For Immediate Release
Chicago, IL – January 18, 2021 – Today, Zacks Equity Research discusses Internet – Delivery Services, including GoDaddy Inc. GDDY, Grubhub Inc. GRUB and MakeMyTrip Limited MMYT.
The COVID-19 pandemic-led travel restrictions and social-distancing measures induced by governments across the world are hurting the Zacks Internet – Delivery Services industry.
Nonetheless, a recovery is expected for companies like GoDaddy, Grubhub and MakeMyTrip, as countries are slowly reopening their economies and lifting the travel bans. Additionally, greater Internet presence in the emerging markets, a burgeoning affluent middle class and the accelerated uptake of smartphones will help participants in the Internet – Delivery Services industry.
However, steep marketing expenses due to planned expansion into new delivery markets will be a persistent overhang on margins in the near term.
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.
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 improvement in Internet penetration and the rapid adoption of 4G Volte technology. The emergence of 5G technology, which promises faster speed and deliverability, also bodes well for this industry.
Shifting Consumer Preferences: Shift in consumer preferences, 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 augur well for industry players. Nevertheless, as 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, reflecting lower penetration and significant room for growth. Nonetheless, as expansion into the new markets will take some time to generate volumes, higher upfront costs might erode profitability. Moreover, Amazon’s focus on strengthening its delivery system poses a key challenge to 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.
Coronavirus-Led Lockdown to Hurt Near-Term Growth Prospects: The industry’s near-term prospects look gloomy due to the pandemic-induced global lockdown. There is travel ban in most countries, which is affecting online travel and hotel booking companies significantly. Apart from these, online food delivery companies have been hit hard as restaurant suppliers have been ordered to shut their operations.
Also, as people are staying indoors, they now have more time to cook, which results in lesser requirement for outside food. 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 Bleak Prospects
The Internet – Delivery Services industry is housed within the broader Computer and Technology sector. It carries a Zacks Industry Rank #202, which places it in the bottom 20% 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 gloomy 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.
Despite the gloomy industry outlook, few stocks are worth watching in the market. But before we present the top industry picks, it is worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Outperforms on Stock Market Performance
The Zacks Security industry has outperformed the broader Zacks Computer and Technology sector as well as the S&P 500 composite over the past year.
The industry has gained 45.2% during this period compared with the S&P 500’s 17.7% rally and the broader sector’s 36% appreciation.
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 1.29X compared with the S&P 500’s 4.53X and the sector’s 4.85X.
Over the past five years, the industry has traded as high as 1.33X, as low as 0.77X and recorded a median of 1X.
3 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 and 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 recently-announced acquisition of payments processor firm Poynt will likely fortify expand GoDaddy’s commerce offerings and provide it an edge over its competitor, Shopify. Furthermore, last year’s acquisition of Neustar’s Registry business has made the company one of the largest players in the Internet infrastructure industry.
The Zacks Consensus Estimate for 2021 earnings has moved 2 cents north to $1.70 per share over the past seven days.
Grubhub: It is a leading online and mobile food ordering company. The company’s platform assists diners in searching for local restaurants, tracking orders and re-ordering for convenience.
Grubhub is riding on the shift from offline to online food ordering, which is driven by convenience and easy accessibility especially among millennials. Meanwhile, restaurants, which have difficulties delivering food on their own, are signing up with Grubhub to reach customers and build a new sales channel. Grubhub, being a first mover in online on-demand food delivery services market, is well positioned to capitalize on this trend.
The company’s expanding partner base is expected to help it rapidly penetrate the growing food takeout market in the United States. Grubhub now has more than 300K restaurants on its platform, including 245K restaurant partners. Markedly, the company has expanded relationships with the likes of Burger King, Chipotle, Dunkin’, McDonald’s and Subway.
GrubHub currently carries a Zacks Rank #3. The Zacks Consensus Estimate for current-year earnings has remained unchanged at26 cents per share in the past 60 days.
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 improving travel conditions and reopening the economy. The decreasing number of COVID-19 cases in India is encouraging domestic trips. The company is benefiting from increasing domestic travel. Further, its 55% of the domestic properties have resumed operations, which is noteworthy.
In addition, recovering hotel demand as a result of a 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 a strengthening hotel business.
The Zacks Consensus Estimate for fiscal 2021 loss has narrowed from $1.00 to 91 cents per share in 30 days’ time. For fiscal 2022, the consensus mark for loss has narrowed from 96 cents to 93 cents per share during the same time frame.
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