4 stocks to watch from the booming online delivery industry

The Zacks benefited from the relaxation of pandemic travel restrictions and social distancing measures Internet – Delivery Services industry. Moreover, a recovery is expected for companies such as GoDaddy GDDY, Vape Shop Holding VIP MakeMyTrip MMYT and Asure . Program ASUR, with business activities reaching pre-pandemic levels after economies reopen. In addition, the greater presence of the Internet in emerging markets, the burgeoning affluent middle class, and the accelerating uptake of smartphones are set to help participants in the online delivery service industry.

Online delivery has not yet expanded beyond major central areas, confirming low penetration and plenty of room for growth. However, since expansion into new markets will take some time to generate volumes, higher initial costs may erode profitability. These, along with higher operating expenses related to hiring new employees and sales and marketing strategies to gain more market share, are likely to squeeze margins in the near term.

Industry description

The Zacks Internet – Delivery Services industry primarily consists of companies that provide services via Internet-based platforms. These include food delivery, online travel booking, direct marketing and media services as well as web hosting among others. Some companies in this field offer internet domain registration and web hosting registration as well as selling software and services related to e-business. Few of the industry participants offer airline and train ticket reservations, customized vacation packages, hotel reservations, bus tickets, and car rental services. Some players offer direct online media and marketing services, including online messaging, email broadcasting, search engine marketing, and brand management facilities. Since they are growth stage companies, industry participants spend more on research and development, sales and marketing, which makes it difficult to generate profits in the near term.

3 trends shaping the future of the Internet delivery service industry

The main catalysts for penetration of smartphones and the Internet: The internet is omnipresent and the increasing use of smartphones is changing the delivery landscape. Companies involved in Zacks Internet – Delivery Services are benefiting from the growing number of Internet users, along with improved Internet penetration and the rapid adoption of 4G Volte technology. The advent of 5G technology, which promises speed and the potential for faster delivery, also bodes well for the industry.

Changing consumer preferences: The shift in consumer preference, driven by convenience and accessibility, is expected to help the industry. Notably, the rapid transition from online to offline food ordering as well as the growing prevalence of online travel booking bodes well for players in the field. However, since rising consumer spending appetite is the main driver of the industry’s overall health, any slowdown in the global economy would pose a risk.

Higher upfront costs hurt profitability: Online delivery has not yet expanded beyond major central areas, confirming low penetration and plenty of room for growth. However, since expansion into new markets will take some time to generate volumes, higher initial costs may erode profitability. Furthermore, Amazon’s focus on enhancing its delivery system is a major challenge for industry players. We believe that the company’s strong distribution channels are a major force that may severely threaten established companies in the industry. Also, research giant Alphabet has entered the food delivery market, with its own delivery arm, Wing and a suite of food delivery apps, which is likely to intensify competition.

Zacks Industry Rating Indicates Bright Prospects

The online delivery service industry falls within the broader spectrum computer and technology section. It holds a Zacks Industry Rating of #55, making it among the top 22% of over 250 Zacks Industry.

groups Zacks Industry Rank, which is essentially the Zacks average rating for all member stocks, indicates strong near-term prospects. Our research shows that the top 50% of industries ranked in Zacks outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s position in the top 50% of industries ranked on Zacks is a result of positive earnings prospects for the component companies in aggregate. Before we introduce some stocks you might want to consider for your portfolio, with the bright prospects in mind, let’s take a look at stock market performance and a recent valuation picture for the industry.

The industry outperforms the stock market

The Zacks Internet – Delivery industry has outperformed the broader Zacks computer and technology segment as well as the S&P 500 composite over the past year.

The industry is down 6.5% over the period, while the S&P 500 and the broader sector are down 17.2% and 32%, respectively.

Price performance for a year

Current rating of the industry

On a 12-month forward price-to-sales (P/S) basis, a commonly used multiple to value online delivery stocks, the industry is currently trading at 0.71X compared to the S&P 500’s 3.16X and 2.89 for Sector X.

Over the past five years, the industry has traded at 1.29X, as low as 0.57X and averaged 0.90X as the charts below show.

Price to Sales Ratio (Industry vs. S&P 500)

Price to Sales Ratio (Industry vs. Sector)

4 arrows to watch

Vape Shop Holding: It is an online discount retailer for brands. The company offers branded products to consumers in China through flash sales on its vipshop.com website. Vipshop currently has Zacks rated #1 (strong buy). you can see The full list of Zacks #1 stocks today is here.

The company’s ongoing efforts to enhance product offerings and improve product purchases are aiding its financial performance, given the increasing prevalence of online shopping amid the pandemic. Moreover, the vigorous implementation of its marketing strategy enhances its active client base.

Moreover, its successful transition to discount retailing is a huge positive. This will likely continue to drive momentum through repeat customers and help attract new customers.

Additionally, the company’s quarterly results are likely to continue to benefit from its increased focus on the high-margin apparel related business, especially the discount apparel business. Moreover, Vipshop’s deep discount channels are expected to boost overall online merchandise volumes in the coming quarters.

Zacks consensus estimate for current year earnings has moved 16 cents north to $1.34 per share over the past 60 days.

Price and consensus: VIP

MakeMyTrip: It is an online travel services company, providing travel products and solutions in India and the United States. The company’s services and products include airline tickets, customized vacation packages, hotel reservations, rail tickets, bus tickets, and car rentals. It is also easy to access travel insurance.

MakeMyTrip gains greatly from improving travel conditions and reopening economies. In addition, the restoration of hotel demand, as a result of the rise in short-stay vacations, great travel deals and hygienically safe properties, is a major positive factor. Also, Zacks Rank #2 (Buy) is optimistic about its cost control initiatives, MySafety and GoSafe programs, and boosting its hotel business.

Zacks consensus estimate for fiscal year 2023 earnings was revised down to a loss of 3 cents per share from earnings of 29 cents per share in 30 days.

Price and consensus: MMYT

GoDaddy: It is a registered Internet domain and web hosting company that also sells software and services related to e-business. Zacks Rank #3 (Hold) designs and develops cloud-based technology products for small businesses, web design professionals, and individuals.

GoDaddy thrives on the growing adoption of its field products. High website signups + marketing, managed WordPress offerings, international expansion, strong feature sharing, and strength in GoCentral are a tailwind to the hosting business and presence in the company.

Additionally, the acquisition of payment processing company Poynt has boosted GoDaddy’s merchandising offering and given it an edge over rival Shopify. Furthermore, the acquisition of Neustar’s registry business last year made the company one of the largest players in the Internet infrastructure industry.

Zacks consensus estimate for 2022 earnings has been revised up 13 cents to $2.20 per share over the past 60 days.

Price and consensus: GDDY

Asure program: It’s a cloud computing company that offers commercial clients an opportunity to modernize everything from human capital management (HCM) and time and attendance solutions to payroll and taxation. The stock currently has a Zacks rating of #3.

Asure Software’s strategic initiative to become a pure software-as-a-service HCM company helps in its higher growth. The company’s focus on driving innovation in its HCM solutions helps expand its footprint in the HCM market.

New customer additions and a continued focus on cross-selling to existing customers drive Asure Software’s revenue higher. The company’s outstanding employee strategy, measurement capabilities and comprehensive product offerings help the company gain new customers.

Zacks’ consensus estimate for Asure Software’s 2022 earnings has been revised down 7 cents to 4 cents per share in the past 60 days.

Price and consensus: ASUR

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GoDaddy Inc. (GDDY): Free Stock Analysis Report

MakeMyTrip Limited (MMYT): Free Stock Analysis Report

Asure Software Inc (ASUR): Free Stock Analysis Report

Vipshop Holdings Limited (VIPS): Free Inventory Analysis Report

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The opinions and opinions expressed here are those of the author and do not necessarily reflect the views and opinions of Nasdaq, Inc.

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