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Zacks Industry Outlook Highlights: Wal-Mart, Amazon, Alphabet, Alibaba and PayPal

For Immediate Release

Chicago, IL – July 06, 2017– Today, Zacks Equity Research discusses the Industry: eCommerce, Part 1, including Wal-Mart (NYSE: WMT Free Report ), Amazon (NASDAQ: AMZN Free Report ), Alphabet (NASDAQ: GOOGL Free Report ), Alibaba (NYSE: BABA Free Report ) and PayPal (NASDAQ: PYPL Free Report ).

Industry: eCommerce, Part 1

Link: https://www.zacks.com/commentary/120405/ecommerce-outlook-gr...

Ecommerce -- the most happening part of the retail industry -- doesn’t operate exactly like its brick-and-mortar counterpart. While goods and services do change hands, there’s a completely different infrastructure involved, whether it’s the marketplace, logistics or payment systems. That’s because each of these things is necessarily driven by technology.

The recent past has, however, seen traditional retailers likeWal-Mart (NYSE: WMT Free Report ) investing increasing amounts into building this technological infrastructure, even as Amazon (NASDAQ: AMZN Free Report ) takes an increasing interest in brick-and-mortar operations to drive efficiencies in its delivery system.

Retail ecommerce is also unique because a single company (Amazon) accounts for most of it, is the major trend-setter and the greatest influencer on the entire industry, at least in the U.S. While new players are emerging, it won’t be easy to unseat Amazon simply because of its size, experience, prices and loyalty program. So it’s only a company like Wal-Mart, which has similar resources and huge experience that can hope to truly challenge the ecommerce leader. And that’s still a few years off.

The other major point of difference is the fact that, unlike traditional retail, it’s relatively easy for an advertiser or other Internet service provider to also get involved in the retail process, and thereby siphon off some of the profits.

As evident, the Internet-supported buying and selling process mainly includes three Zacks categorized sectors, i.e. Internet - Commerce , Internet - Services and Internet - Delivery Services .

Over the past year, the Internet - Commerce segment outperformed the S&P 500 by a wide margin. The sector appreciated 48.8% during the period, compared to the S&P 500’s 14.9%. It is also up 38.8% year to date compared to just 8.3% for the S&P 500.

This segment is obviously in the growth phase because revenues are surging (up 54.4% in the last two years ending 2016). EPS before non-recurring items was up 25.9% on a share count that declined about 2.0%. Forward earnings estimates are trending down, however, indicating that the industry is currently in investment mode.

The Internet - Services segment hasn’t done quite as well, having grown 21.0% in the past year. The sector broke away from the S&P 500 after quarterly results started coming out in mid-April. The revenue growth rate of around 47% was slightly slower than Internet - Commerce in the last two years.

The business has a stronger-margin profile, with EPS growth at around 36% on a share count that is being gradually lowered. Estimates for the segment are trending up since the June quarter of 2016.

The Internet - Delivery Services segment has been the most sluggish, trailing the services segment with a growth rate of 19.9%.

Revenue has grown 83.2% between 2014 and 2016, with the gross margin remaining relatively consistent. Opex and interest expense have risen steadily, impacting the EPS before non-recurring items. The debt-to-total-capital ratio dropped in 2015 and remained steady in 2016 with both debt and equity increasing.

Market Trends

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

Mobile and Wearables 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 Alphabet (NASDAQ: GOOGL Free Report ), Samsung, Alibaba (NYSE: BABA Free Report ), PayPal (NASDAQ: PYPL Free Report ) and others help the electronic transfer of funds to stores. eMarketer estimates that smartphones will remain a huge driver, growing to 50% of mobile commerce in 2017 and 53.5% by 2020. 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.

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Wal-Mart Stores, Inc. (WMT): Free Stock Analysis Report
 
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