Ecommerce Outlook: Strong Holiday Season Launches A Great 2018

Advent of Chatbots 

Social networking platforms like Facebook Messenger, Twitter, WhatsApp and Google Allo are warming up to the idea of chatbots. Businesses are increasingly operating globally, across time zones and catering to customers that expect everything to be immediately available. But it’s not always possible to have customer service people on the job at all hours because of a dearth of resources and other constraints.

But with chatbots, people can get personal queries answered as and when they require. Some platforms like Facebook Messenger already have a large number of chatbots on them, so users are getting used to the idea. And companies that can’t get people to download and/or use their apps (though Google is making this easier by crawling apps for indexing and Android Instant Apps), have the option of getting their chatbots on a social networking platform to interact with consumers.

Discounting Remains Important

The market is more competitive than ever before, so retailers compete very hard on the number and percentage of discounts. One format that Groupon (GRPN - Free Report) pioneered didn’t do so well however because of the low barriers to entry and the company has since launched a marketplace to increase scale.

Emerging New Format

Alphabet has launched “Purchases on Google,” which is a variation of its usual product listing ads (PLAs) for Android and iOS devices. The objective is to speed up the purchasing process for customers. There are no additional charges/CPCs for these ads.

The Google carousel displays the products in the usual way, but if they qualify, a “Buy on Google” message appears that leads the user to a seller-branded page. Either fresh payment information or the details stored with Google allows immediate checkout from this page. Google only processes the sale but order fulfillment, customer interaction and customer data remains available to the retailer.

Earnings Trends

The broader Retail sector, of which Internet Commerce is a part, is doing better than the S&P 500 so far this quarter. Revenue growth of 7.1% bettered the S&P 500 average of 5.8% although earnings growth of 2.5% fell short of the S&P 500 average of 6.7%. For the fourth quarter, the sector is expected to report revenue and earnings growth of 8.9% and 7.2%, respectively while the S&P 500 is expected to grow 5.8% on revenue and 14.1% on earnings.

The other companies we are discussing in the ecommerce outlook fall under the broader Computer & Technology sector. The sector has done much better than retail so far in the fourth quarter, posting revenue and earnings growth of 8.8% and 21.3%, respectively. For the fourth quarter, it’s expected that revenue and earnings growth will average at 10.6% and 22.6%, respectively.

Take Your Pick

While we generally prefer stocks operating in strong industries at any point of time, a negative sector outlook doesn’t mean that there aren’t any good picks at all.

Zacks methodology helps us find the stocks that have upside potential despite the hiccups.

Top picks in the Internet Commerce industry are JD.com (JD) and Petmed Express (PETS - Free Report) , both of which carry a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. Other good picks are Cars.com CARS and Mercadolibre (MELI - Free Report) .

QuinStreet (QNST - Free Report) is the sole option in the Internet - Delivery Services industry.

The Internet – Software/Services industry is currently not an attractive sector right now although Zacks #2 ranked 58.com (WUBA - Free Report) is an option.

The same is true for the Internet – Services industry although Zacks #2 ranked Facebook (FB - Free Report) , Tencent Holdings (TCEHY - Free Report) and The Trade Desk (TTD - Free Report) are options.

Background/Description

Retail ecommerce remains a fairly small part of total retail right now, but because it is a fast-growing part, it is increasingly accounting for a larger share. Just a year ago, we were looking at a mid-single digit share, but this year, eMarketer thinks that share will be a tenth of global retail sales.

Ecommerce sales in Asia will account for 14.7% of total retail sales, with China contributing more than half the sales, followed by Japan with slowing growth rates and then India, which will be the fastest growing. Volumes will double by 2021. This year, ecommerce will account for only 8.8% of total retail sales in Western Europe, but grow to 11.4% by 2021. Germany is the top retail market but UK the leading ecommerce region.

Government data indicates that retail ecommerce has outpaced total retail sales growth in recent times even in bad quarters for the sector. Some of this is on account of the continued shift from offline to online retail, as customers (baby boomers) move to online channels.

But it’s also because new consumers (millennials) often start out on online channels. These consumers spend more time in a connected, social environment and take for granted many of the online tools previous generations struggled to understand, appreciate and adopt. Therefore, ecommerce will likely continue to outpace total retail sales in the foreseeable future.

Don’t Even Think A

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Disclosure: Zacks.com 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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