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3 Hot Internet Commerce Stocks for this Earnings Season - Earnings ESP

With the second-quarter 2015 earnings season just around the corner, all eyes are on the upcoming results. Investors interested in the technology sector will be looking forward to the second half of the month when major finance and Internet companies will report, possibly adding momentum to the market. However, the persistent consumer PC market weakness is likely to be a concern for large chipmakers such as Intel, NVIDIA Corporation, Marvell and Advanced Micro.

The Internet commerce segment covers all commercial activities that take place on the Internet, including auctions, order placements, payments, fund transfers, and collaborating with trading partners. Standing at the cusp of a possible Internet revolution, we believe this sector has a lot to offer this quarter.

Various surveys suggest that the amount of business conducted online will increase tenfold over the next few years. Online sales are expected to cross the $400 billion mark in the not-so-distant future, with Forrester Research estimating sales of $414.0 billion in 2018.

Factors Driving Internet Commerce Sales

The biggest factor driving sales here is the worldwide growth in consumer spending online. According to a recent survey, U.S. consumers spend 60 hours a week on an average consuming content across connected devices. The survey also revealed that Internet commerce will grow to $1.64 trillion in 2018 in developed countries.

Another factor driving Internet commerce sales is the surge in the adoption of smartphones, tablets and other mobile devices. China, the U.S. and India will remain the biggest smartphone markets up to 2018, according to eMarketer. Russia will take the fourth position this year and India will move to the second slot next year, according to the forecast.

Continued advancement in technology are improving navigation and customer experience on e-Commerce sites, in turn increasing reviews and drawing traffic. For instance, beacon technology that enables retailers to track customers in the store and push promos and offers is expected to assume great importance this holiday season. New payment technologies such as near field communication (NFC), quick response (QR) code, Soundwave and Bluetooth low energy (BLE) are facilitating the process. Additionally, with TVs and game consoles increasingly becoming connected to the Internet, digital versions of books, music, video and games are flooding the market. Since the shift in consumption patterns had led to multi-functional electronic gadgets/wearables, there is a great drive to develop technologies to improve the quality of each experience.

Consequently, Forrester expects U.S. companies to nearly double their spending on Internet commerce technology before the end of this decade. The research firm expects Internet commerce spending to grow from $1.2 billion in 2015 to $2.1 billion in 2019, at a compound annual growth rate (CAGR) of 12% and representing an overall growth of 75%.

Given its wide spectrum, the Internet commerce sector remains a lucrative investment opportunity, and identifying the future winners from the sector would be a prudent idea.

The Future Winners

Picking the best stocks from the Internet commerce space is a fairly simple task. One way to go about it, especially during the earnings season, is by selecting stocks that have the combination of a favorable Zacks Rank - Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) - and a positive Earnings ESP.

Earnings ESP is our proprietary methodology for identifying stocks that have the best chance to surprise with their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.

We have highlighted 3 Internet commerce stocks with the desired combination that are likely to stand out this earnings season:

3 Prominent Picks

Ctrip.com International Ltd. ( CTRP ) carries a Zacks Rank #2 and an Earnings ESP of +133.3%. The Chinese travel booking website has outperformed the Zacks Consensus Estimate in all the trailing four quarters with an average positive surprise of 19.31%. The company, slated to report on Jul 29, has a long-term earnings growth rate of 5.5%.

We believe Ctrip is seeing tremendous growth fueled by the growing middle class, increased consumerism in China, the shift from traditional to online media for booking travel and increased mobile usage.

PetMed Express, Inc. ( PETS ), also a Zacks Rank #2 stock, has an Earnings ESP of +3.57%. This nationwide pet pharmacy outperformed the Zacks Consensus Estimate in the last quarter and has a long-term earnings growth rate of 5.5%. The Zacks Consensus Estimate for the second quarter of 2015 is pegged at 28 cents a share, representing 2.4% year-over-year growth. The company is scheduled to release the financial numbers on Jul 20.

We believe that PetMed's growing brand awareness, continuous ad investments, efforts to expand its portfolio from pharmaceuticals to pet supplies, competitive pricing and strong balance sheet make it an attractive pick.

TripAdvisor Inc. ( TRIP ) carrying a Zacks Rank #3 has an Earnings ESP of +2.13%. The current Zacks Consensus Estimate for the second quarter of 2015 is 47 cents a share, which indicates an increase of 17.2% year over year. This online travel research company has a long-term earnings growth rate of 24%. The company's earnings are expected to be released on Jul 23.

TripAdvisor's strong fundamentals, various growth initiatives, focus on developing its mobile products, expansion into the international restaurant reservation space and improvement in user growth and engagement, especially mobile devices, make it an attractive stock, in our view.

Bottom Line

Who doesn't want a portfolio of stocks that have the potential to outperform and beat their earnings estimates? You can use Zacks Stock Screener to find other stocks with this winning combination.

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CTRIP.COM INTL (CTRP): Free Stock Analysis Report

PETMED EXPRESS (PETS): Free Stock Analysis Report

TRIPADVISOR INC (TRIP): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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