Ecommerce Outlook: Strong Holiday Season Launches A Great 2018

Revenue growth over the past year (ending Sep 2017 for which all results are available) was 40.0%. EPS before non-recurring items was up 18.5% on a more or less consistent share count. Forward earnings estimates for 2018 are showing a big jump before the growth rate decelerates (but still remains very strong) the following year.

The Internet - Services segment appears to be in the doldrums, having appreciated just 3.7% in the last six months and -0.1% year to date.

The business has a stronger margin profile, with revenue growth of 19.5% over the past year and EPS growth of 30.0% on a share count that dropped 5.9%. Forward earnings estimates for 2018 and 2019 are showing attractive growth rates.

The Internet Services - Delivery segment has appreciated 31.8% in the last six months and 15.3% year to date.

Revenue growth of 33.8% was encouraging. Opex remains high although interest expenses have come down, impacting the EPS before non-recurring items which dropped to -$0.07 compared to $0.01 last year. The share count has increased 15.2%. The debt level has shot up as has working capital requirements. The rising intangibles could indicate industry consolidation but increase risk. The debt-to-total capitalization ratio remains manageable in the 43-44% range with the current ratio being maintained above unity.

The Internet Software/Services segment is up 5.5% in the last six months and down 5.2% year to date.

Revenue grew 15.6% off a much smaller base with EPS before non-recurring items growing 10.0% on a slightly lower share count. Still, there are opportunities here that can be exploited.

Market Trends

The ecommerce marketplace is influenced by both buyers and sellers. Moreover there are multiple trends, both big and small, and old and emerging, that are always in play. So it helps to take a quick look at what’s going on.

Buyer Trends & Preferences

Mobile, Wearables 

These remain as important as ever as users are increasingly accustomed to anytime anywhere shopping. The online store never closes, nor does the online payments machinery. Even brick-and-mortar sales are supported by mobile apps that increase awareness of products and push promos at opportune moments. Payments tech from Apple AAPL, Alphabet (GOOGL - Free Report) , Samsung, Alibaba, Paypal and others help the electronic transfer of funds to stores. eMarketer estimates that smartphones were a huge driver in 2017, accounting for 58.9% of global digital commerce in 2017.

Mcommerce will account for 72.9% of digital sales by 2021. Larger mobile screen sizes, new categories (cars, grocery, luxury that were earlier restricted to offline purchase) and greater comfort in using online payment systems are the main drivers.

Social Networking 

The traditional buying experience often involves friends or family getting together to look through merchandise and select after much discussion. The online experience has been more restrictive in this respect. Despite the fact that personal recommendations and comparison shopping have been around for a while, these are helpful in making a selection, but don’t make buying a collaborative exercise. So the shopping experience has been more of a chore than fun.

Once the novelty of doing things online wears off or for those who have been doing it online from the get-go, there will be a natural tendency to start looking for more, so this is where social networks like Facebook (FB - Free Report) and Twitter (TWTR - Free Report) for example will start playing a bigger role. Others like Pinterest are already travelling this path.

Voice Enabled Commerce

Since it is an emerging area, hard data and projections are hard to come by. But according to the Walker Sands 2017 Future of Retail Study, mainstream adoption of voice-controlled devices like the Amazon Echo and Google Home is here. Today, around 24% of consumers own an in-home voice-controlled device and another 20% are planning to buy one over the next year.

With the most popular online retailer selling the most popular set of voice controlled devices (Amazon’s Echo family), adoption is likely to be both smooth and fast. Moreover, Google, which has already lost a huge chunk of online searches (for products) to Amazon already, simply can’t afford to lose a lot more. Nor can it pass up the potential in the market.

Google is going all out to promote and sell its smart home speaker and connect Google Assistant to home appliances so it can become more useful. Apple has also launched HomePod to mixed reviews. So this will be a very interesting year for voice-enabled commerce. 

Geography Not a Barrier Any More

These days, if people want to buy something they don’t get at the retail store, the first thing they do is check online (or they might check online first and decide their point of pickup accordingly). So the world is getting ever smaller as shoppers see local, state, national and international borders melt away. Satisfaction of course leads to higher expectations.

According to Frost & Sullivan, Southeast Asia (Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam) is poised to become one of the world's fastest-growing regions for e-commerce revenues, growing from around $11 billion in 2015 to more than $25 billion by 2020.

According to Forrester research, the five key Asia/Pacific markets of China, Japan, South Korea, India and Australia will almost double from $733 billion in 2016 to $1.4 trillion in 2020. Size and population density in China and India make them very important markets. So let’s just touch upon prospects in the Chinese and Indian markets since they are on a very strong growth trajectory.


According to Forrester, China will remain the biggest ecommerce market in the next few years generating 9X the size of the Japanese market and 17X the size of the South Korean market by 2020.

China made up 67.1% of mcommerce sales worldwide in 2017 (83% of Asia/Pacific sales), driven by its mobile-first internet audience. Sales are expected to nearly triple from $909.93 billion to $2.595 trillion between 2017 and 2021.

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Disclosure: contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any ...

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