3 Stocks To Profit From The Comeback In Internet Software & Services

Third quarter earnings results aren’t yet in for many of the players in the Internet-Software & Services industry, so the outlook remains unclear. All we know is that all four of the companies that have reported thus far have sailed past estimates.

Being the backbone of the digital economy, there’s no way that this industry will do badly over the next year or so. However, overall business levels have fallen significantly this year, which has impacted some of the players. So investing in stocks like Criteo (CRTO - Free Report), ChannelAdvisor Corp. (ECOM - Free Report) and Donnelly Financial Solutions (DFIN - Free Report) could help you make the most of the bounce back.

About the Industry

The Internet Software & Services industry is a relatively small industry primarily involved in enabling platforms, networks, solutions and services for online businesses and facilitating customer interaction and use of Internet-based services.   

Here are three major themes in the industry:

  • The overall impact of COVID has been positive for the industry. Although it necessitated work from home for employees, the industry, being by nature tech-centric, had relatively fewer issues with this. On the other hand, business continuity concerns accelerated the shift to cloud-based working for many, while service providers, both work-related and otherwise, also moved to Internet-based channels. Another big segment that did humongous amounts of business online was retail. All of these moves were positive for the industry and offset any negative impact of declining business at brick-and-mortar players. At least some of these trends will outlive the pandemic. In other cases, the return to physical operations will be gradual. But any improvement in the general level of industrial growth will also improve prospects for the industry.  
  • The higher volume of business being operated through the cloud and the increasing demand for enabling software and services are however increasing costs for players as they continue to expand their offerings in the race to grab more business. This causes great fluctuations in profitability as more debt is incurred and physical infrastructure built out. However, one positive in this context is the net cash per share, which is showing an upward trend over the past three years. Profitability is likely to suffer again this year as a fallout of the pandemic and infrastructure buildout.
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