"Black Friday " is considered the most important day of the year
for many retailers. But if the current trend continues, then it's
only a matter of time before a new champion sits atop the
In the past few years, consumers have increasingly turned to
online shopping so they can avoid the madness of deal-thirsty
shoppers lining up outside traditional brick-and-mortar
That was on full display recently, with e-retail sales
jumping 29.3% on Thanksgiving Day and Black Friday, while store
sales were virtually unchanged, according to Internet
comScore (Nasdaq: SCOR)
and payment processor Chase Paymentech.
And that's not including Cyber Monday, the Monday after
Thanksgiving, which many online retailers use to unleash great
deals and drive sales growth. Total sales on Cyber Monday reached
$1.98 billion, a 17% increase from last year, according to a report
Adobe Systems (Nasdaq: ADBE)
Butbullish online sales on Thanksgiving, Black Friday and Cyber
Monday are just a glimpse of a larger trend changing the way
consumers shop. About 66% of consumers prefer Web retailers while
73% of survey participants complete almost 50% of their shopping
online, according to a recent survey conducted bymarket research
Mobile devices are also playing a big part in the trend as
e-retailers discover how to entice potential shoppers on the run.
Nielson recently reported that almost 50% of U.S smartphone owners
use shopping apps each month. Another report from
noted that 25% of traffic to retail sites on Thanksgiving Day and
Black Friday came from smartphones and tablets, up a whopping 66%
from last year.
[Profit from "the Death of Cash"]
But even though brick-and-mortar retailers are increasingly
exploiting this relatively new sales channel, the real winners are
the companies that develop the technology and systems involved in
creating the infrastructure to support Web sales.
In fact, based upon these recent trends, many analysts believe
that e-commercewill completely change the way shoppers consume and
fundamentally transform the traditional brick-and-mortar retail
model in the next 20 years. If that's the case, then companies that
develop e-commerce systems and services are uniquely positioned to
score big gains.
Here is a closer look three of my favorite companies set
tocapitalize on the bullish trend in Web sales.
1. Digital River Inc. (Nasdaq: DRIV)
Digital River develops tools and systems that help retailers
capture and process online transactions and payments. Its core
services include designing and hosting online stores and shopping
carts, order management systems, Web analytics and
payment-processing systems, Digital River's fastest growing segment
with third-quarter sales up 30% from last year. In addition, the
company announced in September the acquisition of LML
Payment Systems, a $103 million deal that's expected to close
by the end of the year.
Digital River's forward price-to-earnings (P/E ) ratio of 34 is
a premium to themarket average of roughly 14, but with analysts
projecting 50%earnings growth in 2013, the company is clearly
cashing in on the growing trend in e-commerce.
2. Akamai Technologies Inc. (Nasdaq: AKAM)
Akamai develops applications that increase the speed and security
of online data transactions between companies and their customers.
Akamai also offers website analytic programs and business
performance management software tools. The company has already been
cashing in on the bullish trend in online sales and data, with
projected revenue of more than $1.2 billion in 2012, which is more
than double from just five years ago.
That has helped Akamai deliver impressive earnings this year,
handily beating estimates in each of the past four quarters for an
averageearnings surprise of 9%. Looking forward, analysts are
calling for 15% earnings growth in 2013, more than twice the
projected earnings growth of the S&P 500.
3. Amazon Inc. (Nasdaq: AMZN)
Most investors know Amazon as a pioneer in the online retail space.
But what most people don't realize is that the company is also
branding and selling the same internal tools and systems it used to
build its incredibly successful business to other small businesses
as well. These services enable third-party sellers to integrate
Amazon's Web services on their own websites, in addition to
providing access to the company's technology infrastructure through
its Web Services division.
Although Amazon recently reported a tough quarter that has it on
pace to lose money in 2012, analysts are optimistic the company
will rebound nicely in 2013, projecting full-year earnings of $1.81
a share. Longer term, Amazon in projected to grow its earnings by
28% annually in the next five years, well ahead of the industry
average of 19%.
Risks to Consider:
E-commerce stocks are generally trading with higher valuations
than the market and other industries, as investors look forward to
big gains in sales and earnings. Any bad news or a weak earnings
report in the sector or specific company could weigh on the group
and sendshares sharply lower.
Action to Take -->
These three companies are leaders and pioneers in the hot and
rapidly-growing e-commerce space. And although their valuations are
higher than the overall market, the bullish trend in electronic
transactions and online shopping will provide plenty of support for
these stocks' future earnings growth and share priceappreciation
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