The retail space is rapidly changing. Online shopping is no longer a niche market, but a growth industry.

About $11.5 billion was spent on E-commerce – traditional online shopping – in 2010, according to telecommunications and media analytical firm Telsyte. It expects E-commerce to grow by 16 per cent in 2011.

On the flip side, total online advertising spending was about $2.265 billion in 2010, according to online industry body Interactive Advertising Bureau (IAB) Australia. It says online advertising is on track to reach $3 billion in 2012.

Equities analyst James Samson, of Lincoln Indicators, has hand-picked listed companies that he expects to reward investors from their online offerings. While not recommendations to buy, Samson says his choices are at the forefront of cost efficiency. “The virtues of online based businesses enable potential geographical growth at a lower cost than traditional bricks and mortar,” he says. (CRZ)

Chart: Share price over the year to 08/04/2011 versus ASX200 (XJO) offers online access to automotive classifieds. It claims to attract more browsers than any other competitor when it comes to buying or selling cars, motorcycles, trucks and boats. Samson says is benefitting from the vehicle market progressively moving from print to online advertising. operates 23 individual websites specifically focusing on different products. It also offers insurance and finance broking services. “As well as advertisements for new and used goods from both commercial and private sellers, there’s access to news, reviews and other industry-specific information,” Samson says. “It has a dominant market position in Australia and has enjoyed very strong organic growth in recent times.” A strong balance sheet enables further acquisitions in Australia or overseas to drive the next phase of growth.

Seek Limited (SEK)

Chart: Share price over the year to 08/04/2011 versus ASX200 (XJO)

Seek Limited’s operating divisions include online job classifieds, and training and learning. Seek Commercial enables browsers to search for businesses and franchises for sale, while Seek Learning assists jobseekers with career stgelopment. Samson says the market reacted harshly when the company recently announced that its education division was experiencing difficult times, primarily due to the strong Australian dollar and regulatory changes for online student visas. He says online classifieds represents about 65 per cent of revenue, while weakened education accounts for 35 per cent. “Despite the adversities faced by the education segment, the company, on the back of a buoyant labour market, is expected to continue experiencing strong growth in its online employment business in the short-to-medium term,” Samson says. He says management expects second half net profit after tax (excluding JobsDB transaction costs and Swinburne joint venture start up costs) to improve on the first half of about $47 million. Samson describes the company’s financial health as strong and investors may find some value after the share price was punished in response to its weaker education division. (WTF)

Chart: Share price over the year to 08/04/2011 versus ASX200 (XJO) Holdings provides online accommodation and flight booking services in Australasia. The company also offers about 14,000 properties in more than 35 countries, including New Zealand, the UK, Singapore, Thailand, Malaysia and Canada. “Despite the apparent global reach, 80 per cent of the company’s transaction value is derived through Australian domestic travel and accommodation,” Samson says. “As such, Wotif has been facing some macro-economically driven challenges in recent times. These include the high Australian dollar, and the recent bad weather events in Queensland hampering domestic holiday travel.” But the market may have been hasty in punishing the share price because the company has a strong underlying structure. Samson sees value here, particularly if several of the “big-picture pressures” (currency and tourism demand) playing on the business subside.

Domino’s Pizza Enterprises (DMP)

Chart: Share price over the year to 08/04/2011 versus ASX200 (XJO)

There’s money in fast food and Domino’s Pizza Enterprises is the master franchise licence owner of the Domino’s Pizza brand. It operates in Australia, New Zealand, France, Belgium, the Netherlands and Monaco. Stores are company owned or franchised, and Domino’s generates revenue from sales, royalties and regular franchise fees. Acquisition growth has been strong. “Domino’s has been a great success story in expanding the franchise model,” Samson says. “The company has stgeloped technological strengths in online ordering amid the rollout of a smart phone application to allow web based ordering from mobile phones.” He says the company is committed to exploring and taking advantage of online efficiencies. “Looking forward, Domino’s sees online stgelopment and the rollout of a new platform in the first half of 2011 as a key aspect of driving growth in the business,” Samson says. “Net profit guidance for the 2011 financial year was recently upgraded towards 15 per cent. The company’s financial health is strong.”

Flight Centre (FLT)

Chart: Share price over the year to 08/04/2011 versus ASX200 (XJO)

Australia’s largest traditional high street travel agent differentiates its brand into market segments, including retail, wholesale, corporate and online. Flight Centre Direct is the complementary online and phone service operating in Australia and UK. Samson says Australia accounts for about half the company’s revenue, with the rest generated in North America, the UK and other countries. “Flight Centre is a prime example of a business supplementing its bricks and mortar market with a strong online presence,” he says. “Flight Centre’s online presence has to some extent mitigated the competition introduced by low cost internet-only travel companies. We expect Flight Centre to continue growing on the back of a high Australian dollar.” But investors should keep a close eye on the Australian dollar as any retreat could pressure margins. Samson says Flight Centre has retained its full year profit before tax guidance of between $220 million and $240 million, up 10-to-20 per cent on the 2010 financial year. “There may be some underestimated upside value in its strong business model, which may be realised as the world of travel emerges from the weather related and political catastrophes,” Samson says.

REA Group (REA)

Chart: Share price over the year to 08/04/2011 versus ASX200 (XJO)

House hunting brings us to REA Group, which owns and operates real estate and commercial stgelopment sites in Australia. REA Group has enjoyed strong organic growth from establishing a dominant position in Australia’s real estate advertising market. Samson says monthly traffic to REA’s Australian website is about 7.1 million visits. It’s also expanding overseas and is enjoying solid growth via its Italian website Samson says the number of real estate agents paying for advertising on has risen from 2391 to 11,531 during the six months to December 31, 2010. “With the site becoming one of the dominant players in Italy’s online real estate market, it’s clear that European expansion is an opportunity for the company to explore in the future,” he says.

Seek Limited (SEK) $6.75 Holdings (WTF) $5.56
Domino’s Pizza Enterprises (DMP) $6.27
Flight Centre (FLT) $22.70
REA Group (REA) $14.05

Price current to market close, 6 April 2011


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