instant messaging, email distribution, search engine marketing and brand management facilities. As companies in the growth phase, industry participants spend more on R&D and sales and marketing, making it difficult to generate profits in the short term.

4 Trends shaping the Internet delivery industry of the future

Smartphone and Internet penetration catalysts: The Internet is ubiquitous, and the increasing use of smartphones is changing the delivery landscape. Companies in Zack’s Internet – Delivery Services industry are benefiting from the growing number of Internet users, combined with an improvement in Internet penetration and the rapid adoption of 4G Volte technology. The advent of 5G technology that promises faster speed and delivery capability also bodes well for this industry.

Changing Consumer Preferences: Changes in consumer preferences, driven by convenience and easy accessibility, are expected to help the industry. In particular, the accelerated transition from offline to online food ordering as well as the increasing penetration of online travel ordering brings great joy to the players of the industry. Nevertheless, as a higher consumer appetite is the main driver of the health of the overall industry, any sluggishness in the global economy will pose a risk.

Higher upfront costs to damage profitability: Online delivery has not yet expanded beyond the major metros, underscoring lower penetration and significant room for growth. Nevertheless, since expansion into the newer markets will take some time to generate volumes, higher upfront costs can ruin profitability. In addition, Amazon’s focus on strengthening its delivery system is an important challenge for industry players. We believe that the company’s strong distribution channels are a major force that can greatly threaten those established in this industry. Search giant Alphabet has also entered the food delivery market with its delivery arm Wing and a range of food delivery apps, which are likely to intensify competition further.

Development of the COVID-19 situation to harm growth prospects in the short term: The industry’s short – term outlook looks bleak due to the pandemic – induced social distancing measures adopted by governments around the globe. There are travel restrictions in most countries that significantly affect online travel and hotel booking companies. Apart from these, online food delivery companies have been hit hard as restaurant suppliers in several parts of the world have been ordered to close their operations. Moreover, since people are staying indoors, they now have more time to cook, resulting in less demands for food from outside. With the advent of the more contagious coronavirus variant – Delta – several parts of the world, including India, Australia, Indonesia and Japan, are struggling with a massive increase in infection rates, leading to severe lockdowns. Even some parts of the United States are witnessing the outbreak of the Delta variant. This may result in additional travel and hotel opening restrictions. The uncertainty in the company’s visibility may ruin the industry’s performance in the coming period. Nevertheless, online travel and hotel reservations as well as online food delivery companies are ready to bounce back when normalcy is resumed.

Zacks Industry Rank indicates gloomy prospects

The Internet – Delivery Services industry is located within the wider Computer and technology sector. It has a Zacks Industry Rank # 231, which places it at the bottom of 8% of more than 250 Zacks industries.

The group Zacks Industry Rank, which is pretty much the average of the Zacks range for all member stocks, indicates bleak short-term prospects. Our research shows that the top 50% of the Zacks-ranked industries surpass the bottom 50% by a factor of more than 2 to 1.

Despite the bleak outlook in the industry, few stocks are worth seeing in the market. But before we present the best industry picks, it’s worth taking a look at the industry’s shareholder returns and current valuation first.

The industry underperforms the performance of the stock market

The Zacks Internet Delivery industry has underperformed the broader Zacks Computer and Technology sector as well as the S&P 500 composite material to date.

Industry lost 35.6% during this period, while the S&P 500 and the wider sector gained 19.9% ​​and 24.7% respectively.

One year of achievement

Current industry valuation

Based on forward-looking 12-month price-to-sell (P / S), a commonly used multiple for valuing Internet delivery stocks, the industry is currently trading at 0.72X compared to the S&P 500s 4.53X and the sector’s 5.00X.

Over the past five years, the industry has traded as high as 1.29X, as low as 0.71X and recorded a median of 0.91X as the charts below show.

Price-for-sale ratio (F12M)

Price-for-sale ratio (F12M)

3 stocks to watch out for

Come on, Dad: It is an internet domain registrar and web hosting company that also sells e-business related software and services. This Zacks Rank # 3 (Team) company deals with the design and development of cloud-based technology products for small businesses, web designers and individuals. You can see the complete list of today’s Zacks # 1 Rank (Strong Buy) shares here.

GoDaddy thrives on the growing adoption of its domain products. Higher subscriptions to websites and marketing and managed WordPress offerings, international expansion, robust feature commitments and strength in GoCentral are tailwinds for the company’s hosting and presence business.

In addition, the acquisition of the payment processor company Poynt has strengthened GoDaddy’s trading offering and given it an advantage over its competitor, Shopify. Furthermore, the acquisition of Neustars Registry business last year has made the company one of the largest players in the Internet infrastructure industry.

The Zacks consensus estimate for earnings in 2021 has moved 12 cents north to $ 1.09 per share. Stock over the last 30 days.

Price and consensus: GDDY

MakeMyTrip: It is an online travel service company offering travel products and solutions in India and USA. The company’s services and products include airline tickets, customized vacation packages, hotel booking, rail tickets, bus tickets, car rentals and easier access to travel insurance.

MakeMyTrip benefits significantly from the improved travel conditions and the reopening of the economies. In addition, the increasing hotel demand due to the increase in holidays with short stays, good travel offers and hygienically safe properties is a big positive. This Zacks Rank # 3 company is also optimistic about its cost control initiatives, MySafety and GoSafe programs, and a thriving hotel business.

The Zacks consensus estimate for fiscal year earnings in 2022 has been revised upwards by 2 cents to 10 cents per share. 60 day stock.

Price and consensus: MMYT

QuinStreet: It is a provider of online marketing and media services. The company offers online messaging, email broadcasting, search engine marketing and brand management services.

QuinStreet benefits from the faster shift from offline to online business model across industries. Advertising spending is likely to improve this year as vaccine rollouts provide countries with support for reopening their economic and business activities. The company is well positioned to tap into this opportunity and acquire new customers and valuable trades.

Apart from this, last year’s divestment of the underperforming companies, including education media, client and campaign assets, has helped the company focus on its growth companies. Furthermore, the acquisition of Modernize in July 2020 has expanded its Home Services business.

QuinStreet currently has a Zacks Rank of 3. The Zacks consensus estimate for fiscal year earnings in 2022 has been revised upwards by a penny to 81 cents per share. Stock in the last 30 days.

Price and consensus: QNST

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