The Zacks Internet – Delivery Services industry participants love it GoDaddy GDDY, MakeMyJourney MMYT, QuinStreet QNST and Asure software ASUR is strategically positioned for growth thanks to their continued efforts to adopt changing consumer preferences. Increased Internet presence in emerging markets, a rapidly growing affluent middle class and the accelerated adoption of smartphones will help participants in the Internet delivery services industry. Online delivery has yet to expand beyond major metros, underscoring its lower penetration and significant room for growth. However, persistent macroeconomic uncertainties, persistent inflation and still high interest rates remain major challenges. Higher operating costs related to hiring new employees and sales and marketing strategies to capture more market share are likely to put pressure on margins in the near term. Because expanding into newer markets will take some time to generate volumes, higher upfront costs can hurt profitability.
Industry description
The 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 and web hosting. Some companies in this sector offer internet domain registration and web hosting registration and sell e-business related software and services. A number of industry participants offer flight and train ticket bookings, tailor-made holiday packages, hotel bookings, bus tickets and car rental services. Some players offer online direct marketing and media services, including online messaging, email broadcasting, search engine marketing and brand management facilities. Companies in the growth stage of the industry are spending more on R&D and sales & marketing, making it difficult for them to generate profits in the short term.
Trends Shaping the Future of the Internet – Delivery Services Industry
Smartphones and internet penetration act as important catalysts: The internet is ubiquitous and the increasing use 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 improving Internet penetration and rapid adoption of 4G Volte technology. The emergence of 5G technology, which promises higher speed and deliverability, also bodes well for this sector.
Shifting consumer preferences: The shift in consumer preferences, driven by convenience and easy accessibility, is expected to help the sector. The accelerated transition from offline to online food ordering, as well as the increasing penetration of online travel bookings, bode well for industry players. However, because higher consumer spending propensity is the key driver of the industry’s overall health, any sluggishness in the global economy will pose a risk.
Technological progress: Technological advances, including route optimization algorithms, GPS tracking and real-time delivery updates, have improved the efficiency and reliability of internet delivery services. These technological innovations improve delivery accuracy and shorten transit times.
Higher upfront costs that hurt profitability: Online delivery has yet to expand beyond major metros, underscoring its lower penetration and significant room for growth. However, higher upfront costs associated with expansion strategies can hurt profitability. Moreover, Amazon’s focus on strengthening its delivery system is a key challenge for the industry players. We believe that the company’s powerful distribution channels are a key factor that could pose a major threat to the incumbents in this sector. Also, search giant Alphabet has entered the food delivery market with its Wing delivery arm and a range of food delivery apps, which is likely to intensify competition.
Zacks Industry Rank indicates good prospects
The Internet delivery services industry is subsumed within the broader computer and technology sector. It has a Zacks Industry Rank #26, putting it in the top 10% of approximately 250 Zacks industries.
The group’s Zacks Industry Rank, which is essentially the average of the Zacks Rank of all member stocks, suggests a solid near-term outlook. Our research shows that the top 50% of Zacks-ranked industries outperform the bottom 50% by a more than 2-to-1 margin.
The industry’s positioning in the top 50% of Zacks-ranked industries is the result of a positive earnings outlook for its constituent companies as a whole.
Before we present a few stocks you might consider for your portfolio, let’s take a look at the sector’s recent stock market performance and valuation picture.
Industry outperforms S&P 500 and sector
The Zacks Internet – Delivery sector has outperformed the S&P 500 composite and the broader Zacks Computer and Technology sector over the past year.
The sector is up 90.2% during this period, while the S&P 500 and the broader sector are up 38.2% and 45.1%, respectively.
One year price performance
Current valuation of the sector
On a trailing-twelve-month price-to-sales (P/S) basis, a commonly used multiple for valuing Internet delivery stocks, the sector currently trades at 1.74x, compared to the S&P 500’s 5.17x and the 6.22x of the sector. .
Over the past five years, the sector has traded at a high of 1.74x and a low of 0.66x, trading at a median of 1.04x, as the charts below show.
4 stocks to watch
MakeMyJourney: It is an online travel services company that offers travel products and solutions in India and the United States. The company’s services and products include airline tickets, tailor-made holiday packages, hotel bookings, train tickets, bus tickets and car rental. It also facilitates access to travel insurance. The stock currently carries a Zacks Rank #1 (Strong Buy). You can see it The complete list of today’s Zacks #1 Rank stocks can be found here.
MakeMyTrip is benefiting significantly from the improvement in travel conditions in the post-pandemic environment. Recovering hotel demand due to the increase in short breaks, great travel deals and hygienically safe accommodations is a great advantage. The company is also optimistic about its cost containment initiatives, MySafety and GoSafe programs and strengthening its hotel business.
The Zacks Consensus Estimate for fiscal 2025 has been revised upward by 30 cents over the past 30 days to $1.66 per share.
GoDaddy: It is an Internet domain registrar and web hosting company that also sells e-business related software and services. This Zacks Rank #2 (Buy) company engages in the design and development of cloud-based technology products for small businesses, web design professionals, and individuals.
GoDaddy benefits from strong momentum in its Application & Commerce business and growing global footprint. The power of Create & Grow solutions contributes to the revenue growth of the Application & Commerce segment. Website plus marketing, driven by increased customer engagement based on new product launches, is making a good contribution. Strong renewals and registrations and the expansion of the GoDaddy Registry are important catalysts. Bookings growth, driven primarily by strong customer additions and price increases across domains, has been a key catalyst.
The Zacks Consensus Estimate for 2024 earnings is unchanged over the past 60 days at $6.49 per share.
QuinStreet: It is a provider of online direct marketing and media services. QuinStreet provides online messaging, email broadcasting, search engine marketing and brand management services.
QuinStreet is benefiting from the accelerated shift from an offline to an online business model across all sectors. Advertising spending is likely to continue to rise, driven by an improving macroeconomic environment and business activity. The company is well positioned to take advantage of this opportunity and acquire new customers and high-value deals.
QuinStreet currently carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for fiscal 2025 has been revised down 5 cents to 61 cents over the past 60 days.
Asure Software: This is a cloud computing company that offers enterprise customers the chance to modernize everything from human capital management (HCM) and time and attendance solutions to payroll and taxes. Asure Software’s strategic initiative to become a pure software-as-a-service HCM company is contributing to its revenue growth. This Zacks Rank #3 company’s focus on driving innovation for its HCM solutions is helping it expand its footprint in the HCM market.
Adding new customers and a continued focus on cross-selling to existing customers drives Asure Software’s revenues. The company’s differentiated workforce strategy, measurement capabilities and extensive product offerings help it acquire new customers.
The Zacks Consensus Estimate for Asure Software’s 2024 earnings has remained unchanged over the past 60 days at 73 cents per share.
Want the latest recommendations from Zacks Investment Research? Today you can download the 7 best stocks for the next 30 days. Click to get this free report
GoDaddy Inc. (GDDY): Free Stock Analysis Report
MakeMyTrip Limited (MMYT): Free Stock Analysis Report
QuinStreet, Inc. (QNST): Free stock analysis report
Asure Software Inc (ASUR): Free Stock Analysis Report
To read this article on Zacks.com, click here.
Zacks Investment Research
